Partnership with Posterity


by Jeremy Burnham

You can find some powerful ideas if you listen to Nature.   Conservationist and futurist Hank Patton has been thirty years patiently working the land and building a Biodiversity Reserve up the Columbia Gorge.   Now he emerges with a model that could revolutionize our approach to business  –  an alternative to the model that is taking us to a place where no one really wants to go.

 Hank’s primary assertion:  there’s a gift in the arms of the problem:

There’s vastly more wealth to be made, now, by managing resources as though the future mattered.

If this is true, then our challenge is not to convince people to be better citizens, but to show them how to benefit from the oppor­tunities offered by sound environmental investment.  It’s not a regulatory or an ethical problem.   It’s a structural problem.

Nature shows us that the most robust long-term systems are the most integrated over species, time and space.  Biodiversity flour­ishes, and lasts.   So what does integrating a range of different business activities over species, time and space look like?  And how could doing this pay dividends in a short enough term to attract investors?

Take a simple example of a couple of enterprises which offer opportunities for synergies through integration over space (see next page).   A laundromat and a greenhouse each produce waste products which have to be cleaned up.  But bring the two together, add some other symbiotic elements and insist on renewable energy, and we produce a complex which consumes less resources, produce more net value and leaves less net pollution than the two in isolation.

We are familiar with this kind of integration.   Shopping malls and industrial complexes commonly capitalise on synergies in market­ing, energy, transport, security and building infrastructure.   It’s called industrial sym­biosis.   But it’s not happening enough, and we haven’t been anything like as ambitious in our inclus­ivity as Hank says is possible.  He invites us to integrate not only across space, as in this example, but also across sectors, political jurisdictions and – most challenging – across time.  Integrating over time means investing now in systems and synergies whose full rewards may only be realised by future generations.  We’re talking major public utilities infrastructure, and struc­tural integration involving the replacement of isolated factories by new complexes.

Here’s the problem:  today’s business world cannot access the wealth that good steward­ship will deliver to future generations, nor can it profit from preventing the negative consequences to those generations of business as usual  –  the externalities.

This is not a new insight.   Economists of the industrial revolution deplored the external­ities of smog-fouled cities and wretched working conditions.   But nobody  –  bosses, miners nor consumers  –  could do without the energy they extracted from the coal.    Hank unpacks this Catch 22:

THREE BARRIERS TO SUSTAINABLE BUSINESS

For the long-term wealth that rewards well-designed, integrated, sustainable business to become accessible to today’s entrepreneurs, there are three structural barriers to be addressed, and they must be addressed in an integrated fashion.

Figure 1

 

Figure 2

 1.        TRAPPED EQUITY.  

The first barrier is the trapped equity problem.   The planet is covered with inefficient and inappropriate structures and hardware, and business has a huge vested interest in maintaining and fuelling these old systems  –  manufacturing plant, transport networks, whole cities of antiquated investment.   Much of the world’s capital is trapped in these old systems and processes, and parliaments of the world are dominated by the economic muscle of these interests.   No significant change can occur until a mechanism is established for the orderly and secure relocation of investments from resource-exhausting to resource-sustaining platforms.

2. UNMEASURED CONSEQUENCES.

The second barrier is the externalities.   The full consequences of our investments do not feature in conventional accounting – the “bads” that we hide, and the “goods” that we don’t get credit for because they are distributed too deep in time and broad across sectors.  There are four dimensions of an integrated marketplace which remain largely unexplored because we have not invented ways to measure and to capture the significant value and wealth that lies there:

  1. across sectors (mining, manufacture, service);
  2. across political jurisdictions (provinces, countries, regions);
  3. between physical structures and resource streams (our example above);  and
  4. deep into time across the term of the consequences to the seventh generation.

3. TRANSACTIONAL FRAMEWORK.

No matter how great the value of the services this generation of managers may wish to provide to their grandchildren, future generations cannot reward them  –  future generations don’t write cheques to current bank accounts.

Can these three barriers to sustainable business be overcome?

Hank has evolved a brace of strategies which, used together, can answer each one of these barriers.   Collectively they constitute what he terms “Intergenerational Commerce”.

INTERGENERATIONAL COMMERCE

1.  First we need to raise capital on a sufficient scale to fund very long-term redevelopment investments in both new and retro-fit businesses to deliver integrated sustainable goods and services  –  complexes of heavy and light industry that symbiotic­ally share human, energy, water and other resources in ways yet undreamed-of.

  • Strategy One:   the Redevelopment Bond  – a new class of Provincial revenue bond.   Very long term instruments, something like the 100-year bonds which financed the 19th centuryU.S. railroads (this is just what pension and insurance funds need for secure, productive long capital investment oppor­tunities!)

These Revenue Bonds, voluntary provincial savings instruments in multiple issues of R100M, will be hybrid, in the sense that the full faith and credit of the Province will guarantee the down side in the tradit­ional way at a minimum return on invest­ment, but the up side will be pegged to the per­formance of the portfolio in which the funds are invested.   These new bonds should develop a strong secondary market, pushing the cost of capital to negative interest rates because of the performance of their portfolios.

2.There’s currently no place in the market for buyers and sellers of such long-term transactions to meet.   What form of frame­work could host this commerce  –  to make it understandable, attractive and transparent?

  • Strategy Two:   an Intergenerational Redevelop­ment Utility (IRU)  –  a national agency that turns externalities into markets.   A board of Trustees, locally elected for each regional redevel­opment authority, is sworn to represent the inter­est of future generations and to negotiate contract terms and deliverables in today’s marketplace.   This board would be in effect a very large new “client” to today’s business.   Our new client (Posterity her name) solicits, and funds, competi­tive proposals for the delivery of long term integrated goods and services from bidding consortia made up of corpor­ate, government  and NGO enterprises.

The IRU is designed to operate like an icebreaker in the brutal climate of con­temp­orary business and politics, profitably and rapidly relocating trapped investments from dirty exhaustive platforms to long-term renewables.   This gives today’s business world practical access to a vast new market for integrat­ion, innovation and wealth creation.

The IRU will stimulate new employment and a very large new market for solutions that integrate across sectors, structures and time.   This interfungibility [1]  across sec­tors (education, health and transport, consumer goods, design for reuse etc) will be a hallmark of successful design:   a winning bidder may have designed some very profitable criminal justice services into her employee recruiting program[2], developed a powerful wellness program to lower health management costs, put some cradle-to-cradle design for disassembly credit into product design, some habitat species & corridor credits into the company golf course, and of course redevel­oped an energy basis in renewables to operate at climate neutral or better.   There is an exhilarating list of value streams that are convertible to revenue as soon as the transactional framework provides workable interfungibility.

Ultimately what happens is the winning designer/engineering team  –  and their bond-holders  –  get a significant slice of both the measured benefits and the avoided conse­quences, including literally payments for a broad range of unsustain­able stuff that never happens because of good integrated design.   The real value of such services over the life cycle of the investment dwarfs the short term “profit” of extractive and exhaustive short-term fossil-based industry.

Hank says that leveraging these capital relocations on a voluntary market basis with the redevelopment bond can accomp­lish this goal in a non-partisan elective way at greater speed and dramatically less cost than legal coercion or taxation.   Consider that the large corporate player is frankly more interested in cash-flow and stock value than book value.   Stable contracts in large markets that run for decades, accompanied by early-mover advantage and low purchased energy etc., will be hard to ignore as a strategic opportunity.   And there are many more values to measure.

3.  How do we ensure that even the most dedicated IRU trustee will accurately assess the long-term impacts of these investments to ensure future harmlessness?

  • Strategy Three:   a Province-accredited professional standards board using life-cycle analysis  –  by which the long term deliverables marketed in the IRU can be accurately measured and assessed.   The metrics hold a critical role in determining how services are to be compensated, and local IRU commissioners will be guided by metrics established by Provincial (not local) standards.   Provinces in one region (eg the Lowveld) can collaborate to create interfungible and standard­ised metrics across their jurisdiction.   This scale of operation will be necessary to achieve the critical threshold of interfungibility across sectors and services, allowing hitherto inaccessible “market signals” (read: financial gain) to attract the investor/ decision-maker and her resource managers.

 

4.  This sounds all too risky for today’s investors.

  • Strategy Four – Equity Relocation Insurance.    Capital management is always about risk, but a new insurance product is required to support the orderly and accelerated relocation of trapped investments into long term performance contracts.   Equity would loosen up rapidly, Hank believes, if there were real alternat­ives . . . and some insurance.

 

If Hank and the growing number of high-profile colleagues working with Intergener­ational Commerce in the USA and Canada are right, our extraordinary living planet’s spiral into chaos may be reversed by putting the genius of the marketplace to work in the most profitable way.   A world economy presently based upon the manipulation of scarcity may be trans­formed to an economy based upon the stewardship of resources for abundance, in a business partnership with future generations.

Thus, says Hank, we may take harmlessness “to the bank”.

 

Hank Patton is chairman of World Steward, a non-profit organization whose mission is to catalyse innovative land preservation and economic development projects around the world  –  see  http://www.worldsteward.org


[1] Interfungible  -  sharing a common currency for transact­ions across sector boundaries  – inter-redeemable between hitherto unconnected systems

[2] Charging the prison service for savings incurred by her taking potential criminals off the streets

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  1. #1 by Trevor Watkins on July 16, 2011 - 10:11 pm

    You raise an interesting point I have not considered before – how do you factor the interests of the unborn into a market transaction. As you say, they have no representatives, no money, no existence yet. Do we rely on our genetic imperative? What if you don’t plan to have any children, and therefore heirs?
    Perhaps a fund could be established using intestate estates to protect the interests of the yet unborn?

  2. #2 by Jeremy Burnham on July 17, 2011 - 4:29 pm

    Whether or not I have personal heirs, as a human I harbour a paternal concern to grow rather than to constrain the choices available to future generations. The main thrust of Hank’s approach, however, is less to protect the unborn, more to make available to current investors opportunities that will satisfy their selfish self-interest – create real profits for them in current markets – while at the same time benefitting those future generations. The technology for large-scale “green” development at present sits largely underutilized because there is so much capital tied up in old resource-depleting technologies yet unredeemed.

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