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Collins Climate Consulting Blog http://startupcafe.org The money is on climate change. Tue, 13 Mar 2018 18:03:59 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.10 48348800 Top 5 Takeaways from Climate Week http://startupcafe.org/?p=711 http://startupcafe.org/?p=711#respond Wed, 27 Sep 2017 17:01:05 +0000 http://startupcafe.org/?p=711 Continue reading ]]> It was not business as usual last week in New York City. My ride in from LaGuardia took 2 hours and streets were blocked throughout the city for global diplomats attending the UN General Assembly. Climate Week was just a part of the city’s mélange of activity, with events sponsored at every corner from Columbia University to the World Trade Center. Most of my sessions were small “invitation-only” gatherings of financial folks discussing how climate change could be managed and measured, as finance people like to do. Here are my top takeaways from the week:

  1. Climate change is not a weather problem. What the average public sees as climate change is the horrific hurricanes that blot out cities, homes and livelihoods. But what may have the most impact on companies are the slower encroaching changes to technology, products, consumer preferences and financial reporting – all driven by a changing climate. These market shifts will impact corporate and small business revenues, expenses, share prices and capital in profound ways.
  1. You can have anything for a price. If managing climate risks is not for you, then you can keep your investments and your company as is – for a price. Rating companies such as S&P are looking not so much to control climate risk, as to price it. Securities with little management of climate risks will be priced more like a junk bond to reflect the higher risk these companies are taking.
  1. Just because you’re not on the field, doesn’t mean the game isn’t on. More simply put – the game is on. Vanguard, BlackRock, State Street, S&P, JPMorgan are all assessing climate risk, pricing it, correlating it to performance and expecting their portfolio companies to follow suit. If you invest in a publicly traded company, this should matter to you. If you work for a publicly traded company, your strategies and internal financial management will eventually feel the heat of widespread investor expectations for understanding and managing climate risks and opportunities. This year, dormant shareholder proposals related to disclosure and management of climate risks finally started to pass. Never under-estimate the risk of doing nothing.
  1. Alpha is everywhere. Even in the dismal discussions of hurricanes, drought and flooded cities, there is room for optimism. Change always brings opportunity, and climate is no exception. There are the most obvious opportunities for investment and innovation around electric vehicles, energy storage, drones, digital solutions, lighting and infrastructure. But unlikely companies such as P&G and VF are also finding profitable new products driven by climate change, from cold-water washing solutions to new product lines. And climate analytics, climate-related healthcare and green products are new market categories.
  1. Thelma needs Louise. One of the biggest barriers to disclosing climate risk or to setting aggressive environmental goals, is the risk of going it alone. Companies see the downside of laying out all their risks to investors – what good can come from that? Businesses are hesitant to highlight risks they cannot manage – and the weather surely seems to be one. Yet the actions of Vanguard and BlackRock to push all their portfolio companies on climate helps everyone jump together into acknowledging what’s coming. These large asset managers can help drive a positive feedback loop – by encouraging companies to get ahead of risks, they can help bend the curve away from negative impacts and preserve strong operations and returns for everyone.

At the end of the week, I found myself at the World Trade Center’s new transportation center, dubbed the Oculus for its design and lighting. It is a glorious symbol of creative resilience, a bold show of determination to transform disaster into beauty and functional elegance. It seemed a fitting place to settle my thoughts after a week of climate discussions, swathed in the glow and bustle of innovation at its best. An inspiration for our persistence.

 

 

 

Photo credits:  Photos of the Empire State Building and inside and outside of the Oculus taken by author during Climate Week 2017.

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What’s your carbon karma? http://startupcafe.org/?p=700 http://startupcafe.org/?p=700#respond Thu, 06 Jul 2017 18:47:19 +0000 http://startupcafe.org/?p=700 Continue reading ]]> Everyone knows their credit score, right?  Companies like Credit Karma and LendingTree have popularized the mundane metric, making it mainstream for most Americans. In fact, according to iSpot.TV, Credit Karma has aired 13,299 ads in just the last 30 days!

So what if we could take the idea of credit scoring to one of measuring risk related to carbon? A carbon score would be a standard, recognized number that rates a company’s risk based on internal and supply chain emissions as well as a range of factors impacting technology innovation and marketing in the shift to a low-carbon economy. This carbon score would apply to companies in all sectors, well beyond just fossil fuel-based firms.

Investor interest is growing

Investors are starting to create just this type of carbon scoring. Let’s look at what BlackRock, S&P and Bloomberg are doing to create these tools. BlackRock, the world’s largest asset manager, believes that climate and carbon risks are underpriced in their portfolios, so has developed a holistic climate score accounting for physical, technological, regulatory and social risks. BlackRock aims to “climate-proof” their portfolios by investing in companies poised to benefit from a low-carbon economy, and by under-weighting companies that are ignoring global trends.

Many risks that BlackRock evaluates have a flip side of opportunity:

  • Physical impacts (extreme weather, sea level rise and increasing temperatures)
  • Technological developments (renewable energy, electric vehicles, batteries)
  • Global regulatory requirements (such as France’s Energy Transition Law)
  • Consumer activism and growing preference for sustainable products

While BlackRock’s scoring is for their own use, S&P has developed a similar metric for their corporate bond issuers. The S&P score ranks issuers on a five-point scale measuring exposure to Environmental, Social and Governance (ESG) risks, with a strong emphasis on environment.

Bloomberg has created a Portfolio Carbon Footprint analysis which they presented at the CDP Spring Workshop that I attended last April in New York. Bloomberg offers portfolio managers tools to evaluate the carbon efficiency, intensity and impact of their portfolios compared to a benchmark, using both proprietary and CDP data. Traders can drill down with attribution data to determine which sectors and companies are driving up a portfolio’s carbon risk, and reallocate as necessary while maintaining overall portfolio performance. The Bloomberg data allows investors to manage carbon risk in a way that I think of as an “efficient frontier” approach to balance risk and return.

These disparate efforts foretell just the beginning of investor interest in understanding carbon risk and the relevance to their investments. One challenge for broad adoption is that carbon risks show up over the long term, not in next quarter’s earnings, perhaps making these tools initially most attractive to longer term investors such as pension funds.

How should companies respond?

As adoption of these tools becomes more mainstream, companies would do well to understand what investors are looking for and how their share prices could be impacted. Capital reallocations could pose “phantom” risks to companies as capital bleeds off gradually from companies racking up high carbon or climate risk scores. Portfolio managers seldom call to let investor relations know their shares have been dumped.

The investment world needs a standard, recognizable carbon score that companies can understand and manage. While investors are working to optimize their portfolios, the real win from a global view will be when thousands of companies understand the how their carbon risk is calculated and start working to repair their scores by lowering emissions and creating more resilient businesses. Competition in the consumer credit world supports three different credit bureaus – TransUnion, Experian and Equifax – yet the meaning of the FICO score holds true universally and drives credit repair services to lower borrowing costs and access to credit. Just think what a broadly recognized carbon score could do to repair corporate and global climate risk.

Photo taken by author during trip to Tibet in 2011.

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Are investors calling the shots on climate? http://startupcafe.org/?p=685 http://startupcafe.org/?p=685#respond Wed, 03 May 2017 22:13:26 +0000 http://startupcafe.org/?p=685 Continue reading ]]> When I did my case study research on why Fortune 500 companies set climate targets, the feedback I heard was counter-intuitive. I was told investors were not an influence on environmental goals – that would be micromanaging. I heard that cost savings were no longer a primary motivation – those days had come and gone. And business cases? They were used by line managers to implement goals effectively, but the targets were set without bottom-up numbers.

All of this perhaps reflected the maturity of the companies I interviewed. Each had been working on their environmental initiatives for years, seeing continual savings and impact, along with growing pressure from their customers. Never wanting to appear forced, companies were prone to position their goals as driven by their leadership stance rather than dictated by others. But is investor pressure starting to count?

BlackRock recently announced that climate risk will be a “key engagement theme” in 2017 as the largest asset manager in the world seeks to understand how management at its portfolio companies are assessing climate impacts to their businesses. While BlackRock was tempered in its announcement, it made clear that it will not be placated, and unanswered concerns will be elevated to portfolio company Boards, who will be expected to have a basic understanding of the risks climate change may pose to their core business strategy and operations.

This may be a watershed moment for the role of business in climate change. The first step to any change is admitting you have a problem, so disclosing in writing that you are or are not considering the physical, legal, technological and social risks of climate change is that foot on the ground.  A continual drip of questions will create a stream of issues that must be recognized or blatantly ignored.

Companies are wise to get ahead of stakeholder pressure, whether from investors, customers or regulators, so they can dictate their destiny. You may think of investor pressure as something suffered only by oil companies and utilities, but every company is about to get a wake-up call from its owners. Once BlackRock’s companies start digging into their climate risks, they will find upstream and downstream impacts that involve a growing circle of businesses. The bases are loaded for action.

Photo courtesy of Moses Luski.

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On Courting Startup Advisers http://startupcafe.org/?p=322 http://startupcafe.org/?p=322#respond Tue, 11 Apr 2017 01:20:56 +0000 http://startupcafe.org/?p=322 Continue reading ]]> Lady and hand (540x361)Most entrepreneurs are well aware of the benefits of courting and engaging strong business and technical advisers. Then why is it that founders often fail to attract the best talent for their outside team? Often short-sightedness and lack of willingness to give up any control or ownership get in your way.  Holding on too tightly may lead a founder to own something small, when your company has the potential to be much more.

What are the critical mistakes?

  1. Believing advisers should be passionate enough to give unselfishly.  Founders can be like missionaries, with zeal and a sense of sacrifice that leads you to believe everyone around you should share your passion. Commitment is important, but founders need to understand that interest and involvement from an adviser can be valuable even if it has its limits.
  2. Not understanding the advisers’ motivations. Advisers are interested in your business, and want to help, but they likely have some motivation for getting involved. Perhaps they are looking for a good long term investment, enjoy getting to know fellow advisers, want to add to their expertise in your industry, or want to share their knowledge. All of these motivations are acceptable, and the sooner you understand how to meet these needs, the more likely you are to attract and retain engaged advisers.
  3. Being stingy on equity. Ideally a committed adviser is provided a formal agreement and token stock options. With as little as a quarter point of equity, the adviser is not hoping to get rich. But, an equity or option grant demonstrates that the founder values the adviser’s time and is willing to make a small sacrifice to engage the adviser’s talent, experience and advice. Would you rather have 100% of a company with a small valuation, or attract four talented advisers and have 99% of something huge?
  4. Relying on friends. While good friends or family members may be supportive, they are likely not objective and may have less relevant expertise than your business deserves. Resist the temptation to take the easy way out.
  5. Not sharing news – good or bad.  Often founders fail to communicate because they want to protect their image, or they just get busy. But, learning news through a third party does not build trust.  If results or competitive inroads are unfavorable, be the first to let your advisers know. Likewise, share good news quickly, and take the opportunity to celebrate together.

Advisers can open doors, build your credibility, provide a wise sounding board, and help you steer clear of landmines. Recruit and nurture advisers as a valuable asset, and reap the  rewards.

Photograph courtesy of Gabriella Santander.

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Hugh McColl on Leadership – 9 Nuggets http://startupcafe.org/?p=455 http://startupcafe.org/?p=455#comments Sat, 18 Mar 2017 12:26:07 +0000 http://startupcafe.org/?p=455 Continue reading ]]> Hugh McColl has been speaking on leadership for over 40 years, and it never gets old.  A few years ago he spoke at the Entrepreneurial Leadership Circle at Queens University, which hosted an evening with Mr. McColl, former CEO of Bank of America. His delivery was as wry, direct, and compelling as ever and worth reflection.

Here are Mr. McColl’s top takeaways on leadership:

  1. Why would anybody want to follow you?  Leaders inspire with a vision to take people where they can’t go by themselves. Leaders show their followers a better world and a vision to get there.
  2. There’s a contract between leaders and followers – it starts with trust.  This contract is based on a simple reciprocal agreement – one person will get the job done, and the other will judge performance and compensate it fairly. [Author’s note: for startups, this may mean sharing equity]
  3. Delegating is the first act of trust. No matter how smart you think you are, even if you can leap tall buildings, you can’t accomplish it all by yourself. If you want to be big, if you want more money, you have to share responsibility with others to make it happen.
  4. Lead by example. Don’t ask anyone to do something you haven’t done yourself.
  5. Take care of your troops.  People can tell when you are in their corner, and will go the extra mile for you.  They can also tell when you are not in their corner.
  6. High energy is the most important quality when hiring.  Most people are smart, but drive and energy are the common denominators of winners. When recruiting partners and teammates also look for self-starters, those with the courage of their convictions and people who care about other people, which will come through with customers and colleagues (and ties back to trust).
  7. No one gets appointed as leader.  Nature hates a vacuum, so if you see an opportunity, then stand up and say “Follow me” with a vision.
  8. Leaders must tolerate disagreement. Without it, communication and ideas are stifled. Leaders must be willing to listen and change their minds. However, if colleagues are disagreeing to undermine or prejudice others, then they must go.
  9. Put the money on people who score.  If you’ve got more talent than company, then take that as your challenge to grow to keep strong talent engaged in your company.

Hugh McCollWhen asked what he was most excited about regarding Charlotte’s future, Mr. McColl sited the new companies being formed here and moving here. He sees the spinoffs and brains pouring out of our big companies as a huge catalyst for opportunity in Charlotte. He’s also excited about the light rail connecting uptown to UNCC and of course, the new baseball field in city center.

Mr. McColl, thank you for your years of mentoring and inspiring us!

 

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