Across the Pond and Ideological Divide: the Climate Bridge

You know climate change is beginning to capture everyone’s attention when two leaders with opposing political philosophies make compelling points on the issue in different speeches. In London this past April, committed conservative Lord Deben, spoke at the Church Investors Group conference held at CCLA headquarters in the shadow of St. Paul’s cathedral. He made the point that since the British were instrumental in bringing the industrial revolution to the world, they had serious responsibility for cleaning up the mess. He asked important questions: Why aren’t we developing technologies that could be an answer to the carbon problem? Why aren’t we working harder to develop massive batteries to store electricity from renewables?

Three months earlier in an equally auspicious setting, American labor union leader Richard Trumka, the president of the AFL- CIO, suggested an answer to a few of those questions in a recent speech of his own at the United Nations. Trumka said what is keeping powerful democracies like the United States from acting more aggressively on climate change is lack of real political will. People are afraid. He didn’t mean apprehension regarding next year's super storm or the carbon problem. The fear is basic: change can and does bring massive unemployment. No matter what, people don’t want to lose their jobs. And it’s impractical besides. If climate change policies make working people lose their livelihoods, it will undermine the political will to deal with the problem constructively.

Having worked with companies and investors for 30 years, I know both men are onto something. The climate conversation needs to be different to spark any progress on climate change while getting more from companies and the general public. More dire warnings won’t do it. Nor will inaccessible scientific pronouncements.

We need three things to move the needle on this issue upon which the future of the planet depends.

One, we need to deal with the overriding issue of fear.

Two, we need to devise a new way to measure what companies are and are not doing on climate change – and if they aren’t responding to the issue, demand change.

Finally, we need to research to pay for a worldwide transition away from carbon fuel

First and most important, deal with the fear.

-- Scientists agree we created the carbon problem and we can fix it. Most companies agree that something must be done. Most investors agree that there are plenty of costly risks to future profits if we don't find solutions. We all know there will be plenty of profitable opportunities if we find ways to solve the problem.

We can’t keep demanding nations solve the problem of climate change without the same energy and commitment to solving the problem of the economic upheaval that such a transition will create. These are two problems that need solutions- not one. And they are interrelated; we can’t hope to achieve one solution without the other.

— We need to demand more of companies. I work with investors who have been successfully pushing companies toward more transparency for decades. Responsible investors are convinced that “we” are doing our part by asking companies to recognize and measure and reduce their carbon footprint. That's a good thing but unfortunately, it's not enough.

The questions must be different moving forward. A simple metric with easy to understand questions applied to every company is a critical next step. Questions such as: What resources are you spending on research for real solutions to the problem of climate change? And, what resources are you spending creating jobs that represent real solutions to the problem? No doubt many will quibble over the definitions of the three "r's", resources, research and real; and any reasonable definition is welcome. Ratios are always desirable for comparisons so, revenues or market capitalization could be used as the denominator. The sooner we ask these questions of all companies, the sooner we’ll start to get answers.

While we work to figure out how to avoid burning the unburnablecarbon, we need real money to pay for real research to figure out how to put some of the 400+ ppm already in our atmosphere back and to develop alternatives.

It is no secret that the way we live in developed nations depends on generation of power that is capital intensive and our fuel largely carbon-based. That doesn't help make the transition to new energy sources easy. Developing nations are just beginning to access the energy intensive lifestyle we've enjoyed. Solving this problem regionally is not an option because when it comes to the carbon problem, our region is our planet. Both the livelihoods and the lifestyle to which so many aspire were made possible by the carbon-based fuel that drove the industrial revolution.

Now it’s time to find alternatives that will be good for both the planet and the economy. We need money for research into both. Doing one without the other is not an option.

Difficult? Sure. But look at it this way. If Lord Deben and Richard Trumka can agree on climate change, there is reason to hope.

Extracting the Facts: Who's getting "fracked?"

As a born again fan of the SciFi series, Battlestar Galactica the word "frack" has a special meaning as a universal expletive used with considerable creativity throughout the show's multiple seasons.  A few years back, when technology, domestic policies and global energy markets began to focus on the extractive process know as "hydraulic fracturing" (its nickname "fracking") my inner teenager couldn't help giggle a bit.  In spite of myself, I found this new use of the word a fascinating foreshadowing of concerns that were emerging regarding the consequences of unrestrained fracking.

In our quest for cheaper, cleaner, more local, less carbon intensive energy sources: are we all destined to get "fracked?"

Concerns and conversations about the industry, with its history of wildcatting and an overeagerness to externalize the negative consequences of its operations, came to light in a number of widely-viewed reports including the film "Gasland" and a 2010 piece on CBS's 60 Minutes "$halegasonaires."  Most environmentalists and industry skeptics came out soundly against the practice.  The industry is lobbying hard to clean up its reputation and ensure regulations stay loose and that processes remain proprietary. To that end America's Natural Gas Alliance and others have spent nearly a billion dollars in the fight to clean up fracking's image, deploying over 800 lobbyists by some estimates.

In today's New York Times, there is a wonderfully balanced editorial, "Natural Gas by the Book," which challenges companies and citizens alike to explore the costs and benefits---not just to corporate profits but to the quest for a more rational approach to meet our 21st century energy needs.  It references the recently released IEA Reports on Shale Gas.  New York State sits atop a large reserve of shale gas and their Legislature's measured approach to regulation has been closely watched policy makers across North America.

This report comes in the wake of an earlier publication, Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations put out by longtime shareholder activists, the Investor Environmental Health Network and the Interfaith Center on Corporate Responsibility.  The investor-driven approach is grounded in the principles of sustainicity---incorporating natural and social capital into the notion of real investment returns.

As the Times editorial posits, shale gas may provide a bridge to a new energy future. That bridge cannot be justified without an honest, thoughtful dialogue within the communities where operations are taking place. Many of these communities are economically vulnerable and have residents who are willing to accept deals that make light of unexamined risks and are unspecific regarding authentic long term benefits. Barring a national framework of strong regulations or at least an industry standard of voluntary disclosure by energy companies---it is clear that hydraulic fracturing may continue to be an opportunity to "frack" the vulnerable communities who live a top the vast reserves.

Sustainable Productivity: Does speed destroy value?

As summer's unofficial opening Memorial Day Weekend comes to a close, longer days and a real pull toward "unproductive" activities has me thinking about the consequences of faster and ostensibly more productive work.  With so many "slow" movements rising up these days, Slow Money and Slow Food are just two examples, I am wondering whether the "slow down" movement may have something to teach  us about how value is created.

Can a case be made for slowing down?

Sunday's New York Times seems focused on this notion in every section, most directly in the Op-Ed piece by the U.K.'s Tim Jackson Let's Be Less Productive. But sprinkled throughout the paper one finds articles on stay-cations and even a piece by David Byrne on the joys of urban cycling, This Is How We Ride.  Each in its own way accentuating the pleasures of slowing down, focusing on the quality of each experience rather than the quantity of its output.

With apologies to readers without NYT access, the article that hit closest to home was the one describing the "other side" of JP Morgan Chase's three billion dollar failed bet.  We find ourselves asking once again, "How is it that such smart people made such a series of breathtakingly dumb, nearly catastrophic mistakes?" Transaction speeds have clearly exceeded traders' abilities to think about them strategically.

When pattern recognition is coupled with instinct the most successful traders can see clearly both risk and opportunity.With machine processing time far exceeding their ability to follow trades as they unwind, perhaps even the most gifted traders are unable to recognize patterns as they emerge.

By way of contrast, I offer a brief history lesson.

30 years ago, folks who worked at the retail end of these transactions were called "stockbrokers."  Their roster of clients was called their "book" because it was in fact a ledger, an actual book.  At the end of each trading day, the broker was expected to record each transaction by hand in two different ways:

• The first was to record each transaction that built or liquidated a position in shares of a particular company.  With each manual entry the broker had time to look for patterns in price movement or in his or her decision making process. While reflecting on the transactions questions like, "Why am I buying/selling this company?" "How is the price changing day-to-day?" would invariably come up. 
• The second requirement was to record each transaction in a particular client's account.  Again, with each entry the broker would have a moment to consider the role of each transaction on behalf of the client and its role in the overall portfolio.  Small moments that slowed the process down, allowing for reflection.

Electronic broker books changed the human interface and began speeding up the process in the 1980s.  Taking time to record and reflect was replaced by a faster and arguably more accurate system.  As volume increased, trading margins vanished taking much of the value of the client/advisor relationship with it.

For anyone who worked on Wall Street back then, it's easy to imagine new disasters looming. Regardless of the popular perception that JP Morgan Chase's CEO Jamie Dimon breezed through Shareholder Meeting, his firm lost revenue and talent and its impeccable perception as The Street's best-managed bank. Dimon was clearly uncomfortable as he spoke with his shareholders;  his rushed, staccato delivery was so uncharacteristic of his usual, affable "Master of the Universe" presentation style. From where I sat, the speed of his delivery matched the speed and volume of the transactions that unwound his firm's profoundly unsuccessful bet.

Like Barry Schwartz shared during his Ted Talks-The Paradox of Choice, making the case that bountiful choice adds no value to our lives; I wonder if we've reached productivity's natural limit.

Could the value created by slowing down make productivity more sustainable?

"Mr. Public Health" dies at 97: Thank you Lester Breslow.

If your interest in public health is tangential and you are mostly concerned with your own longevity or in figuring out a way to make money from emerging trends, you may not have heard the news that Lester Breslow died this week, see the  UCLA Obituary.   At 97, Breslow had earned the moniker "Mr. Public Health" through a groundbreaking idea: Breslow believed that people could live longer and healthier lives by changing their day-to-day habits. By paying attention to things like diet and smoking and exercise, they would improve the quality and length of their lives. His death at 97 may well be the best anecdotal evidence that he practiced what he preached.

One link between Breslow's 70 years of research and sustainicity---the idea that social capital and financial capital are inextricably linked---is his belief that small changes in individual behavior would make a huge differences in social (public health) outcomes.  Healthier individuals would be more productive in the long run, living longer lives and contributing more to the common good while costing society less.   Although this seems like common sense to us today---exercise, eat a healthy diet, don't smoke---Breslow's ideas were scoffed at when first presented. In fact his UCLA obituary notes:


"While these conclusions are taken for granted today, the idea of such a strong connection between lifestyle and health was seen as "bizarre" at the time, Breslow noted decades later. He would smile when recalling the response of the National Institutes of Health panel of scientists that reviewed the initial study proposal: "Unanimous rejection." When the study was completed, however, even Breslow was shocked at the magnitude of the results, which helped usher in current thinking about health and fitness."


Another, more interesting link was Breslow's conviction that these behavior changes could be measured.  As the vintage photo of Breslow shows---with trend lines plotted in a 1960's version of PowerPoint---this data could be used to create models that could contribute to predicting outcomes such as improvements in life expectancy in the United States which, according to the World Bank, has moved from about 69 years in 1960 to 78 today.


Clearly populations who have longer, healthier and more productive lives benefit the common good.  Economists might even argue that a "behavior induced positive externality" can and should be nudged by public policy and marketing practices. Breslow's work also presages the impact of today's growing obesity crisis and by extrapolation, its predictable costs to society. 


Since the 1960s when the influence of Breslow's work was beginning to be recognized, corporations have developed sophisticated approaches to creating demand for their products through sophisticated and targeted marketing programs. I wonder what might happen if the products they pitched were canted toward those which helped us develop the habits that lead to better health and longer lives?


Interestingly enough and with support from the Robert Wood Johnson Foundation, researchers at The Hudson Institute have begun to provide an answer based in real economic terms.  In releasing the fascinating report Better-For-You-Foods: It's Just Good Business, research fellow and former marketing executive, Hank Cardello shares some interesting data regarding the financial performance of food sector companies who shift their portfolios toward healthier products.


Today, thanks to Lester Breslow and many others, we know that small changes in individual behavior can make a lifetime of difference in public health. In today's marketplace, with the U.S. Supreme Court bestowing the rights of personhood on public companies, I  do wonder what would happen if they all made small changes in their corporate behavior?  Would shareholder value grow faster? Would our communities live better?  Longer?


Small changes.  Big Impact.  Just askin'.

Broccoli for the Free Lunch Society.

According to Wikipedia, the expression "there ain't no such thing as a free lunch", is now often reduced to TANSTAAFL.  As I consider the three days of  hearings this week at the Supreme Court (now often reduced to SCOTUS), this "free lunch" phrase keeps coming back to me.

The tradition of free lunches dates back about 130 years.  Saloon keepers would offer "free lunch" along with the purchase of at least one drink.  Although the lunch was often more valuable than the first drink, savvy business owners could rely on the likelihood that the customer would buy more than one drink.  This tradition lives on around the globe from the opulent "aperitivo" in Milan to "happy hours" convened throughout the USA.  Allowing potential customers to believe they are getting something for nothing is a profitable enterprise and is most popular in casinos.  Naturally, the "house" always wins or the practice would not continue.

Business works like that.

I wonder though, is that the way society works best?  And if society works best if citizens live in economically and socially sustainable communities; shouldn't everyone share the costs and benefits of access to good health?

In the Affordable Care Act (ACA) debate it's time to recognize what saloon keepers have known for over a century---TANSTAAFL.  In a brilliant paper by MIT professor Jonathan Gruber (available to subscribers at National Bureau of Economic Research), the impossibility of continuing to allow healthy citizens to opt-out of medical insurance is presented.

Even now,  when folks argue that individuals have a right to avoid paying into a system that could begin address the long-acknowledged health care distribution problem, I wonder who is "the house" in our current system.  Who are the individuals or businesses who, like the casinos, find the free lunch model so profitable?  Who are the winners who continue to cling to a system that is clearly broken?

There is no question incentives can alter behavior patterns.  For example, the modern health insurance sector blossomed in 1943 when the IRS recognized that employer-sponsored health insurance was a business expense and therefore deductible from taxes.  It doesn't take long to see the connection between good business practice---pay a small premium to keep your workforce healthy---and the creation of a tax policy incentive that reduced the tax bill of companies who chose to provide health insurance.  This is both good public policy and good business, the balance at the very heart of "sustainicity."

As Paul Krugman noted in his recent column Broccoli and Bad Faith, "Here’s what Charles Fried — who was Ronald Reagan’s solicitor general — said in a recent interview with The Washington Post: “I’ve never understood why regulating by making people go buy something is somehow more intrusive than regulating by making them pay taxes and then giving it to them.”"

Thinking about Justice Scalia's broccoli-based musings,  I find the daisy chain that links the individual health insurance mandate to the individual produce mandate to be nearly impossible to imagine. In making the connection, I fear that this Justice disrespects the notion that access to health care is among the most basic rights for everyone in modern society.

When I think about sustainicity and the idea that the best economic systems build both social and economic capital---there is never a free lunch for our local, national or global communities. Whether or not broccoli is served it's pretty clear to me that---TANSTAAFL.

Sustainable Retirement: Who's going to be a millionaire?

Like so many of my fellow baby boomers,  I grew up hearing the word "pension" and had a vague notion that is was money my dad would get when he stopped working. The generation that fought in World War II came home to industrial jobs that involved hard work and good wages. The word "retirement" evoked a wistful sigh of anticipation and all Americans agreed that these hard working men and women had earned the right to hang out the "gone fishin'" sign. My parents didn't worry about their retirement income. They hoped and prayed for enough good health to enjoy a long, comfortable retirement.

When did the idea that "retirement with dignity" change? When did retirement become a privilege, not a right?  When did we stop hoping for good health and long life when our working years were over and start wondering if we could ever stop working?

And why do we now think that privatizing risk makes sense? Sadly, my dad never collected his pension, succumbing to cancer in his early 50s; but he was part of an enormous pool of workers and his early death contributed to the actuarial calculations that provided balance and security for others who were more fortunate.  Shared risk works.

These days defined benefit plans, the "pensions" from my dad's generation, have become an anachronism at best.  A powerful business case is presented in Truthout's The Case for Defined Benefits and Retirement Security. After decades of companies shifting their long term pension plans to defined contribution plans, all 76 million of us Boomers are in trouble.  According to a  National Conference of Public Employee Retirement Systems (NCPERS), 75% of voters are worried about retirement with 42% very worried. And we should be.  According to the Employee Benefits Research Institute (EBRI), the average American has a retirement savings deficit of $48,000, with an aggregate national savings shortfall of nearly $4.6 trillion.

As taxpayers look for ways to shore up state coffers; public employee retirement plans are now under attack in what seems like a race to the bottom.  Rather than working together to re-imagine a society where average working people, like my dad, could count on a comfortable retirement, as long as they were blessed with good health; private sector employees who have lost their retirement are rallying against the last stronghold of real retirement security, public pension plans.

A few random facts:

• Every $1 spent on public pension funds returns about $2.50 to its local community
• The average American age 55-64 has $98,000 set aside for retirement; even though it will take $1.25 million in savings to provide $50,000 in lifetime retirement income
• About $4 trillion in retirement plan equity assets were wiped between 2007 and 2008
• There are 80 million Millennials, with an even larger savings gap

Rather than clamoring for retirement security for all, using public plans as an example of what our parent's generation expected from their private employers, it seems that public pension plans (not to mention the teachers, firemen, police officers and others who make our communities safe and strong) are increasingly under attack.

As someone who has never worked in the public sector, I just don't get it.

As a person with training and experience in finance, I still don't get it.

Apparently Professor Theresa Ghilarducci from the New School for Social Research doesn't get it either, as she explains in her recent Op-Ed piece Pension Funds for the Public.

The three-legged stool of retirement security; social security, pensions and personal savings is broken.  One alternative being proposed is a Secure Choice Pension that would spread risks and costs for private employees and bring back the real pensions that our parents' generation counted on.

Rather than encouraging further erosion of public pension funds and engaging in this "race to the bottom"  that is sure to create future problems for all those who hope to retire; perhaps we should take a closer look at the few remaining examples of plans that uphold the rights of all people to retire with dignity.

Do we really want to live in a society where no one can afford to retire?

Smart Money v. Smart Kids: The Goldman Sachs Kerfuffle.

Since the publication of Greg Smith's now infamous Op-Ed, Why I am Leaving Goldman Sachs, I've been deluged with messages from many friends and former colleagues wanting to process this very public resignation in light of my much-quieter Wall Street departure nearly 11 years ago. They recognized my privately expressed concerns, "Wall Street is changing and I don't want to work here anymore," as similar to Mr. Smith's departure from a finance career that began about the time mine ended.

These have been fascinating conversations, rippling around the airwaves and cyberspace. Conversations that reminded me of the recent St. Paul's Institute Study Value and Values: Perception of Ethics in The City Today which investigates the attitudes of London's elite financial service workers about their work.  Like Mr. Smith, they perceive a type of "soulessness" when they view their work in light of their values. Unfortunately for most of us--- folks who do not participate in the annual compensation bonanza known as Wall Street bonuses---our experience as market participants has not been very profitable since my career change back in 2001.

Whether savers, investors or simply future pension beneficiaries hoping to someday retire with dignity, the phrase "Financial Innovation" has become synonomous with Warren Buffet's oft-repeated definition of derivitives as "financial weapons of mass destruction."

Through the lens of sustainicity, the most troubling aspect of Mr. Smith's provocative resignation tactic is summed up in the Kevin Roose's column in yesterday's Times, Wall Street Loses Luster On Campus.  I was encouraged to read that our nation's best-and-brightest are reconsidering the arc of their careers and are looking outside "The Street" to deploy their considerable intellectual capital.  They seem to be considering enterprises that are stimulating and well paid but which align more closely with their values---working on innovations that build social capital and help solve our world's most intractable problems.  Although some are motivated by altruism, most are simply trying to avoid risking their own reputations with an industry that still does not seem to get it.

If Goldman Sachs and other firms fail to recruit these young minds, how will they continue to innovate and build value for their investors?  How long can the firm retain its leadership position?

When I left Wall Street the decision was highly personal, the "service" part of financial services seemed to be on the decline in favor of dispersion analysis and modeling that had little to do with value creation or customer service.  Back then the derivitives floodgates were really just cracking open. Like Mr. Smith, I was one of thousands of Vice Presidents.  Unlike Mr. Smith, I was neither a disgruntled employee nor particularly visionary.  I just found myself increasingly uncomfortable with my firm's priorities and had a chance to exit.

Goldman surely won't miss Mr. Smith and yet in all their smug rebuttals to his inelegant departure, they may want to consider its impact as they recruit his replacements.  Through the scrim of breathtaking institution hubris I am compelled to ask---Goldman, are you listening?