Will Sustainability become the Feared Equalizer?

Why is the price of oil still hovering around $100 per barrel, if global demand has fallen and the supply of alternative energy sources, including shale and renewables, are increasing? Could it be that commodity traders are reacting to a new series of less visible market forces? 

We know that whenever Iran talks up their nuclear energy aspirations or Israel fires missiles into Syria, oil prices tend to rise or as of late, not drop by much. There is also US Congress’ lack of a comprehensive long term energy policy that has kept a tight rein on infrastructure investments such as charging stations for electric vehicles. However, as I discovered recently, there is yet another force at play, one that is far more complex than society is prepared to confront today and which will surely cause the price of oil and similar fossil fuels to double, if not triple in price, in the coming decades. This invisible force is referred to as sustainability.

What exactly is sustainability? In simple terms, sustainability is about replacing a resource so it can be used again and again. Terms like ‘recycling’ trash or producing ‘renewable energy’ are commonly associated with the practice of sustainability or the act of sustaining an activity in perpetuity with minimal environmental damage. Perhaps the best example of sustainability are e-books because they never wear out from one user to another and can be reproduced millions of times from one stored copy. Nevertheless, sustainability is more than just a repeatable process. It is also a culture, an attitude, a way of thinking that inspires inherent behavioral changes on socially-acceptable consumption practices.

MIT’s Sustainability Summit
At MIT’s Sustainability Summit last month, I came away with a deeper appreciation for what sustainability can mean to different people, especially how it can motivate them to change their habits and the habits of others, and yet, I could not help feel discouraged by the global indifference and the immense size of the problem. What set me over the edge was a powerful video called, ‘The Art & Science of Chasing Ice’ produced by James Balog on how our north and south polar ice caps are melting away from the amount of black soot dispersed into the atmosphere from our factories and automobiles. If this visual does not do if for you then perhaps a TED video by Charles Moore on the Great Pacific Garbage Patch may bring it home. The visuals are truly stunning, rude awakenings of what a planet with 7 billion individuals are capable of doing wrong.

With the UN’s projected 9.1 billion people by 2050, one can be absolutely certain that issues of sustainability will be front and center in the daily livelihood of every individual and entity. Why? …for the simple reason that our planet resources are limited and our current lifestyles and diverse cultures have yet to align and adapt to a sustainably-friendly behavior.

After attending the MIT Summit, I concluded that the efforts to align sustainable priorities are not only a discombobulated entanglement of disparate, self-appointed initiatives but also an odd assortment of potentially conflicting outcomes. To get an idea,  take a look at two opposing car ownership attitudes by city dwellers.  While the new normal has shifted favorably to shared auto usage among urbanites in developed countries (i.e. US – zipcar.com), in emerging countries (i.e. Brazil, China), new consumers expect to own their own car as soon as they move into a city!

Walmart vs WholeFoods
Another similar example of conflicting outcomes was visible at The Atlantic Magazine press conference in Washington DC on December 4, 2012. A forum of experts showcased the sustainability policies of two retail food companies, Walmart and WholeFoods.  While both companies work closely with their suppliers to recycle waste and introduce biodegradable packaging, Walmart’s Beth Keck, Senior Director of Sustainability, explained that Walmart provides their tight-fisted consumers with environmentally friendly products and chooses not to educate them on how they should change their consumption attitudes toward a more wholesome sustainable lifestyle.

In curious contrast, WholeFoods’ counterpart, Kathy Loftus, Global Leader, Sustainable Engineering & Energy Management, stated that with one-tenth the number of retail outlets as Walmart, WholeFoods is deeply committed to educating its employees and the communities they serve. The company teaches sustainability as a shared problem that begins with each and every consumer. WholeFoods believes that the improved knowledge on how one’s food is handled and prepared can help consumers make better choices and therefore lead healthier lives that will result in fewer medical issues. The money saved from fewer doctor’s visits and drugs, for instance, could justify WholeFood’s higher prices, …which explains in part why Walmart with its cadre of low-priced, branded, processed food suppliers has avoided engaging directly with their consumers.

Will the term ‘sustainability’ just become another commonly used marketing term such as ‘green’, ‘organic’, and ‘hormone-free’ that companies can push at will to meet their own corporate business agendas?  …maybe not this time.

A Key Driver – Shareholders
Fortunately the investment community is making meaningful strides with shareholders and CEOs. According to Sustainalytics, a Boston-based firm, companies are eager to disclose their annual ESG scores (Environmental Social and Governance), a metric used to measure best practices.  A total of 3,600 corporations globally have signed on since 1992, but as Annie White, their Research Products Manager noted, they have only scratched the surface with over 40,000 public companies still remaining.

Driving the increasing interest for ESG scores are concerned shareholders who fear that unmanaged risks or ‘blind spots’ could unexpectedly pull a global company down to its knees as has happened with BP’s Gulf oil spill of 2006, Foxconn’s child labor practice that affected Apple earlier this year and the five garment factories for European and American branded clothing that collapsed in Bangladesh this month. With good reason, shareholders are concerned that similar disasters will become more commonplace and that reactionary foreign government retaliation could put them out of business.

According to Katie Grace, a Program Manager involved with the ‘Initiative for Responsible Investing’ at the Harvard Kennedy School, local governments do not have to wait for a catastrophe to legislate changes but rather can take a proactive role by setting project specific policies. Regionally, for example, they can rezone areas to attract private sector investments. They can also set standards such as LEED, which is used for certifying eco-buildings. For social projects, governments can issue ‘green bonds’ or payment guarantees for investment funds (i.e. Social Impact Bonds).  Some mayors like Philadelphia’s Michael Nutter have adopted these proactive recommendations with their sustainability efforts and are starting to see positive results.

The City of Philadelphia
Katherine Gajewski, Philadelphia’s Sustainability Director, a new position also held at over 115 municipalities across the US, spoke of her challenges working within an entrenched bureaucracy of over 22,000 public employees, most of whom are reluctant to change. Her reprieve has been her frequent conference calls with her 115 peers who openly share their best and worst practices. Their collective list of ideas has grown as the group continues to innovate together, while making most of their ideas up as they go along.

Some interesting cases that have already crossed Gajewski’s desk might surprise you. For example, an Enterprise Car Rental operation in an industrial section of Philadelphia was paying $400 per month for their water bill but was costing the City millions of dollars to purify their share of dirty runoff from their car lots. Eventually, the situation was rectified but not until Gajewski ran the numbers to show the disproportionality between what Enterprise was paying for their office water usage and the cost to clean up its runoff.

Just how many other industrial installations are out there in a typical city like Philadelphia where a company unwittingly gets away with paying a small fee to use a common service but whose operations account for a substantial cost of clean up? …probably a lot!

Gajewski’s job as a Sustainability Director requires more people skills than know-how. She must craft alignments of interest among internal groups to achieve meaningful consensus. Perhaps most important, her role as director and facilitator is to refrain from becoming too preachy and be willing to dole out credit to each participant. Easier said than done, Gajewksi knows that sustainability is a shared task that succeeds when everyone is on board.

As more Sustainability Directors like Gajewski identify similar imbalances in their respective cities, the idea of charging the same consumer for both usage and their share of the cost of cleanup will become more widely accepted. …and herein lies the reason why fossil fuel prices will continue to rise for years to come.


Below is a summary of Best Practices that were shared during MIT’s Sustainability Summit.

Best Practices

  1. At a university-run, trash audit, MIT students sieved through a months worth of the university’s garbage to discover that of the 2.5 tons of trash collected, 500 pounds was food waste while the remaining 90% could be recycled! The visual impact of over $11.4 billion of trash that could be recycled in the US alone inspired one student to launch a 30-day waste challenge on https://www.facebook.com/30DayWasteChallenge where Facebook friends could commit to ‘be inconvenienced by their trash’ by carrying the trash they personally generate throughout their day for a 30-day period.
  2. Offering consumers a list of prices for the same product but packaged with different levels of biodegradable materials would help bring to light the importance of recycling.
  3. Wirelessly integrating a soda vending machine with a recycle bin located nearby could encourage consumers to recycle their containers.  Consumers would pay, say two dollars and fifty cents, for a soda and receive a one-dollar refund on their university credit card once the soda can was disposed of in the appropriate recycle bin within the allotted time.
  4. ‘Rewire’ individuals at opportune times so their behavioral changes continue well after a recycling program or contest. For example, students can be impacted for behavioral change during a time of transition such as the beginning of a semester.  Recycling contest rules would be established at the start of the semester and monitored throughout the year.
  5. The crop of graduating students who enter the workforce concerned about sustainability issues will inspire a new set of hiring qualifications. Already companies like WholeFoods have changed their hiring criteria to reflect their corporate goals for sustainability.
  6. Teaching children in lower school to become advocates for a sustainable future is the most effective use of funds for behavioral change. Not only will these youngsters represent the future of our planet but their unbound audacity to correct adults who forget to recycle would deliver a priceless message with an impactful and lasting effect.
  7. A practical solution launched this year in California involves a utility tax on a consumer’s bill that is merely collected by the utility company and paid directly into a Global Educational Fund for educational initiatives. The tax removes the utility’s burden of financing similar programs for its sector and uses the utilities billing capacity as a pass-through.
  8. WholeFoods spends time in Washington DC convincing lawmakers that refrigeration codes need upgrading.  Currently stores are allowed to have open refrigeration, which according to a WholeFoods spokesperson, Kathy Loftus, spends considerably more energy than if the same refrigerator had a door.  Another sustainable tip from WholeFoods is the wider use of ships to transport goods rather than trucks. According to Loftus, ships have a lesser impact on the environment than trucks.

© 2013 Tom Kadala


Advanced Manufacturing – GE’s Response to Full Employment

When Tom Donilon, the National Security Advisor for President Obama was asked what the two most pressing issues that kept him up at night, he replied, terrorist attacks and the US declining national competitiveness. The backdrop of 600,000 unfilled manufacturing jobs at a time when unemployment is near 8% has most certainly been his nightmare in the making. He must be asking himself, how could our educational system fall so out of line with industry demands, especially when student debts have exceeded $1 trillion? With such a large investment made to prepare our youth, what kind of a workforce do we have as a Nation? If vacant manufacturing  jobs were filled today with US workers, experts tell us that the contribution of our manufacturing economy would jump from its current level of $1.8billion to $2.2trillion! What has gone terribly wrong?

Political leaders supporting manufacturing initiatives in Washington are calling for another ‘Sputnik moment’ to inspire American students to pursue manufacturing careers. Without a ready inventory of workers to support a competitive manufacturing base, America’s future will always be vulnerable to outside economic threats. History reminds us of our true potential, when in 1945, 50% of the products produced in the world were ‘Made in USA’. Today that number has trended down to 22%.

At a recent press gathering in Washington DC’s Newseum sponsored by GE (General Electric Company) and The Atlantic Magazine, GE’s CEO, Jeff Immelt, along with an impressive slate of industry experts and thought leaders addressed the next chapter in US manufacturing and its expected role in creating jobs. David Arkless, Manpower Group’s President of Global Corporate and Government Affairs, led the discussion with a non-sugar coated account of how the Chinese have managed to grow their manufacturing base, while the White House has been floundering along forming more committees than solutions. Arkless explained how the Mayor of Tianjin, Huang Xingguo, (the 4th largest urban population in China) learned from speaking with over 2,000 foreign firms in his district that their number one concern was a ready supply of skilled workers at the right cost. Working with his local universities, the mayor and his team of advisors forecast the skill sets companies in Tianjin would need in the future and created specific course tracks that met these requirements. Local students who chose a STEM career were offered a tuition-free package and employment after graduation. Tianjin’s efforts appear to be paying off well, since this year the city is expected to grow at 17.5%, well above China’s average of 6.5%. Arkless asked out loud why the US Government could not do the same as the Mayor of Tianjin.

Could/should the US follow a similar manufacturing strategy as the Chinese? 

The other panel members argued strongly against Arkless’ recommendations, citing that the US has a different political system and could never ‘get away’ with what is socially acceptable in China. What the US Government could do, instead, is establish a set of certification guidelines that colleges can follow and employers can use to hire with confidence. Colleges that produce well-trained employees using these standardized tests could expect their employers to reciprocate with needed financial support, which in turn would alleviate the need for future government subsidies. Based on each college’s performance, free markets would determine the academic institutions that can deliver and those that should be dissolved or merged.

Despite the many efforts to entice students to follow a manufacturing career track today; however, the US strategy is clearly not working. For starters, most students are not aware that goods are produced on factory floors in the US. For years they have heard negative news coverage about the loss of US factory jobs to other countries with lower wages, so much so, that college to them is their ticket to avoid a dead-end job on an assembly line. Like a page taken from a Charles Dickens novel, they perceive factory jobs as requiring long tedious hours in a dark and dingy work space spewed with numerous health hazards.

At the event, GE’s CEO, Jeff Immelt, exclaimed the pressing need to change this archaic perception of factory work among young students. Parents, teachers, and guidance counselors alike had to be on-board too. Results from a recent survey showed that only 3 out of 10 parents supported a manufacturing career for their children. Without greater parental support, the hurdle to attract students to a STEM career path (Science, Technology, Engineering, Mathematics) would become insurmountable, especially among the emerging, young Latino population who tend to be family centric. Alcoa’s VP of Human Resources, Natalie Shilling, noted that children’s long-term interests in STEM subjects tend to drop off significantly during the 6th grade level. In response Alcoa has partnered with local schools to sponsor science fairs and family factory visits but expressed concern that their ‘grassroots’ efforts may be insufficient.  Like GE, they also see the urgent need for a formalized regulatory framework backed by sound government policies.

Advanced Manufacturing
Factories today are referred to as operations of ‘advanced manufacturing’.  Unlike yesterday’s plants, they include robots, ‘lean’ manufacturing practices that improve overall process efficiencies, and local distribution channels. They are smaller, cleaner, and automated. For example, the labor required for the production of a GE refrigerator is only 1.8 hours, less time that it might take to install the unit at a customer’s home and read the manual. Breakthrough technologies such as 3-D printing are pushing the limits on smaller runs of customized products with near-zero waste. GE is investing heavily in 3-D printing technology citing its shorter design cycle benefits. Shaving one or two years off the traditional design-to-production process could translate into significant savings and competitive advantages.

Immelt’s predicament poses an interesting future for manufacturing. As wages have been squeezed out of the cost of production, the focus on future investments has shifted away from countries with cheap labor to regions that offer a steady flow of skilled workers, access to specialized materials, and a basic infrastructure to move goods to consumers. Where specific components are lacking, GE is prepared to make investments to ensure the integrity of their business model over an expected plant life-span of 40 to 50 years.  Immelt believes that this ‘in-country’ strategy will prepare GE to serve an expected one billion middle class entrants over the next five years.

What does Immelt consider to be a skilled workforce worthy of GE’s consideration? According to Immelt, future workforces must be capable of performing ‘additive manufacturing’, which means they will need the knowledge-base to combine some computer training with artisan skills. They must also work competitively in teams. How important are team skill sets to Immelt? Recently the shortage of skilled workers prompted GE to call back veteran GE employees, who according to Immelt, will need some technical training but will easily fit in, since they already have proven GE team work experience. 

…and yet, one key question remains. Can GE’s ‘advanced manufacturing’ strategy achieve full employment without an increase in US exports? Time will tell.

As currency wars mount, what will stop US trading partners from setting up their own ‘advanced manufacturing’ operations that service their own local markets? Factories will be cheaper to build and faster to set up locally, therefore, offering a distinctive advantage over imported finished goods. Furthermore, STEM online training courses such as edx.org and ocw.mit.edu will help prepare a viable pipeline of qualified local STEM students/workers virtually anywhere in the world.

Immelt’s predecessor, Jack Welch, once envisioned the future of manufacturing with factories mounted on moving barges that would dock at different ports-of-call depending upon the market demand for a manufactured good. In part his vision had some validity. The barges he referred to, are today, smaller and more agile high-tech factories that can be easily built adjacent to their intended buyers.

© 2013 Tom Kadala

Lessons from the Other ‘Fiscal Cliff’

The infamous morning of Black Sunday, April 14, 1935 began as a bright sunny day filled with the hope that a three-year drought was finally coming to an end, but by evening, one of the most damaging dust storms in American history charged through the open landscape like a raging bull removing over 300 million tons of topsoil from the prairies, causing economic and agricultural devastation across the Midwest. It came at a low point during the Dust Bowl of the ‘30‘s when food and jobs were already scarce. By 1935 Congress initiated policies, incentives, and legislation that helped the economy to bounce back and its farmers to develop preventive measures that would save the Nation from what was then considered ‘the end of the world’. 

Nearly 77 years later, another bowl of devastation is heading our way loosely referred to as the ‘Fiscal Cliff of 2013’.  Its similarities to the Dust Bowl are truly striking, with one exception. the Dust Bowl of the 1930‘s was a natural phenomena caused by Mother Nature while the ‘Debt Bowl’ of today will have been self-inflicted by the US Congress.

During a recent PBS Documentary, the narrator quoted one of the families who had lived through the Dust Bowl era as saying that despite their efforts to plug every crack in their home, the dust still managed to get in. I could not help but think how, for the past decade, easy credit had similarly crept into every household in America the same way that dust had during the Dust Bowl. No matter how frugal one chooses to live today, Americans will be liable for not only their collective personal debt, but also their share of the rapidly growing National Debt. Like dust, our National Debt has infiltrated every American household for generations to come.

Washington Ideas Forum
Recently, The Atlantic Magazine, a political/business/entertainment publication, held their fourth annual Washington Ideas Forum at the Newseum in Washington DC where they conducted a series of live interviews with a Who’s Who list of Washington politicos including Senator Marco Rubio, Sheila Bair, Chris Matthews, Gene Sperling, and David Rubenstein. When asked to comment on the ‘Fiscal Cliff’, their combined assessments were bleak.  All of them agreed on the need to avoid the ‘Fiscal Cliff’, if at all possible, but like the example from the Dust Bowl era, they could not see any sure way to avoid the inevitable. The following is a recount of what they had to say.

Sheila Bair on the true Amount of Debt
Sheila Bair, the former head of the FDIC during the economic crisis of 2009, clocked the unsustainable size of US private debt at 160% of GDP, which she claimed was twice the size of the US public debt (80% of GDP). She noted that the size of the private debt had become a quiet secret that no one in Congress seemed eager to discuss. The private debt that goes unpaid, as we are seeing today with the recent unraveling of unpaid FHA loans, will eventually wind up on the US Government’s balance sheet and become every citizen’s concern. When added together, the aggregate public and private debt is truly astounding.  Bair has always preferred a ‘rip- off the band-aid quickly’ approach to the crisis and reminds her colleagues that banks should have taken a full hit early on to allow for a faster economic recovery. According to her intended strategy, banks that received government loans were expected to use the funds to realign their portfolio of home mortgages.  Instead they used the borrowed funds to increase their reserves and improve their capital ratios leaving home-owners with ‘underwater mortgages’ to their own devices.

Gene Sperling on Preserving a Tax Revenue Framework
Gene Sperling, one of Obama’s economic advisers, focused on the greater potential damage that could result from a surge in negative investor sentiment if Congress waits too long to act. Also present, David Rubenstein, a billionaire philanthropist, agreed.  Rubenstein felt that political uncertainty can create far more economic damage by holding businesses back from investing in their business and hiring new employees.

Sperling went on to defend the Democratic position of extending all tax cuts prior to the Holidays for those earning less than $250k/year, while hitting the remaining 2% of taxpayers with a hefty tax bill.  Republicans countered his proposal with a $50k tax deduction cap citing that the amount of tax revenues raised would match Obama’s plan ($750 billion/year).

Sperling’s response offered a glimpse at the intensity of the debate between both parties.  He felt that a tax deduction cap would discourage future donations to charities and non-profits, while encouraging the use of crafty lawyers to find tax loopholes for their rich clients.  Skeptical that the Republican plan would raise sufficient funds, Sperling noted that in principle the Republican plan would have ‘frozen the tax revenue framework’ by locking out the option of raising revenues at a time when voters today are willing to accept higher taxes.  If sufficient revenues were not raised using the Republican plan, Sperling points out, the onus of closing the revenue gap would fall on the middle class.

Senator Marco Rubio on Building a Middle Class
One could make a case that the Republicans may not have thought through their plan as thoroughly as the Democrats, but that is unlikely. Senator Marco Rubio, a young Republican hopeful for the 2016 Presidential elections, felt that Mitt Romney had failed to convince the American people how limited government and free markets can create a thriving middle class – a cornerstone in Republican ideology.

Rubio began his analysis by asking how the ‘fiscal cliff’ would reduce the national debt, if it also ‘wiped out’ small businesses through higher fees and taxes.  In his opinion any plan that does not include a comprehensive formula to stimulate growth is unsustainable and foolish.  The economy must produce something for it to service its debt, otherwise, its debt levels will continue to rise.  The products and services it produces will require jobs with new skills and those jobs can only be filled if the government invests in its workforce by, for example, making student financial aid accessible to anyone in need of proper training. Rubio notes from his Hispanic background that tomorrow’s workforce will depend upon a comprehensive immigration reform policy that balances the supply and demand for jobs as baby boomers continue to retire.

Rubio exemplifies a modernized version of a member of the Republican Party that our founding fathers probably had in mind, but he is only one person in a party severely split over a slew of self-serving cronies.  Many older Republicans have sided with arguing for the sake of argument rather than seeking ways to work together toward a common goal.

Chris Matthews on Restoring Respect in Politics
Chris Matthews, a news anchor and political commentator for the popular TV talk show Hardball, reminisced over the Reagan era when politicians respected each other’s office and compared the then-to-now changes with Senate Minority Leader Mitch McConnell’s comment that his number one priority going forward was to ensure that Obama would become a one-term President. McConnell’s comment coupled with Romney’s ‘47%’ blunder including his ‘self-deportation’ remedy for immigration during a debate have demonstrated how out-of-touch the older leadership have become, offering an unprecedented opportunity for young Republicans like Senator Rubio to regain control of the Republican Party and its true ideology.

Summary Remarks
Historically crises such as the ‘Fiscal Cliff’ have a silver lining.  They can whip a complacent and divided group of leaders into line and force them to work together despite their differences. During the famous Dust Bowl, President Roosevelt was heard saying to an affected group of farmers that the US Government did not know how to remedy their desperate situations but that if a solution existed, ‘they’ were sure to find it.  The ‘they’ President Roosevelt referred to included every living person who could lend a hand, which amounted to just about everyone. Today, 77 years later, President Obama already knows what needs to be done to tackle the ‘Debt Bowl’ of 2013 but lacks the political will and the genuine respect on Capitol Hill that President Roosevelt and his constituents had taken for granted.

So as we gather around our respective Thanksgiving dinner tables, think for a moment what our world would be like if we respected each other as individuals and not just as stepping-stones for personal gain. As the liberal Democrat, Tip O’Neill, a former Speaker of the House, once told the staunch conservative Republican President Ronald Reagan, “We may agree to disagree, but after 6pm, we are always friends.”