Takeaways from the US SIF Conference


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US SIF: The Forum for Sustainable and Responsible Investment is part of a global network advancing sustainable, responsible, and impact investing across all asset classes through a combination of collaboration, education and public policy work. The US-based organization held their annual conference in Chicago in May, 2017. This year’s theme was “A New Climate for Investing in Impact”, which offered a platform to raise concerns and responses to the radical shift on the political landscape.

The three day event covered the basics of sustainable investing, tried to tease out the varying definitions linked to the industry, and detailed many of the nuances of this incredibly broad list of investment strategies. As will be discussed below, the industry is built on a forest of overlapping terms, which can be opaque even to the initiated. For the purposes of clarity this post will defer to social responsible investing (SRI) as a comprehensive term that covers sustainable, responsible and impact investing across all asset classes, and environmental, social and governance (ESG) metrics as an investment criteria used to screen corporations.

The name of the 45th US President appeared like a specter throughout the conference, namely his administration’s buckshot approach to derailing more than 40 years of environmental and scientific advances, but many attendees maintained a pragmatic optimism. His administration may disempower the environmental regulations entered into force under Nixon in 1972, continue removing scientific data from government-owned websites, and re-crown the fossil fuel industry as the kings of energy, but the general feeling in the room of over 400 SRI/ESG advisors and specialists was that “the train has left the station” with regard to environmental issues, renewable energy, and cleantech. Consumers are better informed and vote with their dollars. If fact, having a common enemy in the current administration has unified this loose collection of investors, advisors, scientists and concerned individuals into a stronger opposition; passionate people who are armed with the truth and facts.

The conference focused on the market forces already at work, in which SRI/ESG investment strategies have gained momentum beyond a niche investment space. Climate change is no longer a theory, it is happening in real time with extreme weather events,  melting polar ice and disappearing islands. Consumers, particularly Millennials, are investing their money with companies that align with their environmental concerns. Several speakers shared data about how the coal industry is tapering off due to the availability of cheap natural gas more than environmental concerns, and it was only a matter of time before the fossil fuel industry followed (albeit more slowly). Representatives from the Union of Concerned Scientists are on the front lines protecting data sets, and Kathy Mulvey’s report was shared on how the oil and gas industry is recently promoting  an environmental message but continuing business as usual. We are collectively pushing forward despite the current administration’s haphazard push in the opposite direction.

However, one alarm raised during the conference was the Business Roundtable’s proposal to modify Rule 14a-8 of the Securities Exchange Act, which governs shareholder proposals. Currently owners of at least $2,000 worth of a company stock, which has been held for more than 1 year, can submit a proposal to be voted on by shareholders. This proposal must win an escalating percentage of votes over years before it will be officially considered. To modernize the process the Roundtable has proposed that only shareholders with 1% of company stock held over 3 years should be allowed to make proposals; this translates into billions of dollars in shares for large-cap companies. This rule would also disallow asset managers who hold stock on behalf of their clients from the process, not that they actively make proposals to date. This minor change would effectively eliminate everyone from the process. This is a concern because shareholder proposals have been used over decades as a way to gather support for social and environmental initiatives, such as equal pay across genders, LGTBQ rights, and better resource management. Without this tool, the majority of stockholders will be voiceless in the boardroom.

Additional opportunities were raised throughout the conference to help take this investment strategy to the next level.

  1. Despite a growing body of evidence that companies with strong ESG metrics are more innovative and more resilient than their lower-scoring ESG peers, there is still a misperception that investing in social good requires a tradeoff in yield. To quote US SIF Director of Research, Meg Voorhes, “Values translates in value.”
  2. Advisors who are on the front lines with clients are often unfamiliar or unaware of the advantages for SRI/ESG investment strategies, even when their clients are asking for them. Lily Trager from Morgan Stanley outlined plans to educate their 16,000 advisors.
  3. SRI/ESG investing has a significant marking problem; members within this community have difficulty parsing the terminology. To paraphrase the CEO of US SIF, Lisa Woll, the community took the most complex language of the financial sector and appended it with terminology that only makes sense to themselves. They cannot engage investors until investment advisors can speak in clear terms.
  4. In the coming decades, there will be a wealth transfer from Baby Boomers to Millennials estimated to be $30 trillion. This generation is more interested in putting their money to work while earning a profit, or “yield plus”. This enormous opportunity is driving the conversation around SRI/ESG investing.

Lastly, the keynote speaker, Bryan Stevenson, raised social justice issues not covered elsewhere during the conference. He has been a public advocate for those who have been victimized by the American criminal justice system, reminding us that the system “treats you better if you’re rich and guilty than if you’re poor and innocent.” His impassioned speech was the highlight of the event, and his real-life experience was documented in his book Just Mercy: A Story of Justice and Redemption.


Millennials are Investing with Impact


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Social Responsible Investing (SRI)  is an investment discipline that considers environmental, social, and corporate governance (ESG) criteria alongside other industry metrics to generate long-term results with positive social impact. ESG ratings are published by several companies, with MSCI and Sustainalytics two of the largest US-based providers. There has been a long-held belief that ESG screening  requires a tradeoff with lower (or negative) financial returns. SRI investors have shown that  companies with higher ESG scores use their resources more efficiently, have less exposure to litigation, better standing in public opinion, and happier and more productive employees. These elements benefit long-term investment and these companies have steadily met or exceeded their lower-scoring peers.

There are two basic approaches to SRI:

Negative screening: This strategy began with restricting investment in companies that earn revenue on products such as firearms, alcohol, tobacco, or adult products (aka “sin” stocks), and have recently expanded to include oil and gas companies. Negative screening is the most commonly used criteria but can have mixed results against benchmarks. ESG scores capture some elements such as diversity on the board of directors and within the company’s senior management, as well as the social and environmental impacts of the business, however they do not capture management decisions, product development, or factor in offsite manufacturing (particularly for “green” technology companies that have other companies make their products in other countries).

Positive screening: Investors wanting to invest in companies that align with specific goals or values, such as renewable energy, clean-tech, affordable housing, or energy efficiency, may use the more active approach of positive screening. They may look at a broader range of factors that may not be easily accessible, but this extra effort can have a higher rate of return against benchmarks. Positive screening may also include direct investment in projects with private equity, such as building a community solar for an underserved population.

SRI and impact investing have deep roots, but this investment strategy has only recently moved beyond a niche space into the broader market. According to US SIF Foundation’s 2016 Report on Sustainable and Responsible Investing Trends in the United States, more than 1 out of 5 dollars under professional management in the US is invested according to SRI strategies; that is $8.72 trillion and growing. “I think we’re at the end of the beginning,” said John Streur, president and chief executive of Calvert Investments, Inc., who was quoted in a Wall Street Journal article about the recent enchantment with this previously overlooked strategy. 2015 saw the development of SRI and ESG products at some of the largest banks, asset managers, and private equity firms, notably Black Rock, JPMorgan and Goldman Sachs. They are not merely jumping onto the “green” gold rush, they are responding to consumer demand for investments that not only deliver returns but do so with social impact.

Many institutional investors, including pensions, have historically leveraged SRI strategies to fulfill fiduciary duties or for risk management, but a growing number of private investors want their money to grow by investing in companies or projects that take ESG measurements seriously. A growing demand is coming from Millennials (people born between the early 1980s and mid-1990s). “It’s a huge nod to the times,” Mr. Katchen, the CEO of Wealthsimple Inc, said in the Globe and Mail. “Young professionals not only want to make money on their money but have their investments aligned with their values.” His company added SRI exchange-traded funds in 2016 to cater to client requests, about 85 percent of whom are under the age of 45.

This large and diverse group of young adults is a perfect audience for SRI. This generation, who came of age during the fallout and austerity of the Great Recession, is forgoing the status cars, homes and high-pressure jobs of their Baby Boomer parents in exchange for experiences. They are pioneering the technology-driven version of the shared economy with car sharing, apartment living, and the gig economy. They are taking the same approach with their portfolios favoring companies that share their values. Asset managers should be looking to include products that appeal to this demographic. A 2016 report released by Accenture noted that Millennials make up close to half of the workforce in North America and are expected to inherit more than  $30 trillion in the coming decades. That is a lot of capital to be invested according to their terms. Public companies should also take note that their ESG scores are going to be increasingly important to shareholders.

Photo Credit: David L. Ryan, The Boston Globe

Resource Management in 1984: The Continuous War


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It should come as no surprise that George Orwell’s dystopian novel, 1984, has returned to best seller’s lists. We often turn to literature to help make sense of reality, which can be incomprehensible and a lot less linear. It is easy to draw comparisons between Orwell’s alternate reality and a political administration that intentionally lies to the public, attempts to disempower and circumvent the free press, and manipulates previously published statements to fit the current version of their story; all of these disturbing points are raised in the novel. The government can exert undue influence over the population by steering public opinion, history, language and their control of the media can be used as a weapon to destroy anyone who resists.

One perspective that has not been discussed in relation to the current U.S. political administration is the story’s depiction of resource management. 1984 takes place in a world that is continuously at war. The protagonist, Winston Smith, learns that Oceania has been at war or in alliance with both Eurasia and Eastasia for 25 years, frequently switching sides. Which region is the enemy is not important; being at war drives production. Winston learns from Goldstein’s Manifesto that:

“The primary aim of modern warfare (in accordance with the principles of doublethink, this aim is simultaneously recognized and not recognized by the directing brains of the Inner Party) is to use up the products of the machine without raising the general standard of living.”

This method of production for the machine of war may have been inspired by post-WWII reality. As devastating as the war was on the world, particularly Europe, for the United States it put people back to work and closed the book on the Great Depression. The U.S. was one of the only manufacturing powers left standing and achieved unprecedented growth. Once the war ended maintaining that momentum became the sole answer to avoiding another depression.

In Four Arguments for the Elimination of Television, Jerry Mander discusses how the government and industry leaders joined together to develop a new economy based on manufactured consumer demand, versus actual need, to keep production lines rolling. This was achieved by marketing a new lifestyle to returning GIs; they should have their own cars, homes and appliances. They used the new medium of television as a means to sell this product-based version of the American Dream. The suburbs were created, the car culture became entrenched, and consumer competition became a norm. The economy boomed. The quality of life—as measured by how much people could buy—grew, but so did dissatisfaction and discontentment. We now live in a society that feeds itself pain killers and alcohol to numb the hole created by what we lack.

Orwell’s economy of manufactured products specifically to be destroyed in the name of war and Mander’s economy based on manufactured desire both present an unsustainable use of resources at the expense of humanity.

This begs the question; with the current administration pushing for an increase in manufacturing, and more alarmingly a substantial increase in the extraction and distribution of fossil fuels, what is their plan for using those resources? Let’s put aside the reality that the world has been decreasing its dependence on fossil fuels, particularly coal, because of increased efficiency and the impact on the environment, and that most manufacturing jobs were lost to offshoring and automation, and ask if they are able to achieve their goal of increased production how will output be purposed?

The current U.S. administration has already begun the process by green-lighting two deals that had been derailed by the Obama administration, which had cited environmental concerns. The Dakota Access Pipeline and the Keystone XL Pipeline, when operational, will not bring construction jobs (both pipelines are nearly complete), but will deliver up to 1.4 million barrels of crude oil every day from fracked and tar sands fields in the U.S. and Canada. Crude oil will flood a market that is already saturated, potentially impacting global oil prices. Where is this oil expected to go? Similarly, increased manufacturing in the U.S. creates more goods in a world which already has too many things at a cost that will be uncompetitive on the global market. Who will purchase these goods?

To build and maintain the manufacturing future promised in the campaign, we may need to purchase more stuff that we don’t need and can’t afford or move into a perpetual state of war to create an endless demand for production. The head of this administration has already started a war of words with other heads of state, notably with Mexico and the members of NATO; could this lead the U.S. into confrontation to fulfill his mandate to bring home American jobs?

Rather than paint another gloomy scenario, there is an alternative which would achieve the administration’s job creation goal without destroying resources or creating more consumer debt. If they continue to invest in green and renewable industries, which are in high demand globally, manufacturing and construction jobs would be created, the economy would improve with this improved commercial base, and the U.S. would have the side benefits of reducing its reliance on imported fossil fuels while cutting carbon emissions. Although they are unlikely to pursue this course, public pressure on the administration could force them to embrace the future instead of the past. Let’s stop focusing on what is going wrong and push for an more sustainable alternative.

Portfolio Diversification Across Asset Classes


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Diversification of portfolios with U.S. equity holdings can come in many forms, but one traditional method is to include alternative assets classes. To achieve diversification the portfolio should include assets that are not in step with (correlated to) the U.S. equities markets, otherwise both assets will rise and fall in tandem and offer no protection against market swings or inflationary environments. Historically this means investing in real estate, foreign equity and debt, and commodities. All three of these alternative asset classes are more accessible at an affordable point of entry via ETFs, ETNs, REITs and mutual funds.

Luis Garcia-Feijoo, Gerald R. Jensen, and Robert R. Johnson reported on a regressive study covering a 41-year period (1970-2010) in “The Effectiveness of Asset Classes in Hedging Risk“. They focused on the correlations between U.S. equities and other asset classes in order to outline the most effective strategies for diversification during normal market fluctuations and extreme market conditions.

Real Estate: Traditional advice has encouraged investment in real estate as a long-term strategy against inflation, not a short-term strategy for return enhancement. However, the findings indicate that there is a very strong correlation to the U.S. equity market, meaning that REITs offered very limited diversification in an equity portfolio. This might seem evident considering how heavily integrated the real estate market is in the general market, but it did not stop many from investing heavily in the real estate market while simultaneously investing in industry-related products such as mortgage-backed securities, which led to an inflated market and the financial crisis of 2007/08.

Foreign Equities: The study also found a growing correlation between foreign equities, particularly in the developed market, and U.S. equities. Globalization has created many trade dependencies and an integrated supply chain, uniting many industries and sectors. The one sector that varied was emerging markets, which were not closely correlated with U.S. equities, but also varied from each other. A careful examination should be conducted before investing in this market for diversification.

Commodities: A majority of commodities exhibited a trivial correlation to U.S. equities, which performed consistently well through various market conditions with very little change in value. This was especially true of gold as an asset class, which appeared to be an effective hedge during market turmoil. Energy also performed well during inflationary periods. One outlier was metals, which are used in commercial production and are more closely linked to the commercial market and U.S. equities.

Bonds: Bonds offer a predictable, if limited, return, and are among the safest investments. This lack of volatility not only allowed them to perform well through normal market conditions, but they performed better during extreme market movements because of their lack of correlation, particularly emerging markets, offering the best diversification when most needed by investors.

A balanced portfolio is likely to contain a percentage of all of the above assets for diversification, which will not only protect the portfolio against extreme movements, but improve the overall return over time. However, recently the correlation of other commodities and alternative assets has narrowed with some exceptions in micro-financing in third world countries, which  has remained uncorrelated to U.S. equities.

Agroecology: A Multifacted Solution


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According to the Food and Agriculture Organization (FAO), smallholder farms provide up to 80 percent of the food supply in Asia and sub-Saharan Africa. Although farmers work small plots of land (average size is 2 hectares), they produce a variety of crops with high yields and very few inputs such as manufactured fertilizer. These cost savings are passed on to the consumer in affordable sustenance for the rural and urban poor. These individually-held farms provide economic opportunities and are the primary source of income for women. This helps reduce migration to the city for work; when farmers leave they cease to be producers and become dependent consumers living in informal settlements.

Lack of food security is an agent for civil unrest, particularly in countries where the government is the primary supplier of food. A global shortage caused a spike in wheat prices that sparked protests across the Middle East; the Arab Spring was a revolution of the hungry. Feeding the population prevents internal conflicts and social uprising against the government. Smallholder farms fill the gap in imported foodstuffs by providing locally grown produce and livestock at affordable prices. However, smallholder farms are being attacked from many sides, including encroachment of industrialized farms, changes in rainfall patterns, droughts and floods, rising temperatures, and urbanization.

Maintaining food sovereignty of smallholder farms solves many economic, social and environmental issues, particularly when the farms are managed using sustainable methods. Agroecology is a hybrid approach that blends rustic methods of community-based farming with modern agricultural methods of production. The rural farms provide food for the household as well as cash crops, including fruit, coffee and tubers. This method addresses many of the Sustainable Development Goals, including: poverty eradication, zero hunger, good health and well-being, promotion of gender equality, clean water and sanitation, decent work and economic growth, life on land, and environmental sustainability. 

The farming region of Kikandwa, Uganda, is an example of the successful implementation of agroecology. John Kaganaga, a local resident, returned to his home after many years away and discovered that deforestation, caused by clear-cutting for livestock and charcoal production, was ruining the village. The individually-held farms were not productive and there was theft between neighbors who were unable to adequately feed themselves. He formed the Kikandwa Environmental Association to address natural resource issues and begin a reforestation project. He worked with the community to define appropriate solutions and introduced agroecology to the region. He obtained grant money from the government and NGOs to build a computer lab and research center. Over the last decade, Mr. Kaganaga has helped turn the tide and empowered rural farmers with information and training. Local farmers now produce enough crops to feed their households as well as grow cash crops including bananas, passion fruit and paw paws that are exported to the capital city, Kampala.

A unique characteristic of Uganda is that smallholder farms are still the predominant method of food production. Their sustainable farming methods need to be documented as a more economically, environmentally and socially sustainable approach versus industrialized farming before large scale farms can gain a foothold in the country.

One of the non-profits that is working with Mr. Kaganaga to document these methods, and expand upon them, is A Growing Culture (AGC), which advances the culture of farmer autonomy and agroecological innovation through outreach, advocacy, and information exchange. They document sustainable farming practices and share methodologies in workshops to guide rural farmers into sustainable practices that are localized for the environment and community. Their sustainable farming methods also provide a response to climate change by creating rich carbon sinks, raising resilient crops, better water management, and protecting biodiversity. Some of these methodologies are: intercropping, crop rotation, soil enrichment, water conservation, natural fertilizers, and effective non-chemical pest controls. For example, AGC held a workshop on beekeeping, which a resilient source of income for farmers.

Returning to proven methods of sustainable farming, composting, and natural pest control, not only provides economic opportunities for rural farmers, particularly women, it also reduces the use of chemicals such as fertilizers and pesticides while improving soil quality and crop yield. These farmers are also protecting the rich biodiversity of their region by working with local varieties; this creates a more resilient approach to farming.

Image Credit: Pesticide Action Network

America Can Have Energy Independence with Renewable Sources


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President Richard Nixon fumbled the first energy crisis in 1973. The oil-producing countries that formed OPEC wanted to control the price of oil and cut off supply to create scarcity with the hope that this would increase the price per barrel. America had no concerns about oil supply prior to the embargo—resources appeared to be limitless—but being cut off from the lifeblood that was at the very center of the modern economy forced the country to face its vulnerability.

In a normal market when demand for a resource is consistent—oil has a very low price elasticity—prices rise when the resource becomes limited. Energy prices at this time were fixed by the government and reviewed infrequently. The combination of artificially low prices and manufactured scarcity set the stage for national chaos.  Gasoline was rationed, people waited in gas lines for hours, fistfights at gas stations were frequent and theories of peak oil proliferated. Americans have rarely faced scarcity and this event created a vivid memory nearly as strong as the Great Depression. The specter of energy shortage haunted every presidential administration after Nixon, and few presidents have made a concerted effort to reduce dependence on fossil fuels. Jimmy Carter failed to mandate a 20% solar power contribution to the energy mix. One might argue that the technology was neither efficient nor affordable enough to achieve that lofty goal but the country may have exceeded it in the 4 decades that followed. Instead the country became more dependent on fossil fuels and even went to war in the Middle East to protect access to oil. The “crisis” was over when Ronald Reagan was elected. On his first day in office he removed Carter’s solar panels from the White House in a symbolic rejection of renewable energy.

The oil embargo left a lasting impression, but the wrong one. America had not faced an energy shortage. In fact, there are more known oil reserves than can be used without destroying the biosphere. Economist Vaclav Smil confirmed that, “our reliance on coal and hydrocarbons and the rise of nonfossil energy will not take place because of physical exhaustion of accessible fossil fuels but… because of the mounting cost of their extraction and, even more importantly, because of environmental consequences of their combustion.”

The protesters at Standing Rock were fighting the pipeline to protect their ecosystem, but they should look north at the source of crude oil for a graver concern. The Bakken Formation straddles North Dakota and Canada and oil deep in the bedrock can only be extracted with the use of horizontal drilling and hydraulic fracturing (fracking). This extraction will continue whether or not the pipeline is completed.

Crude oil from the U.S. portion of the Bakken Formation is being extracted in one of the most environmentally insensitive ways. Fracking involves the high-pressure injection of 2-8 million gallons of water mixed with chemicals up to 8,000 feet deep into the earth’s crust. This pushes the oil out of the bedrock. The wastewater is left in the ground, below the aquifer, leaving open the probability of water table contamination. The waste water disposal wells have been linked to an increase in earthquakes, particularly in Oklahoma which had 907 magnitude 3 or higher earthquakes in 2015. The new oil fields have created numerous logistical problems including how to get the oil to the market. Several transnational and interstate pipeline projects have been developed to speed crude oil to the market and feed the world’s insatiable appetite for cheap fuel. Environmental objections have blocked some of the projects, most recently the Keystone XL pipeline, because a spill would be catastrophic, especially if dispersed into a body of water. Crude oil is toxic and nearly impossible to remove without harsh chemicals that amplify toxicity to the ecosystem. Oil spills from the Exxon Valdez and Deepwater Horizon have caused significant damage and destroyed the aquaculture, animal life, and livelihoods of the people in the impacted areas.

Even including recent advances in domestic production the U.S still imports 9.4 million barrels of oil per day, with 31% of it coming from OPEC. The American oil and gas industry, with the full support of the government, is encouraging dependence on fossil fuels for their financial gain at the expense of water resources and regional ecosystems, and the much larger global risk of climate change.

The Environmental Protection Agency calculated that fossil fuel consumption is the primary cause of GHG emissions in the U.S. Scientific consensus has shown the linkage between GHG emissions and the increase in the earth’s average temperature, which is causing climate change. To counter this effect the world’s countries, in partnership with the United Nations, agreed to GHG emissions reductions in the Paris Agreement. The US voluntarily set an emissions reduction target of 26-28% by 2025, a sensible target that they are unlikely to hit.

There are over 2.5 million miles of pipelines in the U.S. and the DAPL will transport 520,000 barrels of oil per day for approximately 40 years, or 7.5 billion barrels of oil. According to the EPA there are 0.43 metric tons CO2 per barrel of crude oil. Oil from this pipeline would add approximately 3.2 billion tons of CO2 to the atmosphere, which does not include emissions generated by extraction and refining. Carbon emissions impact the atmosphere for hundreds, if not thousands of years.

The definition of sustainable development, which was established in Our Common Future, is that “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Rather than focus our attention on the real crisis, reducing the use of fossil fuels and exploring less environmentally impactful fuel alternatives, we are continuing our dependence and paying huge environmental and social consequences. In this one case the oil extraction process is destroying millions of gallons of water, local aquifers, risking environmental damage from spills, creating the potential for earthquakes, threatening the health and livelihood of the local population, the Missouri River, and other areas along the four states that the pipeline traverses, and will add GHG emissions to the atmosphere for the next 40 years, increasing climate change.

Although this oil will still find a way to get from the production fields in North Dakota to refineries in the south of the US, some of which will be exported to the highest bidder—not ensuring energy independence, only the largest profit for oil and gas companies. The pipeline only expedites this process. It can be argued that leaving it in the ground should be the default option because of the environmental consequences. Instead the Sioux are facing another round of brutality at the hands of the U.S. government, who are protecting the rights of an industry, not the people. It is socially ethical to continue exploring for new oil and gas reserves, and exploiting existing ones, at significant financial and environmental costs instead of focusing our resources on an alternative energy strategy before climate change is irreversible?

Image Credit: efergy

Standoff at Standing Rock: Oil vs Water


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Thousands of people, including environmentalists, American war veterans, and indigenous people representing over 300 native tribes, joined the Standing Rock Sioux Indians in a protest against the Dakota Access Pipeline (DAPL). The pipeline is a $3.7 billion project that will run 1,172 miles from North Dakota to Illinois, allowing an average of 520,000 barrels of crude oil per day to be transported from oil fields in North Dakota to repositories in Illinois. Energy Transfer Partners LLC, the company responsible for the project, worked with state governments to minimize environmental impact by shifting the pipeline’s path away from large cities including Bismarck, and to run in parallel with existing pipelines where possible. The company spent over $189 million in direct payment to landowners for easement payments. In some cases the company was empowered by state government to invoke eminent domain when it could not reach an agreement with landowners and forced their way forward.

The Sioux claimed they were not adequately engaged in planning and began a protest in April, 2016, by camping out in an informal settlement known as Sacred Rock. The number of protesters increased when the tribe’s legal injunction to stop the project was ignored. The pipeline moved forward with the assistance of the U.S. Army Corps of Engineers, who reportedly destroyed the ancient burial site of a tribal leader to avoid delays posed by an archaeological investigation. The protest grew to thousands during the fall of 2016, and shocking images of law enforcement using rubber bullets, water cannons, attack dogs, and pepper spray against unarmed protesters garnered international attention.

The objective of the Water Protectors—the name chosen by the protesters—was to block the granting of an easement that would allow the pipeline to pass under Lake Oahe, which feeds the Missouri River and threatens the health of millions along the river, as well as the fragile Ogallala Aquifer, the Sioux’s sole water source. Any project that could potentially threaten the water supply normally requires an environmental-impact statement, but Energy Transfer Partners structured the pipeline into 21 smaller projects to avoid this requirement. The protesters got their wish on December 4th when the U.S. Army Corps requested that the impact study be conducted before the easement can be granted, a process that could take more than 6 months. This victory may be short lived. The pipeline is nearly complete and President-elect Trump has voiced his approval for the completion of the pipeline; many protesters refused to leave and are digging in for the winter.

The standoff poses many ethical questions, including environmental justice, ecological integrity, social justice, as well as the socioeconomic and cultural concerns of the Standing Rock Sioux. This case also provides a lens to view the ethics of the U.S. energy policy which is enabling environmental damage caused by the extraction, transportation, and use of crude oil. The Sioux are protecting the water, cultural legacy and the environment as sacred resources while the U.S. is pursuing an energy policy that places the economy above all else.

There are over 2.5 million miles of pipelines in the U.S. and the DAPL will transport 520,000 barrels of oil per day for approximately 40 years, or 7.5 billion barrels of oil. According to the Enviromental Protection Agency there are 0.43 metric tons CO2 per barrel of crude oil. Oil from this pipeline would add approximately 3.2 billion tons of CO2 to the atmosphere, which does not include emissions generated by extraction and refining. Carbon emissions impact the atmosphere for hundreds, if not thousands of years.

Although this oil will still find a way to get from the production fields in North Dakota to refineries in the south of the US, some of which will be exported to the highest bidder—not ensuring energy independence, only the largest profit for oil and gas companies. The pipeline only expedites this process. It can be argued that leaving it in the ground should be the default option because of the environmental consequences. Instead the Sioux are facing another round of brutality at the hands of the U.S. government, who are protecting the rights of an industry, not the people. It is socially ethical to continue exploring for new oil and gas reserves, and exploiting existing ones, at significant financial and environmental costs instead of focusing our resources on an alternative energy strategy before climate change is irreversible?

Fossil fuels will remain a large part of the energy mix, and some sectors, such as aviation, do not have any known alteratives. The DAPL and many other pipelines being built across the United States and Canada will continue to supply the insatiable demand for cheap energy for decades, long after it becomes necessary for the world to step down fossil fuel consumption. Until this relationship ends there may not be any significant progress on alternatives. It is critical for the world to begin an energy transition to alternative fuels to protect the environment and the current economy.

As the United Nations Secretary-General, Ban Ki-moon, remarked, “We are the first generation to be able to end poverty, and the last generation that can take steps to avoid the worst impacts of climate change. Future generations will judge us harshly if we fail to uphold our moral and historical responsibilities.” The ethical choices made today will determine the options our children with have in the future.

Image Credit: Rezpect Our Water

The Benefits of Waste to Energy Plants


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One of the more pressing challenges that face cities today is an effective waste management program. A majority of cities truck waste out of the city to a distant landfill, often at great expense. Americans generate an average of 4.3 pounds of waste per day. In 2015, the United States alone generated more than 258 million tons of municipal solid waste, with only 34.6% being recycled. 136 million tons were sent to landfill, which is the second-largest source of human-related methane gas emissions. This is a growing problem because we are generating more waste and have fewer places to go with it. Landfill prices are rising as land becomes more scare, driving up the costs of waste management for municipalities that are already struggling with infrastructure projects.

One option that is very attractive is Waste to Energy (WTE), which extracts the energy from waste by incinerating it. This combustion powers a generator the same way fossil fuels would. However, the process captures gases so that it does not add any pollution or greenhouse gases. Incineration can reduce the total volume of trash by 90% or more. It also prevents one ton of carbon dioxide release for every ton of waste burned. Additionally, metals are extracted, which can be recycled for an additional revenue stream.

There are several reasons why cities may not pursue this solution, including resistance from residents (not in my backyard, or NIMBY), but the main concern might be cost. Like many renewable energy projects there are large capital costs, but significant returns over the life cycle of the project. Municipal bonds can pay for the project over a 25-year period, while the WTE plant could last more than 40 years. Once the project has been paid off the municipality could save millions by reducing the tipping fee per ton of waste, generating electricity, and saving on trucking it out. Once additional costs associated with reducing greenhouse gas emissions are calculated in, the long-term investment can become more attractive. GHG emissions are reduced by reducing the distance trucks need to travel to deposit the waste, the reduction of energy produced by fossil fuel plants, and the significant reduction of methane being emitted by landfill.

Finally, these plants are not known for their aesthesis, making them even more difficult to place in neighborhoods. Not in my backyard (NIMBY) is a genuine problem for WTE. However, in Copenhagen, the Copenhill / Amager Bakke plant solves one additional problem; aesthetics. The plant not only is used to incinerate 400,000 tons of waste per year to provide 50,000 households with electricity and 120,000 households with district heating, but it was designed as a green space with a ski slope.

Building Resilience into Complex Systems



When a person is single they make their own decisions and any consequences are self-contained. In a relationship, the needs and desires of a second person must be taken into consideration. Decision making calls for ongoing compromise between both people. As more people are added to the household, including other adults, family members or children, the system becomes more complex and requires structure to maintain its equilibrium. Communication becomes more critical to understand the needs of each member and achieve a happy home.  This scalable approach can be used on most complex systems; the greater the complexity, the greater the need for communication and understanding. System may have underlying similarities, but each is unique and may not respond to a one-size-fits-all approach, the same way each household is unique.

An example in education is Brazil’s Fund for Strengthening Our Schools (Fundescola) program, partially funded with loans from the World Bank. In order to reorganize the country’s public school system, the government imposed a top-down strategy for all 185,000 schools impacting 45 million students. Where municipalities had previously governed their regional school system, the new approach empowered the schools themselves. They were given 50% of the budget and the ability to make decisions on their own behalf. Schools that already had a strong interconnected network between the administration, teachers, parents and students succeeded in this new environment, but schools lacking structure faltered. Many of the schools, especially in urban areas that had experienced exponential growth in the student population, struggled just to address the daily needs and maintenance of the school building; the program burdened them with more administrative requirements. Without additional support this program will create a larger divide between success stories and the struggling schools will fall further behind. The well-intentioned program provided a template to unify the school system, and flexibility to tailor it for each school, but cannot provide the necessary structure to help it succeed.

Building a resilient structure in a company also requires communication and flexibility, as well as a clear objectives. Larger companies are comprised of separate teams that must work together toward the same goal. This cannot be achieved without leadership, planning, open communication, and an understanding of how the teams interrelate. As discussed in Designing Resilience: Preparing for Extreme Events, there are many ways in which a system can go awry, but there are paths to success. One case centered on the conflicting goals of a comprehensive water management system that needed to maintain a consistent source of potable water and produce hydro-power while simultaneously protecting the biological integrity of the watershed. It required developing a new structure, multiple planning and development stages, model simulations, and communication between the teams. This communication wasn’t achieved only in meetings, but with the assistance of “interpreters” who could, for instance, help the engineers understand the concerns of the ecologists who had been added to the team. All of the parties had a stake in aligning the conflicting goals, and success was only achieved by consensus. They will need to continuously strive toward this shifting goals over time.

This approach can also be applied to the global issue of climate change. Humanity has always altered the planet throughout our history, however we have altered it beyond recognition over the last 200 years. We have changed not just the face of the earth with development, but the climate, oceans and atmosphere.  Our actions had unforeseeable consequences, notably the burning of fossil fuels that has caused a series of events leading to climate change, which has had different impacts on every ecological system. Our shared future is dependent on correcting this problem, but engineering a solution—creating a technological response to counterbalance our previous mistakes—may only complicate or amplify the existing problems. The earth’s climate system is so complex that we cannot accurately predict the outcome of a proposed response to solve one part of the problem we created. It is unlikely that we will intentionally return to a pre-industrial lifestyle, but we must find a way to reduce our dependence on fossil fuels and explore effective alternatives, rather than attempt to counterbalance greenhouse gases with another technology like carbon capture and storage (CCS). Our solution may end up being worse than our current problem.

There is a childhood rhyme about an old woman who swallows a fly. She reacts to the minor problem with a logical solution; a spider. This does not resolve the problem. She continues using more extreme measures to deal with the consequence of her previous decisions, creating more complex problems, until finally the poor woman perishes from her solution, not the original cause. Should our planet take reactive measures to respond to a problem with a known solution—reduce greenhouse gas emissions by reducing our reliance on fossil fuels—we may be in for similar fate. We can avoid this by continuing to work together on mitigation and adaptation and for each person to make a personal choice to change.

Image Credit: Association for Library Service to Children

Adapting to Climate Change


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The world’s cities are at the greatest risk from climate change socially and economically. Each city will face its own challenge based on their regional location and may experience increased incidence of drought, flood, extreme heat or cold, and extreme weather events. Many cities are built near large bodies of water, including oceans and rivers, which increases the threat of rising sea levels. Cities in the developing world, especially South Asia and sub-Saharan Africa, have additional challenges in that they are exploding in population, but do not have the infrastructure or resources to keep up with the day-to-day requirements of running a city, never mind funding adaptation strategies in response to climate change. Millions of people live on the margins of most large cities and are most exposed to the impact of weather events. One only need look at Haiti, an under-resourced country that has suffered a catastrophic earthquake and two hurricanes for an example of development needs and human suffering.

The developed countries have a different problem in responding to climate change. Most cities have an aging infrastructure, inefficient housing stock, and a haphazardly built energy grid. Many of these elements will need to be improved or replaced in the coming decades and will need to be reinforced to withstand the greater likelihood of extreme weather, and insulated to not only reduce GHG emissions, but also to protect against extreme temperature variations. Transportation systems, including roadways and mass transit, are also at threat to climate change.

Today more than 50 percent of the world’s population lives in cities and this number will continue to grow as we move away from an agrarian-based economy. Cities are also the biggest polluters and collectively contribute 70 percent of global greenhouse gas (GHG) emissions. However, the challenge of creating new and updating existing infrastructure provides a real opportunity to adapt and mitigate climate change. The World Bank estimated that climate-proofing new construction may add 1-2% to the total budget, but this up-front cost is a long-term investment against future events. These large projects will require substantially financing and most cities may need public private partnerships to achieve results. One sector they may look to partner with is the insurance industry, which will need to create a new model to pay out for environmental catastrophes that can cost in the billions; we can avoid some of those future costs by adapting now.

There are already many known solutions but need financing, time, construction policies, and political motivation to implement them. However, some very simple and inexpensive steps can also be taken now. A prime example is in green building practices. Increasing green spaces in cities with roof gardens, vertical wall gardens, parks and bioswales provides an inexpensive measure with multiple benefits that have economic savings. These include absorbing storm water runoff saving on wastewater treatment, cleaning air pollution that reduces healthcare costs, heat island mitigation that reduces energy costs, absorbing GHG emissions which mitigates climate change, and also provides space to protect biodiversity. An additional benefit is that green spaces are aesthetically pleasing and can increase property values. Some cities have implemented these ideas for budgetary, as well as environmental, reasons, including Berlin, Denmark, Philadelphia, and my home town of New York City.

A takeaway is how to help cities in developing countries create sustainable infrastructure now, instead of building on the foundation of past building practices. Many of these cities are growing exponentially and need to provide living space for the millions of people who are flocking to economic hubs for employment and other opportunities. A question is how to guide their building practices, policies, and notably how to finance them. We may look at the financing mechanism of the United Nations Framework Convention on Climate Change (UNFCCC), which provides money to developing countries for climate change adaptation as a potential source. We have an ethical duty to assist these countries, as well as insure against a future where climate refugees will flood into the developed countries. We have seen Europe nearly destabilized by the Syrian refugee crisis, where more than a million people have fled a war-torn country. Millions more may be displaced by climate change. How do we work together to prevent a future humanitarian disaster?