Chapter 7
Unexpected opportunities for Innovators and Start-Ups
Fight for the things you care about, but do it in a way that will lead others to join you.
—Ruth Bader Ginsburg
The biggest challenge to large organizations globally is predicted to come largely from firms that were not likely to have been around perhaps even a few decades ago. In fact, it is the firms that are launched today that will shape the social and economic field of play in the next thirty to forty years. These are the ones with the most potential to leverage the principles of green management in designing for the future.
The problems that some of the most agile firms today aim to fix are smartly designing solutions to include social and environmental goals in their corporate strategy and to use these levers to boost their fiscal performance. In this chapter, we connect cutting-edge research to economic levers and gaps in the market and show how innovative new companies are deploying greener alternatives and scaling profitably. First, let’s explore the advantages start-ups have over large organizations in scaling innovative and breakthrough products:
Agility. Small businesses and start-ups can move nimbly to create breakthrough products that threaten the market size and margins of competitors.
Hunger. Large companies tend to ignore smaller business lines until it’s too late to compete. This creates space for small companies to move in and create disruptive technologies that transform the industry, embed themselves in a consumer-facing manner, and even become a component of large companies’ supply chains.
Upside. Unlike founders in a start-up, employees at a large company gain little upside from the success of a new project. Their efforts could result in a new white paper or at most an industry recognition for their sustainability efforts. But start-ups have the opportunity not only to own the market but to set new standards. These firms can acquire a social following, gain recognition from important industry groups and leaders for their transformative products, and scale.
Raising Capital
Your new product may be better (and cheaper) for your customer over the long term, but how does introducing it affect the lifetime value of your customers to your business?
For large corporations conducting a sustainable supply-chain transformation, the risk of losing customers over a short-term price increase is real; however, for a start-up or a nimbler small business in the sustainability space, this Sustainability Scorecard KPI (customer lifetime value) can be your unfair advantage.
One can try in a business to minimize the customer acquisition cost, the cost of doing business, and various other operational metrics, but lifetime value remains a consistently strong lever in strategic growth. Why so? There are several levers that can drive product uptake and product innovation to influence renewed customer interest. These metrics can be manipulated through a variety of means to drive growth; however, lifetime value is patient capital. It signifies stable growth, operations, customer retention practices, high quality consistently over time, and much more. Investors highly value growth in customer lifetime value, as do CFOs of large enterprises.
In the case of sustainable products and transparent supply chains and sourcing strategies, lifetime value is baked into the business case from the ground up. You are sending a signal to your customers and your investors, loud and clear: “We care about your and your environment’s health for the long term, and our relationship does not end at the transaction.”
This is why agile firms such as start-ups can potentially eclipse traditional ones in obtaining funding for breakthrough products. By focusing on market size and gross margins, these firms can create enormous value, especially when there isn’t a dominant market leader yet. Particularly in the sustainability space, founders will find industry spaces fragmented. As the examples below show, there is a big opportunity for small firms to capture market and create operational efficiencies and partnerships that will allow them to scale while driving down costs and increasing margins.
Ag-Tech
The agricultural technology space is ripe for sustainable innovation—especially if you’re looking to nature for new innovations. Take insecticides, a product that faces many inherent challenges in development. Insecticides must be toxic to pests without major toxicity toward other organisms and must be persistent enough to protect crops in fields while remaining environmentally benign. Insects can develop resistance to insecticides, requiring the ongoing development of insecticides with new modes of action, and insecticides are traditionally produced from nonrenewable feedstocks, further increasing their environmental impact.
One firm, Vestaron, created a novel insecticide based on a peptide found in the venom of the Blue Mountains funnel-web spider. The peptide is produced by yeast fermentation, with the primary input being a commodity sugar derived from corn. It targets only specific species of insects while showing minimal to no toxicity toward humans and environmental agents such as bees and fish. Not only that—the insecticide has been approved with a zero-day pre-harvest interval and four-hour reentry time, demonstrating its low potential for harm toward handlers, consumers, and workers. In addition, this chemical biodegrades into nontoxic amino acids.
Insecticides like Vestaron’s account for approximately 30 percent of the global insecticide market, and its competitors (neonicotinoids) are controversial due to their possible environmental impacts such as possible toxicity to bees.
Another opportunity in ag-tech comes from cellulosic sugars. Traditional sugar sources such as sugar and corn are expensive feedstocks for producing relatively high-volume products like fuels and chemicals. As an alternative, biotech firm Renmatix has developed a lower-cost method for deconstructing biomass into cellulosic sugars that can be used as feedstocks or as the building blocks for a multitude of renewable downstream technologies, enabling the profitable scale-up of biochemical, cellulosic ethanol, and advanced biofuels markets worldwide. Renmatix has commercialized its technology, licensing its process to convert locally available biomass into cellulosic sugars so as to allow partners and customers to build their own biorefineries.
Clean Fuel
One of the largest contributors of climate-change-related economic shocks are fossil fuels, and as Marc Tarpenning, cofounder of Tesla (who wrote the foreword to this book), rightly states, the world is still obsessed with oil. But the political and economic might of Big Oil is not the only reason the substance dominates the global energy markets. Oil entered global markets as an alternative to whale oil, which was arguably more dangerous and difficult to procure. Further, oil is an energy-dense liquid that is easy to transport; it is convenient.
But what if we could replace this environmentally hazardous source that we are quickly depleting with something more sustainable? What about biofuel?
Astaxanthin is one of the most valuable compounds that algae produce. It not only is a natural superfood and powerful antioxidant but can be used as a biofuel. In 2014, the compound was valued at $400 million, and its worth is set to boom in the future. Astaxanthin is useful to many industries, from clean cosmetics to dietary supplements and pharmaceuticals.1 Scientists have found that this wonder compound could also serve as a promising feedstock for biomass-to-fuel processes. It has caught the attention of investors such as Craig Venter’s Synthetic Genomics, Bill Gates, and Exxon Mobil as important to the future of clean fuel.
Astaxanthin presents significant benefits compared to other biofuels currently in use in the market, such as corn-based ethanol and other plant-based sources. The algae are easy to grow and highly valued as a rich source of fats and lipids, with forty times more lipids per land area than other crops such as corn and soy. In addition, Lindsay Soh, a scientist at Lafayette University, and Julie Zimmerman at Yale University have discovered a process that could make the extraction of oil from algae cheaper, faster, and greener than any other current methods in use.2 Their process uses supercritical carbon dioxide, a “greener” substance than other chemicals that is cheaper due to the widespread industry use of this compound in everything from decaffeinating coffee to serving as an environmentally friendly dry-cleaning solution. When this supercritical carbon dioxide is applied at low temperatures to the algae, it serves as a solvent for oil that only extracts specific components from algal oil. This saves tremendous time, energy, and effort in comparison to other technology that is currently used to extract compounds based on algal oil. Scientists are now combining the processes of extracting astaxanthin and of converting it into fuel. Combining the processes into one seamless step is important in reducing production costs, and brings the technology closer to commercialization and scaling.
Fertilizer
Fertilizer production is the third-largest energy consumer of any process in the world. Undisrupted for more than 120 years, the production of ammonia, the key element in fertilizer, continues to be a highly wasteful process. It is an industry ripe for transformation.3
Fertilizers are produced by way of the Haber-Bosch process, created over 120 years ago by Dr. Fitz Haber. Considered a chemical engineering feat, the invention of the process allowed for commercialization of fertilizer and was a leapfrog innovation that transformed agricultural production and yield. Without the Haber-Bosch process, the global production of food would fall to two-thirds of the current level, leading to a worldwide famine.
But the Haber-Bosch process is significantly energy intensive and requires expensive technology to ensure that the reaction occurs in a timely manner. In fact, the process was deemed unscalable, until Dr. Carl Bosch introduced efficiencies that allowed for production under high temperature and pressure in specialized reactors. Since then, the Haber-Bosch process has remained largely the same.
The future of fertilizer, and the opportunity to disrupt a $116 billion global industry, lies in developing a non-Haber-Bosch process to create ammonia. This process would allow for a stable gas such as nitrogen to combine with hydrogen at room temperature in an inexpensive and sustainable way.
The key to solving this issue was to somehow split plain water into hydrogen and oxygen, so that the hydrogen, a reactive element, can readily combine with the nitrogen to create ammonia. Well, scientist Staff Sheehan, in collaboration with coauthor Paul Anastas, Robert Crabtree, and their associates, devised a way to do exactly that through a patented process called “artificial photosynthesis.” With the potential of ammonia production enabled by artificial photosynthesis, disruption of the fertilizer market is within reach!
But the benefits of ammonia do not apply just to the agriculture sector. Ammonia is more than just a fertilizer; it is also a battery. It has long been established that an ammonia solid oxide fuel cell (SOFC) is not only the most efficient method for generating power but also the most sustainable. Because ammonia does not contain carbon, an ammonia cell would not release carbon dioxide when it is used as a fuel.
Waste Management
The waste management industry is currently valued at approximately $75 billion per year in the United States alone. With over twenty thousand market players and more than three thousand communities to serve on a yearly basis, the United States is on a track to fill its mere three thousand active landfill sites in eighteen years. In the US, the landfill capacity issue is a crisis situation. In addition, 20 percent of the waste that ends up in municipal landfills is food.
Food waste is not just a landfill capacity issue. It is a huge contributor to the climate change crisis. If food waste were a country, what would its national statistics look like? In size, the country would span 1.4 billion hectares—making it the second-largest country in the world after Russia. In 2012, its GDP equaled US$936 billion, comparable to the economy of the Netherlands. And with carbon dioxide and GHG emissions at 4.4 gigatons, it would be the third-largest emitter of GHG and carbon dioxide after the US and China. The country of food waste would create a carbon footprint that nearly rivals global vehicular emissions, with the largest waste footprint occurring due to consumption rather than at harvest. Considering that the per capita food waste emission impact in high-income countries is over 50 percent greater than that in low-income countries, food waste’s national scorecard classifies the nation as a developed, high-income, technologically advanced nation. Also, if people lived in the country of food waste, they would consume 3,796 calories per citizen per day. If food waste were a nation, it would be thriving.
But how do the ghosts of meals past become the third-largest emitters in the world? Food waste globally amounts to roughly $680 billion in industrialized nations and $310 billion in developing nations, according to the UN Food and Agricultural Organization and can occur along any node of the consumption chain.4 For example, in the US alone, 31 percent of the food supplied to consumers via grocery stores went uneaten; 10 percent occurs at the retail level, 21 percent at the consumer level.
Let’s reflect for a moment on the absurdity of this reality. If we were to order takeout three days in a row, we might as well just save ourselves the trip to the trash can by having one meal delivered straight to the landfill.
Contrast the food waste problem with the map of food insecurity in the world, and the value of the opportunity is apparent. The UN FAO reported that in 2016, 108 million individuals worldwide were food insecure or lacked access to an adequate amount of food to pursue an active and healthy life.5 This is a significant increase from just the year before, 2015, when the individuals in the world who were food insecure were at roughly 80 million worldwide. So while the nation of food waste is thriving at a hearty 3,796 calories per day per citizen, over a tenth of people worldwide are food insecure. Put another way, with the amount of food wasted globally, we could solve the world hunger crisis twice over.
Organix, a food waste-to-soil nutrient company, has managed to connect the problem of food waste to the solution of relieving food insecurity. However, its business model is one that anyone can leverage to serve as a blueprint for the future of the waste-to-value industry. Organix gathers organic residual material, particularly from confined animal feeding operations and municipal waste programs, and leverages its network of partnerships to create value for this waste in the areas of, for example, primary feedstocks, landscape amendments, nurseries, and erosion control. With the movement of food systems toward “hyper-local” procurement, this model works well in developing local networks of waste suppliers and waste utilizers to create value.
Another key feature of the firm is its regenerative wastewater treatment program. The firm has a partnership with a biodynamic aerobic system that utilizes the digestive power of worms to remove up to 99 percent of the contaminants from wastewater, an investment that can reduce GHG emissions by 91 percent in local wastewater-treatment facilities. Vermifilteration, the process of leveraging earthworms to filter sewage, outperforms irrigation and drinking-water standards. Other advantages of this method over conventional methods are that there is no foul odor produced and no production of sludge, and the soil used in the filter and the compost produced after treatment can both be used as fertilizer.
Another opportunity in the waste conversion space is the unexpected opportunity in leveraging wastewater as a net energy producer. Researchers at Stanford note that wastewater is a rich source of organic content. Currently, methodologies that leverage anaerobic digestion of the organic content only capture a portion of the total potential energy possible from the sludge. In fact, the current process for digesting and cleaning wastewater is energy intensive and surpasses the energy savings in the wastewater digestion component of wastewater treatment. Researchers are looking to convert this biological waste into energy through the use of microbial fuel cells. Microbial fuel cells are novel energy conversion cells that generate electricity by taking electrons that were produced during the breakdown of organic content in wastewater and diverting them to an external circuit. Here there is an opportunity to refine the technology to generate more than 40 percent of electricity.6
Chemical fuel cells offer another approach here, where 50 percent of the energy is converted into electricity. In both these cases, heat lost from the process can be used to heat buildings or for any other purpose, to completely leverage every part of the chemical reaction. The promising aspect of this opportunity is the potential to use methane (CH4), a powerful GHG with global warming potential twenty-five times that of carbon dioxide, as a renewable source of energy.
Nylon
Nylon is a durable synthetic material that when bent will quickly bounce back. Due to its resilience and resistance against abrasion and heat, the product has found many uses: as a textile; in automobiles to form parts of engine components such as bushings and bearings, for oil containers as well as in tires, and as a replacement for steel parts; and in films and coatings. It represents a $30 billion market.
However, nylon is a dated invention, appearing in its first commercially successful form in 1935. And as a thermoplastic, nylon is highly unsustainable. It is also made from petrochemicals, is nonbiodegradable, and produces nitrous oxide—a GHG that is 310 times more potent than carbon dioxide. In fact, there is no form of traditionally made nylon that is biodegradable, and it is a key culprit in microfiber and microplastic water contamination.
Enter bio-based nylon. In 2013, a bio-based chemical company located in California announced the successful production of adipic acid for use in nylon manufacturing using glucose as a feedstock or input, rather than petrochemicals. Other forms of bio-based nylon have started to use fermented plant sugars to produce a chemical called caprolactam. Global demand for caprolactam is approximately five million tons a year, the vast majority of which is used to serve as an input for the creation of bio-based nylon.
This new bio-based nylon achieved an excellent melting temperature and outperformed the petrochemical-based products in terms of having a 6 percent lower density, according to research published in the science journal Metabolic Engineering. The article went on to state that the bio-based nylon “holds high promise for applications in energy-friendly transportation” and “represents a milestone in industrial production.”7
E-Waste
Lithium-ion batteries are the singular choice in a variety of industries: automotive, mobile phones, and consumer electronics. As a global industry, it is valued at nearly $130 billion. But as demand for lithiumion batteries increases, so does their impact on the planet and their importance as a focus area for cleaning up e-waste.
Although lithium-ion batteries are recyclable, globally less than 1 percent are recycled. However, the economic value and business case for reclaiming the minerals in the lithium-ion battery is clear. Cobalt and nickel, elements that together represent over 50 percent of the battery’s cost, are valued at more than $27,000 and $12,000 per ton respectively. In fact, the concentration of these metals, along with others such as manganese, are often higher in the batteries than they are in natural ores. In essence, mining discarded batteries would result in a higher yield of these precious metals than their extraction through traditional mining activities. In addition to the clear economic benefit of recycling, recovery of these metals from landfills would also reduce the health risk to surrounding communities where the metals leach into the groundwater.
There are a few reasons why recycling lithium-ion batteries is not yet a universally well-established process. Industry experts state that manufacturers have traditionally focused on prolonging the life of the battery, increasing its charge capacity and even lowering the cost of production, but much potential for technological advancement remains in the area of improving recyclability. The batteries that do get recycled are typically put through a high-temperature, high-pressure process, after which the lithium is extracted or reclaimed. This process is expensive and complex, considering that the batteries are packed alongside sensors, circuitry, and other elements from which the metals must be separated. For this reason, lithium-ion recycling remains a relatively energy intensive and expensive process undertaken mostly by academic and government-funded research centers that are looking for breakthrough processes in waste recovery.
But as the burden of aging devices continues to mount, the focus has returned to the recyclability of these batteries. A breakthrough innovation in this area leverages the compound limonene found in the orange peel.8 During the traditional, energy-intensive process of melting and extracting cobalt and other metals, lithium batteries are treated with harsh chemicals. Scientists at Nanyang Technological University used orange peels instead of the acids and hydrogen peroxide and mixed them with citric acid. This concoction avoided the use of harsh, toxic chemicals and was able to extract 90 percent of the lithium, cobalt, nickel, and manganese from within the batteries.9 Further, the team was able to construct entirely new batteries out of the recovered metals, which performed on par with their original counterparts.
Greenhouse Gas Emissions
Closing the carbon cycle by utilizing carbon dioxide as a feedstock or input has long been identified as an ideal pathway to the elimination of this GHG from the atmosphere and a key step toward a carbon-free future. Once carbon dioxide is extracted from the environment, it can be used as a fuel or feedstock for the creation of any number of products that typically use fossil fuels as an energy source. This means that carbon dioxide conversion is a huge opportunity for a wide range of industries, including plastics, plasticizers, fertilizers . . . and vodka.
New York-based Air Company has created the first-ever carbon-negative vodka—meaning that its production removes more carbon dioxide than it generates! The cofounders of the company developed a partnership with manufacturing plants and ethanol factories to capture their carbon dioxide waste. They then use electrical energy to convert the carbon dioxide into ethanol, a form of alcohol. Called electrochemical conversion, the process has been around for decades; however, Air Company was the first to apply the technique toward large-scale production and to use life-cycle analysis to validate the vodka’s carbon negativity. For its patented technology, Air Company won $20 million from the coveted NRG COSIA Carbon XPRIZE, which awards funds to companies that convert the most carbon dioxide into products with the highest value.
This elegant, carbon-negative design has applications in various products—from hand sanitizers for disinfection of hospitals, to clean beauty products, to household products such as paints and cleaning products, to preservatives for food. At the height of the COVID-19 pandemic, the company shifted more of its production to hand sanitizer, producing more than two thousand bottles of carbon-negative hand sanitizer per week.
Disruptive Innovation + Strategic Investment = A Greener Future
Start-ups and investors are looking to disrupt existing processes and find the next big idea. The sustainability-minded opportunities presented in this chapter are some of the biggest ideas that either await commercialization or will present widespread opportunities for investment upon scaling. We believe there is an unprecedented opportunity in the sustainability space to leverage market currents and create market-shaping products for the consumer of the future. What is more, the Sustainability Scorecard provides a simple and flexible way to valuate these opportunities for strategic investment, including the sustainability of their supply chains. We see farm-to-table supply chains as the ultimate differentiator, as we discuss in the next chapter.