Monday, March 19, 2018

Top retailers demand zero carbon building standard

A group of retailers – whose members include Aviva, BT, Cemex, Ikea, Kingfisher, M&S, Nestle, Sky and Tesco – have criticised the UK government for not doing enough to improve energy efficiency in non-domestic buildings and asked for a zero carbon building standard to be set.

This piece first appeared on The Fifth Estate on 19 March 2018

They want to see a target for the UK’s building stock to be nearly zero carbon by 2050, and the establishment of a new zero carbon buildings target to be enforced by 2020, to be followed by a truly net zero carbon buildings standard.

Known as the Aldersgate Group, they took a year to look at structural challenges in financing the creation of low carbon infrastructure, and, based on interviews with businesses and investors, found that a chief problem is a lack of clear policy goals to help unlock private sector finance in order to meet decarbonisation targets.

As part of 30 recommendations for government, business and investors in their new report, Towards the new normal: increasing investment in the UK’s green infrastructure, they are urging the UK government to commit to support the growth of green investment over the long term, set better targets and to “enforce more strictly” existing energy efficiency policies.

They want an increased ambition to upgrade the UK’s domestic buildings to EPC band C by 2035 broadened to apply to commercial buildings.

Alex White
Alex White
Alex White, the report’s lead author and senior policy officer for the Aldersgate Group, said: “Over the next three decades, the UK needs hundreds of billions of private investment in green and resilient infrastructure to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan. But investment isn’t happening fast enough on its own.

“The government must catalyse action on green infrastructure investment now to move the financial system towards a new normal if we are to meet our policy goals cost effectively while maximising benefits for UK plc.”

The group’s report suggests government could engage a wider base of investors by establishing the potential size of the market, and creating tax breaks for energy efficiency investment by businesses. It says government could help boost the uptake of service agreements with energy supply companies by offering short-term guarantees on contractual risks, such as one of the parties going bust.

Government should also lead by example and mandate greater energy efficiency across all publicly owned building stock, the Aldersgate Group says. This would create a project pipeline, increase investment flows and potentially lower costs for private sector firms.

Other recommendations include adjusting financial regulations to encourage long-term investment in green infrastructure, such as introducing a legal duty for all fiduciaries (such as pension fund trustees) to consider financially material environmental and social governance (ESG) risks.

All planned infrastructure spending should pass a “green” test with sustainability requirements in all public procurement, including supporting local government with standardised power purchase agreements and energy management services contracts, Aldersgate Group says, to avoid locking in emissions for the future and to maximise resilience against flooding and future climate-related risks.

Finally, the group wants to see the issuing of a sovereign green bond and municipal green bonds to help fund the delivery of low carbon projects and address a potential drop in financing from institutions such as the European Investment Bank.

The report is released in conjunction with four separate briefings, which explore in detail several of the specific barriers and solutions to key types of green infrastructure investment:

  • Increasing investment in domestic energy efficiency
  • Increasing investment in commercial energy efficiency
  • Increasing investment in low carbon power
  • Increasing investment in natural capital
Steve Waygood, chief responsible investment officer for Aviva Investors, welcomed the call to “use the dormant assets within the insurance and investment sectors to introduce a national financial literacy campaign to educate people about how their money is invested and how this shapes the world they retire into”.

“This would help create sustained demand for sustainable investment, helping to grow the UK economy on a longer term and more sustainable basis for the future.”
Emma Howard Boyd
Emma Howard Boyd
Emma Howard Boyd, chair of the UK Environment Agency, commented that “some businesses are already alive to the risks and opportunities presented by climate change, but not enough”.

She said that the UK could show international leadership “with financial innovation to counter increased risks from droughts and storms”.

“The government’s Green Finance Taskforce is currently discussing how to accelerate investment in resilience, so this report is timely and helpful.”

Boyd is a member of the taskforce herself, which is a cross-departmental initiative working with industry to accelerate the growth of green finance. She says there are plenty of investment opportunities presented by climate resilience.

“Flood protection is good for the economy,” she argued recently. “It allows companies to do business in severe weather by keeping their properties open, and their supply chains moving, as well as the transport links that bring in customers and trade.”

Are pension funds ready for climate change?

But fiduciary bodies such as pension funds have a long way to go before they can appreciate the risks. A self-selecting survey carried out by the trade magazine Professional Pensions suggested continuing widespread misunderstanding. It found that 53 per cent of trustees, scheme managers and pension professionals did not see climate change as a financially material risk to their own or their clients’ portfolios.

Similar, qualitative research by the pensions law firm Sackers indicates that many trustees do not pay significant attention to ESG issues: “[Trustees]… consider ESG and external governance reviews to be low priorities. Some participants were not sure what ESG meant … Some see ESG as a distraction or potentially detrimental to achieving the scheme’s goals.”

The Financial Conduct Authority is currently considering whether to make reviews of such risks mandatory.

Mary Creagh
Mary Creagh

As part of a wider inquiry, Mary Creagh, the chair of the UK’s cross-party Environmental Audit Committee, last week wrote to the top 25 pension funds in the UK to ask how they manage such risks.

She said in her letter: “The climate change risks of tomorrow should be considered by pension funds today. A young person auto-enrolled on a pension today may be 45 years away from retirement. Over that timescale these climate change risks will inevitably grow. We are examining whether pension funds are starting to take these risks into account in their financial decision making.”

Pension funds have yet to respond to her, as has the government to the Aldersgate Report’s recommendations. Business as usual will not change without concerted effort and stimulus, and legislation, procurement strategies and tax breaks are three tools the government should deploy.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference.  He’s also the author of  Energy Management in Building and Sustainable Home Refurbishment.

Tuesday, March 13, 2018

In a massive sustainable investment market, energy efficiency offers huge returns

One in every five dollars invested professionally in the US is now invested sustainably. And while investment in projects that reduce greenhouse gas emissions are rising globally, the market for energy efficiency remains under-satisfied compared to its potential and the market for renewable energy investment. Here’s why.

A version of this piece appeared in The Fifth Estate on 6 March 2018

The size of the market

It can be confusing for beginners. There are green bonds; sustainable, responsible and impact investing (SRI); and environmental, social and governance (ESG). But whatever you call it, more and more investors are seeing the benefit of putting their money into sustainability.

According to the last Global Sustainable Investment Review, at the start of 2016, global sustainable investment assets reached US$22.89 trillion (AU$29.47t), a 25 per cent increase from 2014. Europe accounted for over half of these assets (53 per cent) and the United States 38 per cent.

The market size of SRI investing in the United States alone was US$8.72 trillion (AU$11.23t) as of 2016 – double what it was just four years previously – representing one in every five dollars invested, according to SIFMA, an association of broker-dealers, banks and asset managers for businesses and municipalities.

How it works

Impact investing refers to investments “made into companies, organisations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return”.

The Global Impact Initiative is a global champion of impact investing, dedicated to increasing its scale and effectiveness around the world. It was founded by Giles Gunesekera in 2015. Speaking alongside last month’s Cayman Alternative Investment Summit he said he started it “to provide investors – foundations, family offices, pension funds, endowments – with bespoke solutions that would allow them to allocate to impact investing strategies”.

“We map these bespoke impact investing strategies to the UN Sustainable Development Goals (SDGs) and utilise professional investment managers alongside social impact investment firms to ensure the strategies we build for clients meet their financial and social impact targets.”

Schemes often use the ESG framework:

  • Environmental: How is the company disposing of hazardous waste? Is it managing carbon emissions? To what extent is it meeting environmental regulations?
  • Social: Does the company support philanthropic and community-focused initiatives? Are employees provided with access to health care and other key benefits? Is leadership promoting diversity?
  • Governance: Are company leaders appropriately qualified for the role, and are they communicating a coherent strategic vision? Are their compensation packages appropriately aligned with performance? Is the C-suite communicating effectively, and transparently, with shareholders?
Gunesekera says that pension funds hold the key to doing impact investing at scale. Australian and US pension funds are behind those in Europe and Canada when it comes to embracing impact investing because their trustee boards behave very conservatively due to their size. But he adds that “it will only be a matter of time before they catch up”.

His colleague Don Raymond of Alignvest Investment Management believes that “impact investing should be integrated across all investments, and not just part of a separate portfolio.”

Increasing demand and the problem with energy efficiency

While all are in agreement that impact investing is increasing, it must be driven by demand, part of which is the issuing of green bonds by, for example, municipalities to promote investment in energy efficiency.

According to Steven Fawkes of the Investor Confidence Project (Europe), this too is increasing, but he says that “more investing in energy efficiency is going on outside of the green bonds market because green bonds themselves are limiting in terms of what you can use the money for”.

There are also greater transaction costs, principally in terms of verification. Fawkes cites by way of example the fact that in the US “many more buildings are constructed according to the LEED gold standard (the highest certified standard for new energy efficient buildings) than are publicised because while the standard in itself is open access certification is expensive and it is easier for developers not to bother to certify”.

Investment in these projects would not be recognised by impact investment or green bond statistics because they would likely be financed in a more conventional investment market.

For the market to grow, therefore, transaction costs need to be reduced and offerings become more investor-friendly.

It is presently much easier for investors to invest in a renewable energy project than an energy efficiency one because the capital investment, project management, technology and return on investment (ROI) are much more easily accountable. This is partly because the ROI on energy efficiency is less predictable due to the influence of human behaviour on the outcomes.

This is exemplified by the following graphs:

The growth of the portfolio of the GCPF and the types of projects invested in. Renewable energy investments have secured more than double the CO2 savings of those in energy efficiency (buildings and industrial processes), according to their annual report for 2016, (although this is by outcomes not by investment type, which the report does not quantify).

Moreover, especially in developing countries, which are typically way behind in terms of understanding and implementing energy efficiency, the early rewards for implementing an energy efficiency program typically yield between seven per cent and 50 per cent returns in just a few months – without any capital investment at all. The savings come from changes in behaviour. Fine for the company, but of no interest to investors.

Yet this is where the greatest potential lies. Non-OECD economies have a higher energy intensity than OECD economies, partly because they tend to be more focused on growth at all costs, and on energy-intensive industries such as the manufacturing sector.

Returns can be even better than 50 per cent. According to Bettina Schreck, a project manager for the South American industrial energy efficiency program of the United Nations (UNIDO), in Ecuador “a government macroeconomic study assessed the cost-effectiveness of its monetary contribution to an industrial energy efficiency program in terms of direct energy savings by analysing the average savings for all sizes of industries”. This was based on her organisation’s experience in other countries.

The conclusion?

“Whether the viewpoint was from private or public sector, and calculated over the three years of the project or the lasting benefits beyond, the internal rate of return ranged from 50 per cent to 170 per cent and the payback period was approximately one year. The conclusion was that investment was beneficial from both social and private enterprise perspectives.”

For any investor, that would be a massive benefit.

The size of the market for energy efficiency

The potential size of the market for energy efficiency is huge compared to other sectors in impact and climate finance. The global energy efficiency opportunity will require global investments of around US$50 billion (AU$64.4b) a year over the next few decades according to the Global Climate Partnership Fund (GCPF). It also represents a lower cost investment for the same emissions reduction than other types of investment such as renewable energy.

There are many global trends requiring such investment: the increase in energy demand management, storage, renewable and on-site generation, and net metering; the development of value chains in climate-friendly technology; sustainable cities; reducing wastage in the water sector; the growth of the circular economy; and the growth of digitisation – cheaper metering and sensors, the Internet of Things (IoT), cloud computing and big data analytics.

But there is a huge challenge to make unlocking energy optimisation easier than it currently is. It is not always investor-friendly.

In a recently conducted survey, the Global Climate Partnership Fund investment manager responsAbility asked green lending experts from the developing world about their expectations and experiences in the area of green lending. They found that the main drivers were client demand and international support – green branding and regulatory incentives.

Awareness has also improved.

“The most important change is in the knowledge of clients. Previously, most of them had no idea what energy efficiency financing is. Now they know a lot more about it,” head of green lending Luke Franson said.

A lack of green lending expertise was perceived among survey respondents as the greatest threat to scaling-up energy efficiency finance – not, surprisingly, low fossil fuel prices.

“The mindset of entrepreneurs who see capital expenditure as a waste and not a measure to drive efficiencies is a challenge,” said Gustavo Adolfo Calderón Palma of Banco Pomerica.

Impact investment tools are constantly being refined and developed to make these transactions and their attractiveness easier and easier to see.

UNIDO, for example, is working on a more standardised assessment method for projects with cost-benefit analysis at national and business levels, and ways of measuring the non-economic benefits of EnMS implementation at both levels to build the business case. This will include a software tool for companies to identify multiple sources of added value.

The benefit of an EnMS

For energy efficiency, it is vital that a company or organisation has an energy management system (EnMS) in place that uses the ISO 50001 standard.

ISO 50001 was designed “to enable an organisation to establish the systems and processes necessary to improve energy performance, including energy efficiency, use and consumption”.

It is applicable to all types and sizes of organisations irrespective of other conditions and can be applied in all sectors. It dovetails with other management standards such as ISO 9001 (quality management) and ISO 14001 (environmental management).

Although the introduction of EnMS always leads to no-cost and low-cost savings, long-term and larger energy savings will come about through investment projects. According to Marco Matteini, another UNIDO project manager who also worked on developing this standard, “Adopting ISO 50001 can help boost investment by better preparing firms to receive external investment as well as optimising capital expenditure. The use of EnMS also improves the ongoing monitoring of project performance after investment.”

This is because having an EnMS helps management to recognise the value of energy efficiency, therefore making approval of energy saving capital projects more likely.

Presently only 10 per cent of energy efficiency projects are externally financed, and industrial companies often find difficulties with decision making in areas beyond their core business. According to UNIDO’s Rana Ghoneim this means that a desirable tool for investment in the future will be “some kind of underwriting toolkit and templates for energy efficiency investment”.

One new tool is a new version of the European SRI Transparency Code, which is geared towards guiding asset managers to meet relevant requirements for their products in SRI. It’s been developed by Eurosif to be in line with the recommendations made by the Task Force on Climate-related Financial Disclosure.

A free, online database for investors and financial advisors has also just been published by Impact Assets, a subsidiary of Calvert Impact Capital, listing 50 private capital fund managers that deliver social and environmental impact as well as financial returns. If you’re new to this, then it’s a good place to start to begin research on the impact investing sector.

Impact investment is clearly growing, from being a small kid on the block to a major player.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Thursday, March 08, 2018

Barcelona: The world’s most radical city?

Spain’s Barcelona is spawning a new era of citizen-led activities that rely on co-operatives organising a range of activities, often based on barter markets and including a network of common stores, an alternative currency called the “eco”, a cooperative social fund for financing community projects and a “basic income program” for paying members for their work – all while heading down the smart city/low energy route. What does it mean to be a self-proclaimed “fearless city”?

[First published on The Fifth Estate on 27 February 2018]

Barcelona has a long and radical tradition going back to the anarchist collectives documented by George Orwell in Homage to Catalonia, his book about his experiences fighting alongside anarchists against the fascist forces of General Franco. It is unsurprising, then, that, following the particularly severe effect upon Spain of the banking crisis of 10 years ago, creative grassroots responses to austerity have emerged.

Grassroots mayor

Barcelona's mayor Ada Colau
Barcelona's mayor Ada Colau

Barcelona is home to a radical grassroots and citizen-led movement that coalesced in June 2014 under the “Yes we can” (Podemos) slogan into the platform Barcelona en Comú, an organisational structure for individuals, activist groups and political parties. This linked networks of local assemblies allowing people to engage in policy decisions.

Ada Colau, a former housing activist, astonished everyone when in June 2015, as part of Barcelona en Comú, she was elected mayor – the first woman to hold the office.

“Democracy was born at local level, and that’s where we can win it back,” she declared.

She had been a founder of the Plataforma de Afectados por la Hipoteca (Platform for People Affected by Mortgages) that was set up in 2009 in response to the rise in evictions caused by unpaid mortgage loans and the collapse of the Spanish property market (she co-wrote a book, Mortgaged Lives, based on her experiences).

In one of her first speeches Colau called for “an end of the political class removed from the people”.

She was not alone: the same year saw radical mayors elected in Madrid, Valencia, Zaragoza and La Coruña and together they announced the Rebel Cities network – a group of cities confronting central government, devising their own policies, and making a worldwide plea for other cities to join. A handbook is available for other cities to follow.

The Catalan Integral Cooperative

From the same movement that gave birth to Colau came the Catalan Integral Co-operative (Integral is perhaps best translated as holistic). Its goal is to build an anti-capitalist co-operative structure not just for the benefit of its own fee-paying members but for the commons as a whole.

“The main objective of the CIC is nothing less than to build an alternative economy capable of satisfying the needs of the local community more effectively than the existing system, thereby creating the conditions for the transition to a post-capitalist mode of organisation of social and economic life,” writes George Dafermos, author of a new report on the co-operative.

The AureaSocial building
The AureaSocial building

Since its formation seven years ago, headquartered in the AureaSocial building, it has been actively involved in developing infrastructures as diverse as barter markets, a network of common stores, an alternative currency called the “eco”, a cooperative social fund for financing community projects and a “basic income program” for paying members for their work.

Its activities are not confined to Barcelona, but extend across Catalonia.

The CIC is a collection of about 10 committees with responsibilities for different topics. For example, the economic management committee, the legal committee, the IT committee and so on. Each works largely autonomously but to coordinate their activities, the co-op holds “permanent assemblies” once a month where members make collective decisions based on consensus.

It has about 600 “self-employed members”. There are also 20 self-managed pantries run by local consumer groups wishing to purchase products made locally or by producers associated in other parts of Catalonia, chosen through an online list of over 1000 items supplied by currently 70 producers and distributed by vans.

According to Dafermos, the co-op is “based on direct exchange and the use of alternative community currencies”.

“The way this ecosystem operates represents the model of the autonomous public market envisioned as a means of satisfying the needs of the local community… a model for the transition to a post-capitalist economy.”

A minimum income scheme

This radicalism extends to the official level. The city is one of several places in the world that are trialling a minimum income scheme – B-MINCOME – in two of the city’s poorest barrios. Here, citizens receive a guaranteed minimum level of income. Receipt for some of them is conditional upon agreeing to some level of community work, by volunteering. Others have other conditions, or none at all, and the results of the trial will be evaluated to determine the most successful model.

The designers of the scheme – which is supported by a grant from Urban Innovative Actions, a European Commission initiative that supports projects investigating “innovative and creative solutions” in urban areas – took experience from the governments of Finland, the Canadian province of Ontario and the Dutch municipality of Utrecht, all of whom have designed guaranteed income experiments in their own areas.

Barcelona is going smart city as well

Barcelona is also smart in the digital and eco senses of the word. As one of the leading smart cities worldwide, 50 per cent of street lighting are LEDs fitted with sensors to switch on when they detect motion and dim when streets are empty, saving 30 per cent of previous energy.

Around 19,500 smart meters monitoring and optimising energy consumption have been installed across the city, including a sensor system helping drivers to locate available parking spaces, reducing congestion and emissions.
There is a Bicing app, providing updated information on the location of public bike stations and bike availability, and the city has one of the biggest free public WiFi networks in Europe.

Smart technology is also used to improve the speed and efficiency of the city’s new orthogonal bus network, and digital bus shelters are also in place. The proposed new bus network is based on an orthogonal grid scheme, which has emerged as the most efficient in urban systems. This network ensures the isotropy of the territory – equally covering all parts of the municipality. This improves connectivity between the lines and accessibility for all users.

The new scheme is not only functional but also more “readable”, and is structured similarly to the metro and a network becomes easily understandable. Furthermore, the great majority of targets are achieved with a single transfer, simplifying use of the bus network and avoiding the current need to know each line individually.

Superblocks road de-trafficking scheme in Barcelona
Superblocks road de-trafficking scheme in Barcelona

Superblocks cutting traffic

All of this is helping with the superblock project, to be piloted in four areas in the city.

This will remove traffic from city streets to create pedestrian-centric neighbourhoods that improve health and sustainability, and reduce pollution. It was adopted as a centrepiece of the city’s mobility plan in 2015 to remove cars from within the superblocks, “liberating” 70 per cent of the city’s land for public use, according to Salvador Rueda, director of the Urban Ecology Agency of Barcelona.

Focus for change

Now calling itself a “fearless city”, Barcelona is positioning itself as a focus for a movement, hosting a Fearless Cities summit in June and a Smart City Expo in November, on defining cities as radical, citizen-empowering places.
According to Dr Bertie Russell, research fellow at the Urban Institute in the University of Sheffield in the UK, Barcelona and Madrid’s decidim process of citizen involvement in decision-making is good because it allows citizens to set the policy agenda, not just react to it.

He supports the trend to “establish non-market, non-public sector initiatives – urban commons – and recognises their right to self-determination”, citing as another example, “Naples’ decision to create a Department of the Commons and provide a legal status for previously squatted social centres.”

A mayor who has reduced her salary and invites other mayors to visit

Local activist Edu Salvador also thinks this is a good approach: “Through her leadership in international conferences of cities, Colau has been active in bringing to Barcelona mayors from main progressive cities of the world. She is a responsible mayor, and has reduced her salary – the salary of the previous mayor was outrageously high.”

Barcelona – home of Antoni Gaudí – is continuing to be every bit as revolutionary as that unique man’s architectural style, pioneering 21st century solutions that address the kind of citizen disillusionment with power that has fuelled reactionary movements elsewhere in the world in the past few years. But by positioning itself within an alternative movement, it is determined that its ideas can be replicated and supported elsewhere.

Read David Thorpe’s surprisingly uplifting post apocalyptic short fiction work set in Barcelona here: For The Greater Good.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Thursday, March 01, 2018

Weekend course in Sussex on One Planet Development

Interested in #oneplanet living? Want to find out more? Come on a weekend residential course in April in the beautiful retreat of @Emerson_Colleg in Sussex.

Find out about the most sustainable ways to live and nurture yourself and the planet.

More info: