SEVEN

Scaling Solutions

IN THE TWENTY-PLUS YEARS since it first erupted onto the international policy and business agendas, the concept of sustainable development has become central in the public, private, and citizen sectors. Among the early flag bearers was the UN-originated Brundtland Commission with its influential report Our Common Future.¹ The report focused on addressing most of the ten great divides discussed in chapter 3, and the core definition of sustainable development continues to win support from leaders worldwide.²Still, skeptics argue that, to date, there has been a great deal more talk than action. To counter that criticism and tackle the great challenges effectively, in a timely fashion, and on a sufficient scale, we must learn how to scale and replicate the more sustainable solutions and mobilize collective effort in ways rarely seen outside of wars and space races.

Some see the challenges as staggering, and, admittedly, there are real complexities in understanding and dimensioning them. It is one of nature’s paradoxes, for example, that the vast cloud of coal smoke that hangs above China—and is visible from space— has at least one environmental advantage, in that it is now thought to slow the pace of global warming. One problem is partly canceling out another or, at least, slowing its advance, but there is little room for optimism even here. China is scrambling to open new coal mines and no fewer than five hundred new coal-fired power stations, on top of the two thousand the country already operates. In the process, global emissions of climate-destabilizing GHGs are expected to jump. As such trends continue, the extent to which we all live on one planet—and may ultimately share the same fate— is becoming painfully clear to more people every day.

Given the success of An Inconvenient Truth, Al Gore’s Oscar-winning documentary on climate change, it should come as no surprise that public concern about environmental issues is rising in many parts of the rich world. The problems in countries like China and India, however, are on an altogether different scale. So great is the pollution in China, for example, that four hundred thousand premature deaths are now recorded there each year because of pollution, and public pressure to clean up is building faster than many government officials had expected.

A survey of citizens in Shanxi province—home to Datong, China’s filthy “coal capital”—found that more than 90 percent thought that health and environmental costs are unsustainable.³“If we don’t protect our environment,” warned Chinese environment minister Pan Yue, “our economic miracle will soon come to an end.”⁴ The uncomfortable fact is that even cleaner parts of the global economy are ill equipped to survive the twenty-first century, let alone thrive. This conclusion is not new: it surfaces in report after report, including the authoritative Millennium Ecosystem Assessment, which issued a “stark warning” to emphasize its finding that “nearly two thirds of the services provided by nature to humankind are going to be in decline worldwide.”⁵

Here again, social and environmental entrepreneurs are doing their best to wake up their fellow citizens and decision makers. Among the handful of environmental analysts who have warned of such trends for decades is Lester Brown. He has written or coauthored fifty books, which have appeared in some forty languages. Just one of those books, Who Will Feed China?, spawned hundreds of conferences and seminars to challenge official views on China’s food prospects. Brown displays the characteristic skill of the entrepreneur: rather than simply identifying impending problems, he has mapped the market opportunities likely to result. In fact, he founded the Earth Policy Institute, aiming to provide a road map for achieving an environmentally sustainable economy.

In his book Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble and its successor, Plan B 2.0, Brown mapped out the changes required for a more sustainable future.⁶ His thinking spans the universe of issues that social and environmental entrepreneurs are tackling, including the stabilization of human population numbers, the universal availability of basic education, and the development of pricing mechanisms that tell the social and ecological truth—all geared to support a massive transformation to better ways of managing natural resources, like soil and freshwater, and building the hydrogen economy.

More than most, Brown acknowledges the need to scale solutions, but he is also acutely aware of how one generation’s solutions can generate the next generation’s problems. For example, in the biofuels sector (biofuels are plant- and animal-waste-derived alternatives to oil-based fuels), Brown has warned that the gold-rush mentality that has taken hold of investors and companies as energy security issues soar toward the top of the political agenda risks ending in the rapid spread of first-generation technologies that are, to put it mildly, unsustainable. Companies that do not already have someone like Lester Brown on their board need to plug into such people as they start to develop their own scale-up plans.

Managing the Perils of Scaling: Mitchell Kapor on the Challenge

We can learn much about the perils of scaling from the world of social and environmental entrepreneurship. Those who have studied the dynamics of scaling and replication call for “anything but a cookie-cutter process,” as Jeffrey Bradach of the Bridgespan Group puts it.⁷ One key factor is whether an enterprise has a strong theory of change, which uses systems thinking to map cause and effect among different parts of the system it is attempting to change. Lester Brown would readily agree. Other important success factors are the growth model that the company adopts, the market opportunity it targets, the sources of funding available to it, and the extent to which the broader business culture and operating environment catalyzes and supports entrepreneurial activity.⁸ Clearly, picking the right problems to attack is critical, too: choose the wrong market or field, and scaling is much harder to accomplish.

Tapping the wisdom of someone who has been through the scaling process a number of times makes sense. Mitchell Kapor is perhaps still best known for founding Lotus Development Corporation in 1982. Later acquired by IBM, Lotus developed an early killer app: Lotus 1-2-3. Today, Kapor chairs the Open Source Applications Foundation; the Mozilla Foundation, which is evolving the Firefox Web browser; and Linden Lab, the company that came up with Second Life, a 3-D virtual world entirely built and owned by its residents (since opening to the public in 2003, Second Life’s “digital continent” has attracted millions of users from around the globe).

“Scaling an organization puts stress on it,” Kapor notes. “Rapid scaling of companies undergoing explosive growth—for example, Lotus, Netscape, or Google—creates damaging stress. The same is true for more recent ventures like Second Life, Mozilla, and Wikipedia . . . The latter two are nonprofits, so scaling problems are not limited to for-profit organizations. Explosive growth can happen to either a for-profit or a nonprofit in the Internet era.”⁹

When asked about the challenges of scaling, other than fund-raising, Kapor explains:

Every new employee who is hired has to be integrated into the organization. There are certain values, styles of behavior, and practices which are characteristic of the entity. Until a new employee learns to operate within those norms, he or she is like a foreign body introduced into an organism. The body system recognizes an alien invader and mobilizes its immune system to neutralize it. Newcomers are rendered impotent and, worse, start counterproductive efforts (infections) which have to be extinguished. The extremely rapid hiring which characterizes high-growth start-ups can ultimately overwhelm the corporate immune system, leading to breakdowns in function.

Kapor stresses:

Companies can help smooth the rapid hiring and integration process in a variety of ways, but my intuition is that there is a natural limit to the rate at which people can be added without damaging adverse effects. A second factor which complicates scaling is that when there is pressure to hire to meet the numbers, there is an inevitable tendency to lower standards and hire less qualified people who would otherwise not be brought into the organization. When the filters are too loose, it in turn introduces a new set of problems into the company by adding people whose capabilities lower the overall standard of performance.

But what about companies that already operate on a large global scale, like BP, GE, Toyota, and Wal-Mart? Kapor is skeptical about their potential to progress toward anything like sustainability, though he stresses that “change is always possible, and there is nothing dishonorable about beginning with baby steps. In fact, it takes a lot of courage. But it’s not an accident that most businesses only get serious about social responsibility after some sort of crisis . . . At such times, the prospect of acknowledging difficult realities in order to begin to change them seems like it might even be the better end of a bargain. Of course,” he notes, “once the crisis passes, it is incredibly easy to slip back into complacency.”

Therefore, to promote scalability for social and environmental ventures and their partnerships with mainstream businesses, we need a number of ingredients. These include a universal environmental—and, eventually, triple-bottom-line—accounting language to help businesses monitor progress; the evolution and deployment of professional skills in such areas as monitoring, impact assessment, auditing, reporting, and assurance; market incentives that track and punish or reward corporate performance; and back-up public sector processes that create an overall sense of direction and ensure enforcement. Much progress has been made on all these fronts, particularly in developed countries, but one of the most critical missing links is a universally accepted accounting language that would assess the extent to which all enterprises—whatever their scale—were heading toward sustainability.

Accounting for Sustainability: WWF and One Planet Business

As we noted in chapter 6, to understand and address social and environmental challenges, organizations first need appropriate systems to measure and account for their activities. One promising initiative is the One Planet Business accounting method under development by WWF and its partners. (WWF stands for World Wide Fund for Nature around the world except for North America, where it is known as World Wildlife Fund.) There are many competing attempts to set universal accounting standards, and One Planet Business is among the leading contenders. It promises to help business leaders and others measure their impact on the environment and pin down the detailed steps they need to take toward environmental sustainability. Just as Samuel Plimsoll campaigned to ensure that ships were marked with lines showing how deep they could be laded and remain safe to sail in, such pioneers are trying to work out how to draw a line around the planet to help its growing crew navigate the new century without foundering.

The impetus for One Planet Business and similar initiatives has its roots in the 1980s, when business leaders started to awaken to the new sustainable development agenda. There were limited ways to measure environmental impact at the time, so, as WWF’s One Planet Business study puts it, “unnoticed, humanity’s overall ecological footprint—that is, the resources required to meet global consumption—for the first time exceeded the planet’s biocapacity, or the carrying capacity of its ecological systems.”¹⁰

In the new century, however, we know that:

We are in a situation of “overshoot” where consumption exceeds long-term supply by approximately 23 percent. In other words, it takes one year and three months to regenerate what humanity uses within a given year. This overshoot is only possible because much of the natural resource capital base has accumulated over time. This is as true for stocks of renewable resources—such as soils, forests, and underground aquifers—as it is for essentially non-renewable resources like oil and natural gas. By drawing down stocks of natural capital, consumption can temporarily exceed ecological limits. Just as personal expenses can be greater than income for a period, we can operate on “ecological credit.” However, the longer the overshoot continues, the greater the likelihood that the regenerative capacity of the planet’s ecosystems will be degraded.¹¹

WWF concludes:

On current evidence and trends, there is virtually no prospect of moving back into ecological surplus. Resource use is accelerating. World energy demand, for example, has been increasing twice as fast since 2000 (at 2.6 percent per annum) as it did in the previous decade, and with the astonishing growth of the emerging economies, rates of resource use can be expected to accelerate further. Projecting the impacts of these trajectories on the economy’s overall ecological footprint suggests that, even at moderate rates of growth, the equivalent of 1.5 planets will be needed to meet demand by 2020 and 2.3 planets by 2030. This situation has become today’s decisive environmental challenge, and is fast becoming tomorrow’s critical economic challenge.¹²

WWF and One Planet Business plan to work with a series of industry sectors—beginning with the automobile industry and moving on to such areas as food, housing, and power generation—to calculate what share of the planet’s resources can be afforded for each particular activity and to develop strategies for capturing the new market opportunities that will arise. WWF notes, “No one player has a complete grasp of the problem, much less the full range of potential solutions. Making real and enduring progress depends on assembling all of the key players in a ‘systems change network’ and collectively working toward shared goals.”¹³ So the intention is to build the One Planet Business network, sector by sector, starting with those that have the most impact. Future-oriented sectors and their investors probably ought to lobby for inclusion sooner rather than later.

Raising Great Stinks: Jack Sim and WTO

Initiatives like One Planet Business will solve problems only if they can be replicated and scaled fast enough. And, as we have already emphasized, politics will be at the pumping heart of the transition, often propelled by “great stinks”—where major pollution problems force the unwilling hands of politicians—and major controversies. To explore the possibilities of replication and scaling, let’s take a sector not yet flagged by the WWF initiative: sewerage. Few things symbolize the breakdown of civilization so powerfully as the absence of functional toilets. Indeed, getting toilets in place— or working again—is one of the first steps in any model 1 emergency response to a major disaster like the 2004 Asian tsunami or Hurricane Katrina.

Social entrepreneur Jack Sim recognized that much of the problem with addressing the lack of clean public toilets around the world lay in the taboo nature of the subject. So, like Mechai Viravaidya, the Thai entrepreneur who uses humor to promote condom use, Sim has used a light touch in approaching a tricky subject. For one thing, he named his organization the World Toilet Organization (WTO).

Sim has mastered the art of media leverage and has established, among other things, a World Toilet Day. “Let’s all take a few moments to observe this very special occasion,” quipped Dave Barry, a syndicated columnist based at the Miami Herald who wrote about World Toilet Day, “and then let’s wash our hands!”¹⁴ It is hard to believe that with a mere $250,000 a year (WTO is truly a leveraged nonprofit), Sim has been able to organize five world summits that each brought together some four hundred participants from twenty-five countries. He has also convinced governments and corporations to compete for the privilege of being the country with the cleanest public toilets. Through his operational arm in Singapore, he has come up with the Happy Toilet star rating program, which rewards the best public toilets in the city-state based on design, quality, and maintenance criteria. A similar initiative in the United Kingdom, the Loo of the Year Awards, replicated the Singapore program. Meanwhile, to advance research and development, Sim has spearheaded the World Toilet College in collaboration with Singapore Polytechnic, introducing courses in restroom design, restroom maintenance, and sanitation.

Why is this important? One reason is that more than half of the developing world’s population has no access to decent toilets. According to the UN, more than 5 million children die every year from sanitation-related diseases such as diarrhea. In India and China alone, a billion people without sanitary facilities relieve themselves on streets and in rivers, polluting river water, which large numbers of people use for drinking water. Human feces are the biggest culprit in water contamination. And even where there are public toilets, they are very often poorly maintained.

According to WTO, the average person visits the toilet twenty-five hundred times a year, about six times a day. Amazingly, no less than three years of the average lifespan are spent in the toilet. Moreover, if you are a woman, you spend three times longer in toilets than the average man. No one has calculated the size of the global toilet industry, as far as we know, but since restrooms and related infrastructure account for about 7 percent of total construction costs, the value of the industry is probably in the tens of billions of dollars.

This is where the issue of scaling really comes in. Take London, credited with building the world’s first modern sewer, in the mid-nineteenth century. The city was suffering from recurring—and devastating—cholera epidemics. In 1853–1854, more than ten thousand Londoners were killed by the disease.¹⁵ The turning point came in the hot summer of 1858, the year of the “Great Stink,” which overwhelmed all those who went near the Thames, including those in Parliament. Finally, enough pressure mounted, and legislation was passed enabling work to begin on new sewers and related improvements. By 1866, most of London was connected to an ambitious and well-executed sewer network devised by the great engineer Joseph Bazalgette.

Toilets are important, no doubt. Beijing, for example, planned to spend $100 million to create about thirty-seven hundred world-class toilets in time for its 2008 Summer Olympics. And WTO has supported the creation of a star-rating system for Beijing’s lavatories. China says that it also will build millions of low-cost toilets in rural areas over the coming decades. On an even bigger scale, China and other emerging nations are making substantial investments in sewage plants and environmentally friendly technologies. So just as the world needs Jack Sims, as countries like China create ever-bigger local, regional, and global stinks, the world also needs a new generation of Bazalgettes to clean up its megacities—and even to design sustainable new cities from scratch. When such people emerge, they may strike others as unreasonable for a decade or two, but in the end, the successful ones will not only drive revolutionary jumps in living standards but will also create huge new economic opportunity spaces.

Seizing Large-Scale Opportunities: GE

No matter how far and fast Jack Sim is able to expand WTO’s activities, it probably would take him decades to reach an annual turnover of $1 billion. True, that is not WTO’s purpose—rather, it acts as a catalyst to help others scale their ventures. It innovates, tests, refines, and implements in ways that mainstream companies can’t or won’t. Scaling on a truly meaningful level, however, will require input from mainstream businesses.

One giant company that has its eyes on China is GE. With its history of polychlorinated biphenyl pollution in the Hudson River, among other things, the old GE would not have readily come to mind as an innovator in sustainable development. But then Jeffrey Immelt succeeded Jack Welch as CEO. Whereas Welch was notoriously hard nosed on issues like the environment, Immelt caught the world’s attention by shifting all of GE’s businesses toward a culture of creativity and imagination.

An early signal that things were changing came when GE agreed to clean up the chemicals in the Hudson—at least to the degree that current technology permits. That, however, wasn’t even the most striking change. Senior GE executives were told that every business unit would have to meet strict targets for cutting GE’s overall carbon dioxide and GHG emissions by at least 1 percent from their 2004 levels before 2012. If this sounds less than demanding, consider that, otherwise, the company’s projected revenue growth to 2012 would have boosted its GHG emissions by 40 percent above 2004 levels.¹⁶

In addition, with his Ecomagination initiative (with the mantra “green is green”), Immelt pledged to create huge new revenues from environmental markets. “The company vows to double its revenues from 17 clean-technology businesses,” the Economist reported, “ranging from renewable energy and hydrogen fuel cells, to water filtration and purification systems, to cleaner aircraft and locomotive engines. This would take such products from $10 billion in sales in 2004 to $20 billion by 2010, with more ambitious targets thereafter. To get there, Immelt has promised to double research spending on clean products, from $700 million per year to $1.5 billion, by 2010.”¹⁷ On the wind-energy front, GE has been seeing a marked increase in orders and predicts that sales will soon exceed $4 billion a year. John Krenicki, head of GE’s energy division, also has high hopes for the company’s “clean coal” power technology. He is aiming to boost annual sales of cleaner coal-gasification systems from less than $500 million to between $4 billion and $5 billion over the next decade.¹⁸

The Ecomagination initiative differs from most corporate responsibility programs because GE is determined to make serious profits from it. In the first two years of operation, Ecomagination revenues doubled to $12 billion, and orders in the pipeline jumped from $17 billion to $50 billion—big numbers even for such a giant company. One Goldman Sachs investment banker noted, “Every one of the Ecomagination initiatives looks commercially viable, even without the green angle.”¹⁹ But given that some of the company’s customers—for instance, customers in the power generation sector—are dead-set against this transition, isn’t GE at risk of alienating those on whom its very future depends? “This is not just GE jamming environment down their throats,” insisted GE Vice Chairman David Calhoun.²⁰ He explained that GE had decided that environmental responsibility is something sensible customers will eventually want and concluded, “Let’s stop putting our heads in the sand, dodging environmental interests, and go from defense to [offense].”

Skeptics note that other major companies—including chemical producers like Dow and DuPont, energy groups like BP, and water companies like SUEZ—tried to dive into the green space in the 1980s and 1990s, offering a wide range of environmental services. Many had predicted double-digit growth, and some invested heavily in developing-country markets. Although the markets did grow, the risk proved higher—and the profitability lower—than expected. As a result, by the late 1990s, many of these companies had scaled back their investments. While the Economist noted that GE is better positioned than many of those early entrants, “given its deep pockets and top-level commitment to the approach,” the magazine also cautioned that any “forecast of endlessly fast growth should be treated with caution.”²¹

For one thing, profit margins in countries like India and China are often tight, even if they are where analysts expect some 60 percent of GE’s revenue growth to come from in the coming decade. On a more positive note, some predict that China could become a “green lab” as its problems mount.²² Another word of encouragement: Chinese president Hu Jintao recently called for Asian Pacific leaders to join the country in developing a clean, resource-conserving “circular economy.”²³

The magic ingredient in GE’s Ecomagination venture, meanwhile, is likely to be creativity, not one of the company’s traditional strengths. The Six Sigma culture ingrained in GE by Jack Welch “frowned on deviations from the plan,” noted Lorraine Bolsinger, head of Ecomagination. That old culture will no doubt have to change to suit the fast-paced markets GE is now diving into. “Jeff is asking us to take a really big swing,” Bolsinger said. The mantra for Ecomagination? “Fail early, fail fast,” Bolsinger explained and added, “This is hard for us.”²⁴ But as such pioneers and early adopters learn how to raise their game by diving into tomorrow’s nascent markets, the task of catching up is likely to become progressively harder for key competitors.

Managing at the Edge: The Importance of Pioneering Investors

One way to make it easier for the business community overall is to let the unreasonable people take the early strain, cope with the inevitable failures, and share the lessons of success. This is one of many reasons why we should be grateful to the philanthropists and foundations that back leading social and environmental entrepreneurs. For example, Stephan Schmidheiny, profiled in the introduction, has been a major investor in Solarcentury. Founded by Jeremy Leggett, originally head of research at Greenpeace UK, the company started out with £6 million (about $12 million) from Schmidheiny and received an additional £1 million (about $2 million) from Scottish and Southern Energy, after which Leggett moved to open out his funding sources.²⁵

Solarcentury’s biggest project to date has involved equipping the Co-operative Insurance Society (CIS) tower in Manchester, England, with some seven thousand photovoltaic solar collectors. These should generate 180,000 units of renewable energy a year, which CIS—with an eye to both national tastes and the media—estimates would make 9 million cups of tea. On the nature of the job, Leggett speaks for many social and environmental entrepreneurs in saying, “It sounds like a cliché, but it is a thrill. You’re trying to manage at the edge.”²⁶

A growing sense of urgency is helping draw new investors to the sustainability agenda. In the United Kingdom during 2006, for example, property magnate Vincent Tchenguiz—originally from Iran—announced plans to invest £1 billion ($2 billion) in environmental ventures, an outgrowth of his work with more than fifty such businesses.²⁷ Virgin’s Sir Richard Branson also joined the ranks of global-warming activists that same year by committing $3 billion to tackle climate change. The billionaire pledged all profits from his Virgin air and rail interests over the next decade to combating rising global temperatures. The money will not go to charities but will be invested in a new branch (called Virgin Fuels) of Branson’s ever-expanding Virgin conglomerate. Much of the investment is slated to go to work on biofuels.

The quality of entrepreneurs operating in these spaces is improving all the time. “We are seeing a very high caliber of entrepreneur coming through now, many of them people who have done this before with other companies,” says Nicholas Parker of the Cleantech Venture Network.²⁸ “This is a quantum leap better than the entrepreneurs we were seeing in this space four or five years ago.” One key shift is in the way these people view the challenge. Earlier generations of green entrepreneur had a “save the world mentality,” Parker recalls. “This is not necessarily a bad thing, but they tended not to bring entrepreneurial rigor or discipline or the return on investment ethos.” Even those early entrepreneurs who did manage to create successful businesses sometimes had trouble working with outside investors (see the sidebar, “To Sell or Not to Sell?”).

The Cleantech Group of investors (which includes the Clean-tech Venture Network) is building a powerful platform for environmental entrepreneurs and ventures. It estimates that between 1999 and 2006, more than $8.3 billion was invested in cleantech deals in North America alone, with the continent’s demand for such capital predicted to average $3.9 billion a year between 2006 and 2009. The current pace of deal making, Parker explained in 2006, put cleantech ahead of the semiconductor sector—and just about level with telecoms. Also, there is now a much stronger presence of venture capitalists at Cleantech Group events, including leading firms like Kleiner Perkins Caufield & Byers (KPCB).

Although the initial $100 million that KPCB earmarked for cleantech—part of a $600 million fund dedicated to IT, life sciences, and medical devices—won’t save the world anytime soon, it was an early signal of the importance leading venture capitalists are placing on this area. And those venture capitalists’ voices are influential: where they go, others follow. In parallel, their lobbying activities could make a real difference with politicians who are keen to attract and support the entrepreneurs of the future. In fact, two top KPCB partners—John Denniston and John Doerr—note that one of today’s biggest challenges is that we don’t yet have enough of the kind of political leaders the future deserves, “who have the courage not to invade Iraq but to impose a [U.S.] gas tax.”²⁹ So can we expect KPCB to lobby for the necessary political changes to get cleantech fully up and running? “We have been politically active,” Denniston noted, “and we’ll see a lot more of that.”³⁰

If Jeremy Leggett, Stephan Schmidheiny, Vincent Tchenguiz, Richard Branson, Nicholas Parker, John Denniston, John Doerr, and other apparently unreasonable people are successful in redirecting the political debate in this way, the world may have a much better array of choices for the future social, environmental, and economic environment. We turn to those choices in our concluding chapter.