Breakthrough Capitalism – what will it take?


I went to the excellent Breakthrough Capitalism  event yesterday, organised by the team from Volans and The Value Web.

John Elkington opened by reminding us that sustainability, is not the same as CSR (Corporate Social Responsibility), or even its more strategic cousin CSV (‘Creating Shared Value’).

John Elkington will be with you shortly (this is just a hologram)

It is fundamentally about how we unwind old business models, and unlock human development from the dependence on resource intensive and polluting technologies.

The question headlining the event was whether global economies can be reset onto a sustainable path, or whether the pull of incumbent interests, which led to the current financial crisis and are driving us towards environmental bankruptcy, will prevail.

The question underlying this, for many of the ‘elders’ on stage and in the audience (that includes anyone over the age of 25 according to Casper ter kuile) was whether experiments in the ‘art of the possible’: the multi-sector collaborations and efforts to create and shift markets by experimentation and example that many of us have been working on for the past years will add up to anything, or simply be a footnote in the decline and fall of the ideal of sustainable development.

Demitri Zhenghelis reminded us that this is all about the economics. It ought to be a no-brainer at this point to get investment into renewable energy resource efficiency, and  healthcare innovation. There are no shortage of signs that these solutions are needed, and no shortage of cash, with government bonds paying a negative real interest rates, and corporates and sovereign wealth funds sitting on large war chests.

Marshall Clemmens of Ideagram mapped out some of the reasons why these economic no-brainers often don’t happen in systems characterised by complexity, where decision making diffused amongst multiple stakeholders (aka: the real world). In particular; systematic irrationality (the tragedy of the commons) and systemic lock-in (lack of first mover advantage).  He said that for solutions to work they need to have a coherent theory of change for shifting the system, and for influencing, rewarding or paying off each of the stakeholders who stand in the way, or are needed for success. David Orell pointed out that it doesn’t help that we are navigating our economies using models which like Ptoloemy’s crystal spheres are elegant, but bear little relation to reality.

Speakers brought to the stage potential partial solutions –Pete Baxter from Autodesk talked about design and disruptive technology, Patrick Holden about the need policy to tax the ‘bads’ and support the ‘goods’ in agriculture and food production. Terri Willis talked about the potential for cities to be incubators and hubs of low carbon innovation, Ian Yolles talked about making consumer choices into a game with points and rewards to incentivise resource efficiency. David Porter of Apposite Capital talked about the opportunity for investors who truly view themselves as owners of businesses, rather than gamblers on the stock price to invest in the next generation of innovations needed to serve an aging population.  Paul Ellingstad of HP talked about social innovation using mobile technology to coordinate HIV testing and treatment.

Although there was not much time for debate and discussion, the hum of questions I heard from the floor, on twitter and in the coffee breaks  boiled down to ‘can it get to scale and how? While the graphic scribes captured the flavour of the discussions, its stories and metaphors in their real-time illustrations, I wish there had been a real-time analyst sitting at the other side of the stage churning out not pictures, but numbers. What is the size of the challenge to which this solution relates? Does it offer the possibility to go far enough and fast enough to close the gap? What would it take to make it happen? Is it really a breakthrough?

With thanks to Innovation Arts

This question of scale and speed underpinned all of the discussions accompanied by the mental whiplash feeling which becomes familiar to all who work in this area –attempting to hold in focus both the dimensions of global challenges, and the potential represented by a innovative, but micro, solutions.  Should we be excited or frustrated? No poll was taken, but I sensed a spectrum of glumness between the ‘elders’ and the fresh young things.

David Blood of Generation Investment Management quoted Robert Shiller, reminding us that getting good ideas to scale, and navigating divergent interests is precisely the role that finance should take in enabling ‘the good society’

Most of us can achieve little of lasting value without the cooperation of others. Even the archetypal solitary poet requires financing to practice his or her art. An income to live on, publishers, printers arrangers of public readings, the construction of suitable halls for public readings – there is a hidden financial architecture behind all of this. All parties to an agreement have to want to embrace the goal, do the work, and accept the risks; they also have to believe that others involved in the deal will actually work productively towards the common goal. Finance provides the incentive structure necessary to tailor these activities and secure these goals.

The critical question then are not so much about economics but finance – what deals need to be made to bring together interests, how much capital needs to be mobilised, over what time period, what is the risk and what is the return – and what would be the impact?

Many talked about what is broken with the toxic and destructive investment system, from pension funds to investment analysts, to the systems of reporting, earnings guidance and incentives. They gave examples of how a misaligned private incentives and 19th century public institutions were resulting in inefficient, unsustainable and downright stupid processes – like waste management in one city earning US$12 billion by transporting and dumping waste in a hole rather than recovering resources in the waste worth $40 billion.

David Blood called for a manifesto of changes required in the financial system in order to align investment with long term value creation, in particular the need for investors to consider the potential that they are investing in assets such as oil and coal reserves and associated technologies which will become stranded, if a low-carbon future is achieved. Jeremy Leggett of Solar Century talked of the toxic impacts on politics, and the public debate that arises from the well-financed defense of such potentially stranded assets (and industries).

Justin Adams, until recently  head of venturing in BP’s clean tech division a self-confessed ‘spiritual greenie’ within BP talked about the reality of creating change within incumbent industries, but reminded us all how critical fossil fuels remain to our comfort, opportunity and economic growth. He called on people not to view oil and gas as the bad guys, and to engage with the industry (a message I think that was a little superfluous with this audience of engagers). But ultimately the solutions he presented – forest carbon conservation, and carbon capture and storage (at some unspecified time in the future) while both important did not make the case that the oil and gas industry was at the forefront on finding the breakthroughs for providing comfortable living, usable power and mobility sustainably for 9 billion people.

On the question of scale Isabel Hilton  from China Dialogue got all of three minutes to cover China’s one billion. Channeling Charles de Gaulle, she told us “China is a big country, inhabited by many Chinese.” Her point was that China is not so much unavoidably different, as unavoidably big. Thinking about billions of people for me, puts into perspective the heady discussions of the morning about whether 3-D printing and other innovative manufacturing technologies meant that volume doesn’t matter any more (it still matters) and the occasional forays into spirituality and the potential  for a global  shift in global consciousness and values (perhaps, but it doesn’t butter any parsnips).

Ultimately the conclusion of the day, I think, was that the best bet for breakthrough is to find ways for big incumbents (whether cities, public institutions or businesses) to work with and become incubators and accelerators for small innovators and risk takers. How to share the risk fairly and effectively is the breakthrough question for finance, and how to avoid incumbents crushing disruption (either intentionally, through toxic incentives or by accident or neglect) is the breakthrough question for culture, leadership and relationships, and again for finance.

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