Green Business Summit II Post-Conference Summation

GBS-II Paves the Way for a Green Economy -
Matches Entrepreneurs with
Opportunities and Jolts Thinking
by Joan Michelson

The Green Business Summit II produced by the Wharton DC Club and Morgan Lewis & Bockius LLP provided a stellar opportunity to find out where the opportunities are, both in terms of market niches and funding. It also shook up the current thinking.

In between the jolts from the morning keynoter Andrew Winston, who asked the audience to “find your heresy” in your business assumptions, and that from the afternoon keynoter Jeremy Rifkin’s ominous warning that the negative effects of climate change are much worse than we’re being told, 200 attendees at the Morgan Lewis conference center on November 12 were stimulated with useful information about where and how to possibly find funding that suits their green businesses.

A telling sign that the conference was valuable was that nearly everyone stayed for the entire conference, with many remaining to network and debate the issues and opportunities at the ending reception.

Why DC?

Starting off the day was James C. Dinegar, Jr., President and CEO of The Greater Washington Board of Trade (BOT), who presented his case for why “Washington is no longer the government town it used to be. It’s the most highly compensated and highly caffeinated region” in the U.S.

He said the DC metropolitan area has “the most highly educated population in the U.S., with 22% of the population over age 25 holding an advanced degree,” and three of the highest median incomes counties in the country. He also said there are “more Starbucks per capita” and “more hybrids per capita.” Because of the area’s proximity to funding and government, the DC region is well-positioned to seize green industry opportunities.

Dinegar described the BOT’s initiative to recycle the Smithsonian Arts & Industries Building into a new National Center for Sustainability, which he envisions as “a clearinghouse for clean green ideas – encompassing under one roof, information, exhibitions, events and training programs on the best of U.S. clean technology, green business practices and climate change.”

Making a Green Recovery – in Sustainability and Profits

In the first keynote address, author, consultant and adept public speaker Andrew Winston said, “Climate change is the issue of our time.” He added that American businesses need to seize the opportunities presented by it to take our competitive advantage back as a global economic power, quoting a recent Washington Post op-ed piece by GE CEO Jeffrey Immelt and Kleiner Perkins Partner John Doerr.

Stating that “sustainability also lowers cost while it drives innovation,” Winston gave examples of when established business assumptions were challenged with great effect and advised the audience to “find your heresy” within your own companies. “For example, UPS decided to eliminate left turns from its city routes and saved 3,000,000 gallons of gas and 28,500,000 miles,” according to Winston. “Imagine being the person who first raised that suggestion.”

Winston talked about the “greening of the supply chain.” One top example was Walmart threatening to ban suppliers who don’t meet Walmart’s sustainability standards, even those in China, and making top suppliers in Brazil sign a commitment to no longer raise beef cattle in lands harvested in the Amazon basin. Considering that Walmart represents 2.03% of the U.S. GDP, according to Winston, “that’s an indication of where we’re headed.” Transparency, whether voluntary or forced, is paramount and Winston said that government needs to mandate it.

Toyota seems to be winning the green branding game, according to Winston, with their Prius hybrid car, which he said “is the quintessential green business story. It created a halo around the Toyota brand because they are now known for innovation.”

“Get lean, get smart, get your people on board, and get creative” are the “keys to a green economy,” according to Winston. He stressed that you need to ask, "What’s your heresy for the business you work in? You have to ask it or your competitors will.”

Following are abbreviated selections from some of the panelists.

Panel 1 – Identifying Green Business Opportunities – “Be Realistic”

The morning panels focused on the nitty-gritty of identifying and financing these green businesses, from wind turbines to “clean coal” technologies, to nuclear power, to converting waste into building materials, to solar energy.

“We’re trying to predict the future right now,” said Bob Prantil of GE Energy. If China and Europe are putting in place more incentives to use renewables and grow renewable industries, then the big corporate investments, such as from GE, will follow – and the U.S. could lose out if we don’t respond quickly. It’s about creating jobs, for today and tomorrow.

Nuclear plants are expensive and scary, conceded Leslie Kass of the Nuclear Energy Institute, but “it’s a good time for nuclear energy.” With costs as high as $1.5 to $2 trillion to rebuild the aging nuclear infrastructure as well as to build new plants, companies require government support, from tax credits to low-cost financing and loan guarantees. To reduce the fear, and speed up the process, Kass suggested bringing the public into the process early. Using the euphemism “Used Nuclear Fuel Management” for nuclear waste, Kass said there is a “Blue Ribbon Commission developing a new plan that provides confidence.” Couple that with a new regulatory framework that has to come from the Nuclear Regulatory Commission to evaluate facilities, and “you’ll see a cautious and deliberate plan for nuclear energy.”

Panel 2 – Financing Green Business Opportunities – “Picking Your Partners is Essential”

The financing of new green businesses is unique in that they tend to be capital intensive, “because there’s more metal, more steel and more engineering required in the green sector,” as panel moderator Brian Barnett succinctly stated.

Panelists did an excellent job of outlining their criteria and processes for funding companies at various stages of development. A common theme, particularly emphasized by Julia A. Pulzone of the Global Environment Fund, is that “entrepreneurs need to have a realistic sense of what the business opportunity is.”

“The keys to success in ventures,” Pulzone added, “are a solid business plan that includes identifying the risks, a talented team with expertise in the sector and an understanding of the market as well as an ability to access customers through strategic alliances, and a technology that is proven and meets customer needs as well as overcoming obstacles to adoption.”

Steve Cohen a partner from the conference co-host Morgan Lewis, focused on looking forward, saying, “The way to make a really superior return is to focus on what will happen in the time after the next five years,” and outlined high-level trends that will create those returns.

Michael Howe from GreenWorld Capital thinks “there will be meaningful opportunities in mergers and acquisitions coming” in the clean tech sector because “more funds are looking for alternative ways to generate liquidity. This is especially in this “favorable political environment,” in which he “expects” an energy bill, a “green bank” and carbon legislation to be passed. He summed it up stating “picking your partners is essential because of all the risks and variables.”

Diana Jensen of the Overseas Private Investment Corporation (OPIC) explained OPIC’s role as the government’s development bank, providing debt financing for projects in emerging markets where commercial markets are unlikely to lend and where the risks and impacts are political as well as commercial. These include a solar project in India, a woodchip project in Liberia, and a housing project in Poland.

“We are Simply Not Grasping the Gravity of This Moment” - “A Shift in Capitalism”

“Within 20 or 30 years, we will have open oceans in the Arctic, and we haven’t seen open oceans for millions of years – we are simply not grasping the gravity of this moment. We are on the verge of a billion people facing starvation and . . . may potentially see the extinction of our species.”

Such was the ominous opening of the afternoon keynote address by Jeremy Rifkin, the author of 17 best-selling books on the impact of scientific and technological changes on the economy, society and the environment.

He said that the climate change situation is much worse than we’re being told by public officials “because it has been watered down for public consumption. If we go up two or three degrees, the scientists say we lose between 25 and 75 percent of all the assessed species on the planet.”

“What’s missing from this debate is that we need a new economic vision, a new economic game plan; a vision we understand, that’s practical, that we can implement quickly, and that we can bring the whole global community into. It’s going to be up to the business community to make this work and quickly. We are on the verge of a Third Industrial Revolution.”

The key? “When energy revolutions converge with the communications revolution is when civilizations change, because it changes the gestalt,” according to Rifkin. “What’s different is that this communication revolution is opensource” with the Internet, and “when distributed communication converges with distributed energy, we have a more powerful industrial revolution, because it encompasses its own infrastructure. The whole infrastructure has to be applied at the same time.”

Rifkin said there are four pillars to this Third Industrial Revolution: (1) renewable energies are distributed (because they aren’t in our backyard); (2) “buildings are the problem and the solution” – each building could be a small power plant; (3) storing renewable energy; and (4) the supergrid and international grid, peer-to-peer across the whole intercontinental grid – collaborated power.

“We’re talking about power to the people . . . I’ve never seen a shift in capitalism like this,” Rifkin continued. "The distribution opportunities are enormous.”

But it requires us to “increase our empathy to all our fellow human beings and to all our fellow creatures. We need to see our interconnectedness. We need government and business and civil society to come together. I don’t know any other generation in history that has a challenge like this . . . to save the earth.”

Panel 3 - Where does Government Come in?

Identifying and applying for government funding for your venture is always an ordeal, but the third panel helped provide some guidance. From Department of Energy/Recovery Act funding, to USDA Rural Development funding, to the State Department’s Green Working Council, and a small business advocate, many good pointers were given.

Bring it all together: strategic business decisions need to be made in the face of climate change and government action (or inaction). As Jeremy Rifkin said, it all has to happen together, and this is where it gets dicey, because business moves much more quickly than government, and climate change won’t stop while governments deliberate.

As Lily Donge of Calvert Investments quantified it, most of it will be financed by the private sector, “for every $1 of public money invested, between $3 and $15 of investment can be generated.” But we don’t yet know the risks because legislation is still being drafted. Nevertheless, we can assume that fossil fuel refineries will lose, alternative sources may gain, and that there are likely to be climate impact requirements.

Doug Cohan of RiskMetrics provided an extremely cogent presentation on the hard issues of climate change. Most of the warming has occurred in the past few years, from 2001 to 2007, he said. This includes temperatures rising measurably, and areas drying up causing terrible drought problems, and transportation, coastal protection and power supply problems worldwide. “We really only have one degree of warming to go before we go beyond our two-degree limit” and the “adaptation costs” we may not want to spend, but we don't have a choice.

Panel 4 – The Impact of Climate Change on Business

Ron Tenpas, an environmental partner from the conference co-host Morgan Lewis, suggested “a business framework for thinking about Climate Regulation” in order to “win the carbon windfall.” State, local and federal government entities are putting in place conflicting initiatives, Tenpas posited. But the key is they can be broken down into three areas: changing energy use, reducing energy use, and storing energy.

Traditionally, environmental strategy has been dictated down from the government, but this time it’s market-driven and economy-wide, Tenpas said, adding that the government initiatives are creating new asset classes, such as the “carbon allowance,” and “renewable portfolio standards.”

The incentives seem to be more “old than new,” Tenpas continued. These include weatherization, infrastructure to accommodate electric vehicles, increased mileage standards, and national building efficiency standards, but there are no legal regimes for these initiatives yet.

Obviously, there are both opportunities and risks in this new green economy, so it’s critical to do the proper research, pick the right partners, question assumptions, consider that this is a new economic paradigm so the old systems might not apply (and might lead you astray). Entrepreneurialism has always taken courage, but the green economy means that on some level, we are all facing the same need for courage, because everything is changing – at once.

Welcome aboard to the Third Industrial Revolution, and this one is green.

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A complete listing of all the speakers and PDFs of the PowerPoints plus the Program Book can be found at this link: http://www.morganlewis.com/greenbizsummit