More Davos, Less Denmark - Shaping a Global Approach to Climate Change

It is interesting to compare the goings-on in Davos, Switzerland this week, less than two months after the close of the climate conference in Copenhagen. First, as a follow-up to “How Important Is Copenhagen” it might make sense, after some breathing space to understand what really happened in the Danish capital from Dec 7th - 18th of last year. Will this event shape the future of a global agreement on climate change or will it be forgotten in a few years?

Predictions

In the earlier piece I wrote that for Copenhagen “to be a success it must produce a politically binding agreement that makes compulsory emissions reductions -- from industrialized economies and developing ones – inevitable. An eventual treaty must create a global system for trading carbon as a commodity, with liquidity and price transparency. It must provide compensation to those countries that avoid deforestation and thus preserve important carbon sinks. And it must ensure that emission reductions can be verified.”

Surprisingly, the final two points – deforestation and transparency – were met with much greater attention and success than most would have predicted a priori. In some sense the REDD agreement on reforestation compensation and the movement by China to accept some level of MRV standards were the two clear bright spots in an otherwise murky two weeks. Less clear were the fates of legally binding emissions and a global carbon market.

The Copenhagen Accord

If brevity is the soul of wit, then the Copenhagen Accord may be the most clever international climate agreement ever written. There are only 12 points to this political and non-legally binding accord, each averaging a mere 100 words. The 12 points include:
1. Commitment to < 2C temperature rise
2. Reaching peak global emissions ASAP
3. Funding transfers for adaptation
4. Industrialized country mitigation targets for 2020
5. Developing country mitigation actions
6. Forestry – REDD
7. Incentives for Action
8 – 10. Aid from the industrialized to developing world
11. Technology transfer
12. Next steps

Winners and Losers

Copenhagen refocused the climate conversation from the one taking place among 100+ nations to one happening among five countries, the U.S. and the so-called BASIC countries (Brazil, South Africa, India, China). These countries flexed their “climate muscle” at Copenhagen, usurping an international process that had been in place since Kyoto. In that sense they could be seen as winners, with the international process of negotiation and the smaller nations the losers. Barack Obama’s leadership to help salvage something out of Copenhagen made him look like a winner, with Europe losing influence after all of the years of diligent work leading the COP process. Lack of a clear path to a legally binding agreement on emissions must make oil and coal interests feel like winners, with carbon price predictability and the clean tech sector the losers.

But what about the public and the planet? Were they winners or losers? Having the U.S. and China front-and-center on climate change is indeed hopeful, but without legally binding agreements that align with the science and bring the rest of the world along the people and the planet may be the ultimate losers.

More Davos - Less Denmark

It is becoming increasingly clear that if one really wants to know how the 21st century is going to play out, the COP process may be a lagging rather than leading indicator. In many ways the COP process is mired in the past. China is still categorized as a developing nation yet emits more greenhouse gases than any other. Talk of technology transfer implies the world’s leading economies help developing ones, yet it is China again that is leading the technology race on clean green energy.

Only one month after the Copenhagen conference failed to give the world a clear picture of what the future holds, this year’s World Economic Forum may be doing just that. As reported by Katrin Bennhold from Davos in the New York Times February 1st "Topic A this year was the race to develop greener, cleaner technology.” The Times went on to say that the job-creating potential of green technology was “seen by many here as the next industrial revolution”, and a revolution in which China was moving ahead of the West. U.S. Senator Lindsay Graham was impressed, “… my concern is that every day that we delay trying to find a price for carbon is a day that China uses to dominate the green economy.” Graham is a not a Northeast Democrat, he’s a Republican from South Carolina. This is a hopeful glimmer in an otherwise dark landscape for climate legislation in the U.S. Senate.

Copenhagen’s successor, COP-16, is scheduled for Mexico this November. If the COP system is to stay important and relevant, it has to put that price on carbon that Senator Graham is asking for, and enforce a system of legally binding emissions reductions. Then to those Americans who think cap-and-trade puts their economy at risk, it becomes Senator Graham’s job to get them to stop looking at trees and instead see the forest. The risks to the U.S economy are infinitely greater if we don’t lead in the clean tech sector over the next decade – and without a price on carbon we will not lead.

Is Greed Sustainable?

One of the greatest impediments to corporate management adopting sustainable practices is the belief that it can’t afford to adopt them. But the reality is quite different. Companies that take sustainable practices seriously are seeing the interconnectedness and interdependencies between different parts of their business. The view of their business changes, it begins to look more like a system - embedded in other systems – the local economy, the global economic system and the earth’s ecosystem. It becomes clear that for a business to be sustainable it must align with the workings of the systems of which it is a part and upon which it depends. When this begins to happen, the consequences of efficiency, lower costs, transformed organizations and increased profits emerge.

Recently however there's been a lot more said about greed and lot less about sustainability. Interestingly greed and sustainability are not unrelated.

Gus Levy, one of the legends of 20th Century finance and an icon in the growth of Goldman Sachs, in response to a question about his firm’s motivations once said “Yes at Goldman we are greedy. But we’re long-term greedy.” Now we hear stories of Goldman and other trading houses creating and selling the latest financial engineering to their clients only to then take huge wagers against them. Over the last several years Goldman made billions betting against the very securities they were trying to convince others to buy. The buyers – i.e. their clients – suffered huge losses. In another time such actions might have been seen as a reflection of Goldman’s superior knowledge of markets and trends – ‘Goldman people are just plain smarter than everyone else’ the thinking would go. But in the wake of a crisis that almost brought down the entire financial system, observers are taking a closer look at why GS was so successful. Under the magnifying glass, its actions are looking less like skill and more like greed – aggressive, opportunistic and perhaps even manipulative (the Feds are investigating.)

Goldman Sachs appears to have become short-term greedy. This represents much more than a shift in Gus Levy's time horizon. The differences between the old and new Goldman Sachs is much deeper. Its a shift in fundamental philosophy. Levy saw Goldman as a process – a complex system of interrelated and interdependent parts in the service of an aim. While the system made its partners fabulously wealthy that was never the aim. The aim was to serve clients and do it better than the competition. Don’t just meet their needs, delight them and be loyal to them and provide them with the best advice - that was the roadmap to their success. Profitability was the consequence, not the aim - getting rich became the reward for managing well the system that was Goldman Sachs.

That appreciation for a system made Goldman a stand out - a very distinctive place to work, a place of excellence and of legend. The Goldman of today seems to have turned its back on that appreciation. It seems to be adopting the all too common practices of so many companies, making the mistake of thinking that its aim is no longer service but instead profit. It manages the system in service of that aim - even at the expense of its own clients’ welfare. Such a way of management has been practiced over and over again to the demise of every enterprise that undertakes it. It is not sustainable - think of iconic brands like Arthur Anderson and General Motors that made the same mistake.

To build a sustainable enterprise, profitability is a necessity. But profitability itself must be sustainable, and can only be so if the enterprise is well managed from a systems perspective. Greed ruins an appreciation for business as a system and thus is not sustainable. There is a gap between the current ways of management and those that will be required to take a system for sustainable practices and nurture it into a long-term competitive advantage. Greed only contributes to the widening of that gap. Greed does not nurture, it destroys.

The Sustainability Gap

Many issues can come up in a conversation around sustainability. The following 25 topics are just a few:

Climate Change • Cap-and-Trade • Carbon Sequestration • CO2 • Greenhouse Gases • Burning Coal • Peak Oil • Energy Efficiency • Clean Energy • Clean Tech • Green Jobs • Water Resources • Agriculture • Livestock • Fisheries • Waste • Pollution • Toxins • Health • Growth • Profit • Employees • Customers • Brand • Shareholder Value

The seemingly jumbled basket of issues being framed by sustainability puts the term itself in danger of becoming meaningless. Yet one consistent theme of sustainability is the idea that what someone does in one place and at one time has an impact – immediate or delayed, minor or major – on other people, places or things. Sustainability then has embedded within it the idea of interconnectedness and interdependence. Interconnectedness and interdependence are characteristics of systems. So sustainability is ultimately about an appreciation for business as a system.

Today most sustainability initiatives within corporations are characterized by multiple disconnected initiatives targeting products or facilities here, employees or customers there. These initiatives tend to be defensive and tactical rather than strategic. They bring about incremental rather transformational change to the organization.

This is The Sustainability Gap. Corporations know they have to act, they may even know what has to be done, but the training, incentives, habits and practices of management are holding back the achievement of sustainability in its fullest sense.

In order to bridge the sustainability gap and transform the organization into a fierce global competitor in the 21st century management must begin viewing the entire business enterprise as a system - an interconnected and interdependent system embedded in a global economic system, which in turn is embedded in the earth’s ecosystem. Adopting such a view will bring about the kind of transformation in management that will make genuine sustainability possible.

Some great resources for this kind of thinking include – The Ecology of Commerce by Paul Hawken, Mid-Course Correction by Ray Anderson, Biomimicry by Janine Benyus, Profit Beyond Measure by H. Thomas Johnson and The Fifth Discipline by Peter Senge.

But perhaps the granddaddy of all books on sustainability and management is an unlikely choice - The New Economics by W. Edwards Deming. Some may remember Deming as the man who taught Japan about quality, or as the father of TQM. But Deming never defined himself that way. He once said that rather than having taught the Japanese about quality “I introduced them to the principles of a system.” And the Japanese showed their appreciation – Deming was awarded the Second Order Medal of the Sacred Treasure from the Emperor. In addition, the highest business honor in Japan – The Deming Prize – was named for him.

Deming’s ideas included an appreciation for business as a system, the importance of alignment to system aims, the need for constancy of purpose, seeing profit as a consequence of the system rather than its aim, and understanding that what can not be measured is often more important than what can. Indeed the most urgent gaps in addressing sustainability – as reported in the Fall 2009 MIT Sloan Review – were the very issues that Deming had been urging management to consider decades ago.

But how does this relate to addressing any of the issues on the list above? Deming did not talk about issues of climate change or clean energy or cap-and-trade. He only began talking about the environment late in his life and mentions it in passing in his book. However his framework leads to the thinking that every business is a subsystem within the global economic system and certainly we are seeing all too clearly how the global economic system is a powerful subsystem of the Earth's biosphere. Every subsystem needs to in some way align with the aim of the overall system. The consequences of not aligning are sub-optimization, decay or in the worst case the ultimate destruction of the system. If sustainability is about aligning business and the global economy to the workings of the biosphere - then Deming may well have been the father of sustainability management.

The task ahead to bridge the Sustainability Gap is the task of transformation of the training, incentives, habits and practices of management. It will be the challenge of the next decade of global business.

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Results as Consequences ...

Recently I gave up and hired an organizational expert to help me clean up my disorderly home-office space. In working for an entire day with Annette D’Agastini of Manhattan Organizing I realized something – it struck me like a thunder bolt. What I thought I needed was a cleaned-up office space, but what I really needed was a system.

Hiring Annette was not like hiring a cleaning service for my office. If the aim is a clean office, any cleaning service will do. Yet within days the same unmanageable mess is back again. Annette’s aim however is not to clean your office. She uses the phrase “Give a man a fish and feed him for a day, but teach him to fish and he can feed himself for life.” Developing a system by which one can manage one’s books, magazines, mail, paperwork – the information flow of an office – is what Annette teaches, and in doing that she helps her clients create a framework the consequence of which is an orderly and neat office environment - and one that is sustainable.

This idea of being mindful that results are always the consequences of system or process has very wide application. We often talk about means vs. ends, but as someone rightly pointed out "Means are ends in the making." It’s as true in the arts (you get to Carnegie Hall through a system - practice, practice, practice), as it is in mental health (in Man’s Search for Meaning Viktor Frankl said that happiness can not be pursued, it must ensue from a life built of meaningful activity), as it is in business (profit is the consequence rather than the aim of a well manage enterprise.)

One of the most pressing global problems of the 21st century is the threat of human-induced climate change. Like the messy office, the earth’s atmosphere with way too much greenhouse gas is not just a problem but a consequence. The earth’s natural systems work one way, but the global economy is often not aligned with those workings - climate change being the most urgent symptom of that lack of alignment. So the sustainable solution to climate change is not so much about sequestering carbon underground or putting heat shields in the atmosphere (this is like shoving the excess office papers under the rug.) The sustainable long-term solution to climate change is to have a global economic system that runs as if it is an interdependent part of the Earth’s natural systems. We need to think about aligning the economy with how the earth works rather than aligning the earth to how the economy works. The more we plan and execute economic development from a systems perspective, the more likely the consequence will be a sustainable economy.

To paraphrase Viktor Frankl, a sustainable economy can not be pursued, it must ensue.

By the way, here’s how my sustainably neat home-office turned out:

SuperFreakonomics or Our Choice

Two books have come out recently that address solutions to anthropogenic climate change. SuperFreakonomics by Steve D. Levitt and Stephen J. Dubner is the sequel to the authors’ multi-million selling Freakonomics whose aim was to teach us that everything can be understood if we just look at the numbers. Our Choice by Al Gore is the sequel to his multi-million selling An Inconvenient Truth whose aim was to teach us that global warming was a much more urgent problem than we had realized.


I could never attempt a better take on SuperFreakonomics than Elizabeth Kolbert’s review in the New Yorker this week entitled “Hosed .” Also an open letter to Steve Levitt from Dr. Raymond T. Pierrehumbert, a professor of geophysics at the University of Chicago provides a critique of one argument presented in SuperFreak that is worth reading. As far as Gore’s book is concerned, Newsweek has put him on their cover this week with the title “The Thinking Man’s Thinking Man.” Their review of Our Choice is downright glowing – especially as it relates to the work Gore did to gather the information for the book and his knowledge of minutia related to climate change science and engineering issues around renewable energy.

Ultimately the message of SuperFreak is that we can best address climate change through geoengineering – large planet-wide initiatives to address the symptoms of climate change. Geoengineering is about changing the planet to align with human needs. Gore on the other hand does not believe geoengineering is the right approach. “We are already involved in a massive, unplanned planetary experiment,” he writes. “We should not begin yet another planetary experiment in the hope that it will somehow magically cancel out the effects of the one we already have.”

From my perspective, climate change is the consequence of a misalignment between two very powerful systems – the earth and the global economy. A system is a grouping of interrelated and interdependent components in the service of an aim. Every component within a given system must in some way align to the aim of the overall system. The consequences of misalignment are sub-optimization, decay and the potential destruction of the system. In the case of climate change, the system is the earth and embedded within that system is a powerful sub-system called the global economy. Climate change is a symptom of the lack of alignment between the global economy and the earth of which it is a part and on which it completely depends.

Instead of aligning the global economy to how the earth works, geoengineering tweaks the earth to accomodate the global economy. For example one geoengineering solution to climate change is to change the composition of the earth's atmosphere by adding more SO2 in order to bring down global temperatures. But such action only further increases the variation in the system - acidifying the oceans and adversely affecting weather systems. It doesn't stop the increase in CO2 which means more and more SO2 will be needed, bringing more and more acidification, and more and more variation and instability within the system.

A long-term solution to climate change will only come from an appreciation for the earth and the global economy as one system. Understanding nature’s example of self-organization, interdependence and diversity will provide the basis for solutions. Nature is information intense and energy efficient and there are great opportunities for the global economy to move in this direction. Nature gets its current energy income from the sun – and the global economy has underutilized this resource – enough solar energy hits the earth's surface every hour to power the entire economy for a year. Nature sees waste from one process as a resource for another – this is also an important lesson for a 9-billion member (by 2050) human economy to learn.

SuperFreak is written by an economist who breaks things apart and starts measuring everything hoping to find answers in the disparate pieces. Our Choice is written by someone who has consulted with hundreds of the world's experts on science and engineering in addressing this one problem (the book's dedication is four pages long single-spaced.) While much can be learned by breaking things apart as economists do, what is lost is the system-ness of what is being studied. Addressing climate change is all about an appreciation for system-ness. On that basis, Our Choice is a well thought out resource for addressing climate change while SuperFreakonomics is way out of alignment.