A Quantum Leap in the Sky

For decades, large-scale electric propulsion has long been deemed impossible.

While the concept of fueling airplanes with electric motors is not novel (in World War II the B-29 Superfortress bomber powered its gun turrets with electric motors and airplanes since have used electrical power as a replacement for ducts and hoses of hydraulic and pneumatic systems), the concept of fully electric airplanes has remained somewhat of a fairy tale.

The chief hurdle to a battery-powered plane is the weight, range and power density of the battery. Some small attempts at electric flying have been made, but at low ranges and speeds. For comparison, the jet fuel capacity of a Boeing 787 Dreamliner is roughly 223,000 pounds, which in battery terms equates to 4.5 million pounds (LA Times). The day that batteries weigh less than liquid fuel is not near.

Wright-Brothers-First-Flight-in-1903-06
The Wright Brothers, 1903.

Over a century has transpired since the orignation of commercial aviation and flying has become an essential fixture of global business, travel, and connectivity. Every 15 years, the total miles flown has doubled, from 1 trillion miles in 1980 to an anticipated 13 trillion in 2030 (Zunnum Aero).

Low and behold, an industry that was never thought to innovate fast enough to match its dynamic growth rate is on the tip of multiple technological breakthroughs as companies race to be the first to commercialize supersonic speed, space travel and, you guessed it, the once-deemed-impossible electric and hybrid propulsion.

If you can’t beat ’em, join ’em.

Earlier this year, aerospace and defense manufacturer, Boeing (BA), and Jet Blue Airways (JBLU) doubled down on the future of aviation, investing (an undisclosed amount) in Zunnum Aero, a start-up threatening to revolutionize regional aircraft travel through its hybrid-electric airplanes.

There is no doubt that this investment is a bet on the disruption of a century-year-old industry, made by two smart incumbents aspiring to be on the right side of said disruption.

zunnum aero picture
Zunnum Aero airplane

Zunnum Aero was founded in Washington three years ago by Ashish Kumar, a PhD in Mechanical and Aerospace Enginering and prior tech leader at Microsoft, Google, and Dell.

Zunnum’s pilot-optional aircraft is powered by two low-pressure ducted fans called “quiet electric propulsors,” or QEPs. The QEPs, designed for significant noise reduction, efficient flying, and high static thrust for takeoff, are powered by batteries located in the wings and complemented by a 500-kilowatt gas turbine generator. Interestingly, the gas turbine provides no thrust, just electric power for the QEPs. The turbine is only turned on when needed, resulting in a hybrid electric power train.

Without jet fuel, the wings have more design flexibility, and each wing is home to a chemistry-agnostic battery bay which holds easy-to-remove battery packs, so that battery storage can be customized per flight. The batteries will be primarily used for additional power during takeoff when energy consumption is at its peak. Attempting to corect for any potential issues, Zunnum is designing battery packs that can be easily switched at the airport if there is not enough time for charging. The company is also exploring different battery chemistries so it is not beholden to lithium-ion batteries. (Although most in the technical community would argue that lithium-ion batteries have the greatest comparative energy density, which is extremely important for aviation – more energy, lighter weight).

In fact, Zunnum has “future-proofed” its entire aircraft, so that it is not tied to any one technology and everything has been designed for eventual transition to fully electric. Solving for the long-time weight hurdle of battery-powered aircrafts, the batteries are only 12-20% of total weight. The optimization and control platform is designed with state of the art technology including real-time power management, fault detection and recovery, flight-energy optimization, and charge depleting profiles. Like everything else on the plane, the control platform is also designed for full-electrification.

Zunnum has developed propreitary algorithms to optimize range and performance. Its current range is about 700 miles, max speed 340 mph, and take-off distance 2,200 ft, all of which will improve as technology advances. Not a bad start. Zunnum will test its aircraft in early 2019 and plans to commercialize the aircraft by 2022.

The best part? The Zunnum Aero airplane will be faster (door-to-door) and cheaper for the consumer. Zunnum Aero has stated an expectation of 40-80% lower operating costs and is eager to show the world how inexpensive a flight can be when fuel isn’t costly. Zunnum further stated that these cost savings will be passed directly to the consumer and anticipates ticket prices dropping by an equivalent 40 to 80%. Because noise is reduced by about 1/3 to 1/5 that of a conventional jet fuel plane, underutilized regional airports will be reenergized and, the icing on the cake, carbon emissions from an aircraft will be lowered by up to 80%, with an aspiration of zero emission flying as technology advances. The Company has been working with the Federal Aviation Administration on creating standards for electric aircrafts.

This is a win for the planet, a win for our wallets, and a win for the technical community and aviation industry. Win-win-win-win.

Consider the following:

The advent of air travel has led to the increase of seats on a plane. In 1980, an aircraft held an average of 20 seats, in 2010, 60 seats, and today the average number of seats on an aircraft is 80 seats. Airline travel has been consolidated to a smaller number of long-haul routes at busy airports, leaving regional travelers by the wayside. Or, more quite literally, waiting on the tarmack for take-off. GE calculates that for flights under 1,000 miles, travelers spend over 70% of time on the ground.

Today, the United States is home to approximately 13,500 airports, surpassing any other nation in the world. Yet, just 140 of these airports carry over 96% of air traffic (Zunnum Aero). Communities that lack bustling, efficient airports struggle to attract investment and commercial businesses. We are faced with a transportation gap: lack of a reliable, low-cost, high-speed option for regional transport.

Zunnum Aero is about to flip regional travel upside down.

The company intends to operate its first 700-mile routes (think Portland to San Francisco) by early 2020’s and a 50-pasenger plane with a 1,000 mile range by 2030. The investment from Boeing and Jet Blue is a tremendous endorsement for Zunnum’s patented technology as well as a willingnes on behalf of at least one major airline to replace current fleets with a newer, efficient model.

Other players have more recently entered the fray, and we welcome them: Their decision validates our concept. – Zunnum Aero

There are a myriad of companies working on electric and hybrid technology. In July of 2015, Airbus flew a fully-electric two-seater plane known as the “E-Fan” across the English Channel for a duration of 37 minutes total flight time. However, the maximum speed was only 136 miles per hour. In 2017, Airbus abonded its E-Fan plans , shifting its efforts to hybrid production. The Solar Impulse 2, the first ever solar-powered plane was also fully-electric, but was only able to fly at an average speed of 47 mph and was required to fly at dangerously high levels to receive enough energy from the sun. There are a few other examples, all with varying limitations. While the electric aviation industry is still in its infancy, particulary compared with electric vehicles, it will be a race to the finish line among the bold.

The (carbon) cost of flying: 

Today, approximately 20,000 airplanes service three billion passeners each year (The New York Times). Business and relationships have become increasingly global and the advent of low-cost carriers has resulted in cheaper-than-ever plane tickets. But the increase of sky travel has come at a cost. A carbon cost.

The aviation industry accounts for approximately 2.5% of total global CO2 emissions and produced roughly 815 million tonnes of CO2 in 2016 (International Air Transport Assocation). Scientists estimate that given the industry’s rapid growth, at status quo, aviation will exhaust 1/4 of the world’s remaining 2050 budget (BBC News). This is not a pretty picture. It is also important to note that short-haul flights account for over 40% of total aviation emissions. Zunnum believes its aircraft will eliminate this entirely within twenty years.

The aviation industry has long remained absent from the United Nations (UN) climate negotiations, finally in 2016 volunteering to offset emissions after 2020. However, many environmentalists and corporate executives were not pleased with this conclusion. “Airline claims that flying will now be green are a myth. Taking a plane is the fastest and cheapest way to fry the planet and this deal won’t reduce demadn for jet fuel one drop,” states Bill Hemmings from T&E. Carbon offsets are usually viewed as an intermediary solution, as buying offsets does not change any behavior, rather attempts to compensate for carbon-intensive decisions. Carbon offsets also run the risk of “double counting”, which has severe implications as the world attempts to measure how much carbon it has “left”.

If hybrid and/or electric aviation takes off (pun intended), the implications would be tremendous.

The future of transportation:

In a not too distant future, we’ll use our smart phones to book a fully automated flying taxi that will land outside our front door – without any pilot. – Tom Enders, CEO Airbus.

As our ever-growing population squeezes into more and more global mega-cities, transportation is innovating rapidly to avoid gridlock. Not only will we fly on a hybrid or electric airplane in our lifetime, but companies of the likes of Airbus are working on inventions such as flying pop-up cars, autonomous helicopters, and “Uber air” taxis, as shown below.

airbus popup.jpg
Airbus “Pop.Up,” a conceptual autonomous flying car somewhat resembling a drone created in partnership with Audi and Italdesign. This two-seater pod has a set of wheels for ground travel, but can also hang under a quadcopter, connect to other pods to form a train, and fit through a hyperloop tube. Currently, the pod can travel 81 miles in the sky and 31 miles on the ground before it needs to be recharged. Production timeline, however, is still TBD.
Airbus Vahana.jpg
Airbus “Vahana,” an autonomous flying Uber which retracts like a motorcycle and seats one passenger. Vahana does not need a pilot nor a runway. Airbus’ aspiration is to commercialize the first certified passenger aircraft without a pilot. Vahana’s 20-foot-wide prototype rose 16 feet off the ground for 53 seconds during its first test flight in Oregon three months ago, a great success for the company whose concept existed on a napkin just two years ago. Airbus hopes it will have a flying Vahanas in market by 2020.

Transportation as we know it has forever changed.


Featured Photo Credit: Zunnum Aero

Embracing Circular Cities

In our world of finite resources, overflowing landfills, and a population anticipated to reach 9.7 billion by 2050, the conventional linear model of make —> use —> discard, which has dominated the global economy since the Industrial Revolution, is being forced to change. A new sheriff is in town and her name is the circular economy.

Let’s rewind.

What’s wrong with conventional linear economies, what exactly is a circular economy, and what does circularity have to do with cities and urban planning?

~ * ~ * ~ * ~

Historians will suggest that the onset of the 21st century marked the point in time when the rise in real prices of natural resources started to erase the prior century’s real price declines. The mortgage crisis of ’08-’09 naturally took a hit on global demand but, as shown below, resource prices have rebounded faster than GDP since 2009. The implications? The cost of natural resources have become vitally important.GDP and commodity indexAccording to McKinsey, by 2030, three billion consumers will depart from the developing world to the middle class. This massive shift, in tandem with depleting resources and increasing and unpredictable commodity prices, intensifies competition among companies to protect valuable natural resources. As such, the make —> use —> discard philosophy has fallen by the wayside as companies are embracing circularity, increasingly innovating to find ways to do more with less and make resources last as long as possible.

The trillion dollar question: Can a circular system decouple economic growth from resource constraints, adding value for both society and business?

The Ellen MacArthur Foundation, an organization working with business, government, and academia to accelerate the transition to a circular economy, defines the circular economy as an economy that is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, whilst distinguishing between technical and biological cycles. It is conceived as a continuous positive development cycle that preserves and enhances natural capital, optimizes resource yields, and minimizes system risks by managing finite stocks and renewable flows.

The Ellen MacArthur Foundation further postulates that embracing circular economy principles has the potential to cut carbon emissions in half, and a McKinsey study shows that circularity could add $1 trillion to the global economy, resulting in at least 10,000 additional jobs.

Embracing Circular Cities:

“A circular city embeds the principles of a circular economy across all its functions, establishing an urban system that is regenerative and restorative by design. These cities aim to eliminate the concept of waste, keep assets at their highest utility at all times, and are enabled by digital technology. A circular city aims to generate prosperity and economic resilience for the city and its citizens, while decoupling this value creation from the consumption of finite resources.” – Ellen MacArthur Foundation & Google

The World Bank has estimated that urban residents will generate at least 2.2 billion tons of waste per year by 2025. It has been stated (by Google and the Ellen MacArthur Foundation) that 54% of the world’s population resides in urban areas accounting for 75% of natural resource consumption, 50% of global waste generation, and 60-80% of greenhouse gas emissions. This same population also accounts for 85% of global GDP production.

To curb emissions in urban cities is to benefit society in a big way.

Digital Technology for the Win:

Ten years ago, the concept of sharing a ride with a stranger or sleeping in a stranger’s house was unheard of. Today, with the help of technology and companies such as Uber and AirBnb, this once taboo concept has become mainstream. Google (Alphabet) and other tech visionaries are using big data, asset tagging, and geospatial information to create unprecedented technologies that are vastly improving the efficiency, connectivity, and sustainability of cities around the world.

A few examples of digital technologies in play that you might have heard of (or perhaps are using) include: the Nest Learning Thermostat designed to map energy savings and reduce consumption, the Waze app used by 80 million drivers for its easy access to traffic information and less-congested routes, and Project Sunroof, an online tool using Google’s 3D imagery and high resolution aerial mapping to help homeowners decide whether or not to deploy solar power by analyzing residential roofs in great detail (sun positions, nearby shadows, solar viability, historical weather patterns, you name it). Flow, a subsidiary company of Alphabet’s Sidewalk Labs, creates digital tools for city planners that enables highly efficient transportation systems by digitizing available parking, traffic light systems and timing, and traffic congestion. Project Air View is a collaboration with the Environmental Defense Fund (EDF) and Aclima, using air sensor technology mounted on Google Street View cars to measure air quality through information on nitrogen dioxide, nitric oxide, carbon and other pollutants. Project Air View provides specific street level data showing how pollution changes block by block, allowing for targeted solutions. The list of impressive technologies continues on.

Circularity in Action

Europe is light years ahead in the race to circularity, with exemplars sprouting up in Amsterdam, London, and Italy, to name a few. Amsterdam has identified that redesigning product and material supply chains can save the city 85 million euros per year in construction costs and 150 million euros per year through use of organic residual streams. While many cities share rides, London has taken the sharing model one step further, introducing a “Library of Things”, where people actually share electronics and appliances, a genius concept extending the useful life of many assets and vastly reducing the quantity of new products purchased and eventually discarded. Italy is focusing its circular efforts on waste management, piloting door-to-door collection and city-wide second-hand markets in a 72,000 populated city called Cremona. The city has also introduced a tariff on any waste that cannot be collected. In just two years, Cremona has increased recycled waste from 53% to 72%.

So there you have it, a circular city creates a win-win for the wallet and the world.

Living with Water

“In the waterlogged Netherlands, climate change is considered neither a hypothetical nor a drag on the economy. Instead, its an opportunity.”

– The New York Times, June 2017.

The Netherlands represent one of the most vulnerable regions to sea level rise in the world. In fact, the nomenclature “Netherlands” is Dutch for “low countries,” or “lowlands”, which is accurate because 1/4 of the country is actually below sea level. The country’s lowest point, Zuidplaspolder, is a polder at 23 feet below sea level. In the Netherlands, the conversation has shifted from mitigation to adaptation – the Dutch are focused on working with, rather than against, climate change. The Dutch have unfortunately learned the hard way. In 1953, intense flooding from the North Sea killed over 1,800 people overnight. In just one night, the Netherlands were forever changed.

In this country of environmental ingenuity, sea walls, dams, and dikes are old news.

While most of the world is focused on building walls in attempt to keep water out, or pretending that sea level rise is a myth that might one day disappear, the Dutch are taking a different approach. They are letting water in – and as much as possible.

One such example is 22-acres of reclaimed canals just outside of Rotterdam, an area called the Eendragtspolder, which serves to collect water from the Rotte River Basin when the nearby Rhine River overflows, which it is anticipated to do every ten years due to climate change. The Eendragtspolder is also home to bike paths, water sports, and a brand new rowing course, where last year’s World Rowing Championships were held.

BUILDING WITH NATURE:

Eendragtspolder is just one example of a nationwide initiative, called Room for the River, which is focused on just that – making more space for the increasing levels of water. Mechanisms include: depoldering, deepening summer beds, lowering flood plains, implementing high water channels to drain water, you name it.

“We can’t just keep building higher levees, because we will end up living behind 10-meter walls. We need to give the rivers more places to flow. Protection against climate change is only as strong as the weakest link in the chain, and the chain in our case includes not just the big gates and dams at the sea but a whole philosophy of spatial planning, crisis management, children’s education, online apps and public spaces.” – Harold van Waveren, senior government adviser, Netherlands. 

THE SAND MOTOR:

Each year, an increasing amount of sand from the Dutch coast is swept out to sea. Consequently, every five years, the beaches must be replenished with dredged sand in order to protect the Netherlands from complete sea exposure. This is no cheap feat.

Introducing the Sand Motor.

sand engine
The Sand Motor: a hook -shaped peninsula on the coast near Ter Heijde

Often proclaimed the best marine engineers in the world, the Dutch have pioneered yet another fascinating initiative: the Sand Motor.

The first of its kind, the Sand Motor, also known as the Sand Engine or De Zandmotor, is 21.5 million cubic meters of dredged sand that has been added to the coast of South Holland at Ter Heijde with trailing suction hopper dredges. The aspiration is that the rising sea currents will naturally spread the sand into protective barriers along the coast, without disturbing local ecosystems. If all goes as planned, sand replenishment will be unnecessary for at least 20 years, resulting in hefty cost savings. The project is part of a larger public-private partnership called Building With Nature, an ensemble of researchers and practitioners (many from the Netherlands) examining novel approaches to hydraulic engineering using natural resources. A similar initiative, Engineering With Nature, is led by the U.S. Army Corps of Engineers. The future of construction will undeniably change over the coming decades as urban planners and developers will be increasingly forced to adapt to nature.

The Sand Motor is not only a mechanism for enhanced flood protection,  but it has also become a focal point for coastal management research and an enjoyable area for water sports enthusiasts, as kite and windsurfers have been granted additional beach space.

The Sand Motor officially emerged in 2011 and is behaving as predicted thus far. Total cost spent on research and implementation is an approximate $81 million.

“We have a lot of knowledge on how to build dikes. Dikes are built to last 50 years. But we don’t know what the conditions will be like in 50 years. We need something we can adjust as we acquire more knowledge on dealing with sea-level rise and storm intensity.” – Jasper Fiselier, Environmental Engineer, Royal HaskoningDHV.

If there is no struggle, there is no progress.” – Frederick Douglass 

Somewhat paradoxically, the port of Rotterdam – one of the world’s busiest ports accounting for 180,000 jobs – supports five oil refineries, along with a massive coal-fire power plant. The port is said to account for 17% of the entire nation’s carbon footprint. Skeptics point to the fact that Rotterdam’s economy relies heavily on the fossil fuel industry. Yet, the nation describes plans for greening the port, primarily through renewable energy such as enormous wind farms.

Regardless, the future of the port depends almost entirely on the Maeslantkering, a massive sea gate monitored by computers. The Maeslantkering is an impressive work of engineering – each arm of the gate is equivalent height and twice the weight of the Eiffel Tower.

sea gate

When the gate is closed, the tubes fill with water and sink into concrete. After two and a half hours, an intense steel wall is formed against the North Sea. Thirty pumps inside the gate are connected to a power grid, and a backup grid, and if all else fails a generator. These pumps extract water from the tubes when it it is time for the gate to open. The entire process is automated by computers. The country’s greatest protector comes with a level of danger. The implications of a broken gate are tremendous – if, for some reason, the gate could not reopen, water from the Meuse and Rhine rivers would have nowhere to flow and would completely demolish Rotterdam. Escape would be impossible.

“We believe you get the smartest solutions when communities are engaged and help make the links between water and neighborhood development” – Wynand Dassen, Manager of Rotterdam Resilience

The Netherlands’ climate change strategy involves the entire community. In order to use all public pools, Dutch children are required to earn diplomas that require swimming while fully clothed. “It’s a basic part of our culture, like riding a bike,” says Rem Koolhaas, Dutch architect. Many locals use a national GPS app that indicates at all times exactly how far below sea level they are standing. Local bar talk is inundated with conversations about sea level rise and advanced water technologies.

swimming

Over the past two decades, the Netherlands have pioneered some of the most interesting and successful climate change solutions, introducing the first-ever solar powered bike lane and the first-ever smog eating sidewalk (yes, you read that correctly, pavement blocks covered in titanium oxide, a photocatalytic chemical that actually extracts pollutants from the air and transforms said pollutants into less harmful substances). The smog eating sidewalks have been said to reduce air pollution by 45% in ideal weather conditions. Currently, the Dutch are implementing solar-powered drones that collect plastic trash form the sea.

“Rotterdam lies in the most vulnerable part of the Netherlands, both economically and geographically. If the water comes in, from the rivers or the sea, we can evacuate maybe 15 out of 100 people. So evacuation isn’t an option. We can escape only into high buildings. We have no choice. We must learn to live with water.” –  Ahmed Aboutaleb, Mayor of Rotterdam, Netherlands.

In the Netherlands, the most successful climate change approach has been the path of least resistance: working with climate change, rather than against it.

Does Last Place Really Deserve a Participation Prize?

Capitol Hill is getting quite a bit of action lately.

Last week, U.S. credit bureau Equifax admitted to a security breach impacting nearly half of the entire United States population. The breach had leaked the personal information of 143 million people (44% of the U.S. population), inclusive of social security numbers, driver’s licenses, birth dates, you name it. In typical fashion, those with the lowest financial literacy and resources will be hit the hardest.

Equifax is the oldest of the three main U.S. credit bureaus, aggregating information on over 800 million people for insurance and credit reports.

“The Equifax data breach poses serious problems for consumers of all socio-economic levels, but in particular, those consumers who are less educated on the repercussions associated with data theft and identity theft. We are deeply concerned that Equifax – and all credit reporting companies – are not doing enough in a timely manner to protect under-served consumers who have been victimized by this data breach and stand to suffer the most.” – Thomas Hinton, CEO, American Consumer Council

Companies make mistakes. The implications of some mistakes larger than others, but the response to the mistake is always imperative. Equifax asked its customers to give up their right to sue the company in exchange for credit monitoring services. The company retreated from this stance shortly after, but the response has not yet been forgotten. Also not forgotten is the fact that Equifax let six weeks go by before announcing the breach. It should be noted, however, that the company’s interim CEO Mr. Paulino de Rego Barros Jr. wrote a nice apology in the WSJ and other media outlets, and the company is also developing free services to let consumers lock and unlock credit card file access. Not entirely consolation for having your identity stolen, but its a step in the right direction.

Behavior, Repeated 

As reported on CNN Money, “Scandal 101: Equifax repeated Wells Fargo’s mistakes”, we are witnessing an unfortunate repetition of bad behavior.

You might recall hearing about a certain $185 million scandal involving fake accounts last year.

What happened? Well, the story is that employees inside Wells Fargo created millions of fake accounts and credit card applications. Associated with these accounts were fees for customers which helped augment sales figures for Wells  Fargo employees. As result, 5,300 employees were fired and the company forced to pay a $185 million fine. Also as a result, Wells Fargo has lost over 550 financial advisors overseeing assets northward of $20 billion.

Adding insult to injury, just one month ago Wells Fargo admitted it had found an additional 1.4 million fake accounts, totaling to approximately 3.5 million fake accounts. What does this mean? About a year after its first congressional hearing, Wells Fargo is back in the hot seat and just yesterday, both Wells Fargo and Equifax testified at Congressional hearings. A simple Google search will lead you to a plethora of opinions and quotes from yesterday’s events.

Hindsight is 2020…and so is the MSCI ESG Index

Interestingly, if one had been following the MSCI ESG Index, one might have had a bit of foresight into both the Equifax and Wells Fargo Scandal (and Volkswagen, but who’s counting).

In fact, prior to scandal, Equifax had already been rated as an extreme underperformer according to both MSCI ESG Research and Sustainalytics, ranking in the lowest decile out of 93 firms. In August, MSCI ESG Research downgraded Equifax to its lowest rating “CCC”. Months prior to the scandal, the April MSCI ESG Rating Report stated:

“Equifax is vulnerable to data theft and security breaches, as is evident from the 2016 breach of 431,000 employees’ salary and tax data of one of its largest customers, Kroger grocery chain. The company’s data and privacy policies are limited in scope and Equifax shows no evidence of data breach plans or regular audits of its information security policies and systems…Equifax faces high exposure to regulatory and reputational risks associated with privacy and data security issues, primarily because of the company’s involvement in credit reporting…”

MSCI ESG Rating of Equifax
MSCI ESG Rating of Equifax

One might conclude that because two renowned predictors shared similar opinions about Equifax and Wells Fargo, the companies would surely be missing from ESG portfolios, right? Wrong. Somehow, both Equifax and Wells Fargo were included in top portfolios.wellsequifaxMSCIIt seems reasonable to conclude that there is an apparent disconnect between ESG investment research and actual investments, despite the fact that ESG research is proving to be quite predictive. Let this be a call to action for investors to fully embed ESG research into portfolios.

Investors as Stewards of the Commons?

Increasing social inequality and environmental deterioration, coupled with the failure of government to provide regulatory interventions to mitigate negative externalities, has led many to look to the private sector to alleviate environmental and social deficiencies. Such was recognized in the Sustainable Development Goals (SDGs).

In his working paper, Investors as Stewards of the CommonsHarvard Professor George Serafeim urges for the mobilization of investor voices towards positive social and environmental change.

“While companies are increasingly addressing environmental and social issues that also improve their economic value, for some of these issues individual company action is costly. At the same time, for a further subset of those issues, company action coupled with collaboration between companies is value enhancing, However, collaboration between companies is notoriously difficult and fragile requiring commitment mechanisms.

I suggest that a small set of large institutional investors, importantly, but not exclusively, index and quasi-index investors, could provide this commitment mechanism. Common ownership of competitors within industries and long-time horizons in ownership of shares are key characteristics for investors that could act as stewards of the commons. Social pressure fueled by socially responsible investment funds and non-profit organizations and customer pressure from individual investors are critical in mitigating free-rider problems among asset managers and sustaining engagement practices.”

Serafeim’s theory of change suggests that investors have a tremendous power to serve as the mechanisms by which corporations can collaborate for meaningful change.

Serafeim argues that pre-competitive collaboration would allow for an equal playing field when competition eventually occurs. For example, consider the effect of the big wigs in the fashion industry collectively managing resources to reduce water pollution caused by their manufacturing and supply chains. Such collaboration is not to be mistaken with collusion. Rather, as noted by Serafeim: “Similar to airlines cooperating by purchasing jets together in order to lower costs collectively, collaborations are mutually beneficial but do not affect the fundamental relationships of competitors.”

While we must not diminish the fact that business and government action has resulted in incredible commitments and actions on behalf of many companies and pockets of environmentally-positive legislation, the fact of the matter is that there is still much work to be done. The way forward is presumably a combination of investor action, conscious consumption, policy regulation, innovation, and private sector leadership.

One thing is for certain – the train heading towards protecting the planet’s resources for future generations has collaboration written all over it. Hop on board.

Does the market dictate the truth or does the truth dictate the market?

“Market activity is the manifestation of beliefs through executed trades. When enough investors buy into the belief that certain patterns signify where a resistance and support level are located for an index or stock, then such notions become very real. The market’s belief dictates the market’s truth” (The Market Capitalist).

The stock market has long dictated the alleged truth due to the human tendency to acknowledge a delta in stock price and alter internal beliefs accordingly. Often, investors can be heard stating, “XYZ stock price is up. There must be some facts that I don’t yet know about, or that I don’t understand.” Such investors often adjust what they “know” about XYZ stock to make sense of the stock uptick in their minds.

At the extreme, and not outside the realm of possibility, the stock market becomes a self fulfilling prophecy* , such that the alleged truth becomes the actual truth, e.g. if aforementioned investor then begins buying large portions of XYZ stock and the increase in XYZ stock paves the way for a certain sector.

“Bear Market for Oil Caused by ‘Fake News’ Says Raymond James”

Analysts at Raymond James recently espoused that the bear market for oil has been caused by overly concerned investors distracted by a plethora of bearish headlines following price declines. The analysts believe US inventories, demand, and production have been misinterpreted.

“The recent collapse in oil prices was triggered by a breakdown in the technical charts but fueled by the ‘negative feedback loop’ of bearish headlines that usually follow price declines. Some oil price headlines have been misleading, or outright wrong, and they have distracted investors from what we believe is fundamentally a bullish overall picture.”

News headlines, according to Raymond James, have “amplified the downside” of events such as output recoveries from Libya and Nigeria, resilient U.S. shale drilling, and OPEC’s ability to cap global oil inventories. The analysts point to the following list of myths:Screen Shot 2017-07-07 at 12.57.30 PM

Raymond James further contends that crude oil has the potential to rise by 45%. The analysts examined U.S. inventory data beginning in March to capture OPEC’s production cuts. Such data portrays that U.S. crude inventories have decreased by 280k barrels per day, compared to an average increase of 180k barrels a day during the same time period during prior years. “Moreover, factoring in stockpiles of refined products ‘would be more bullish than looking at the crude only trend.'” Raymond James reported that global oil inventories have been declining by about 1.2 million barrels a day for the past four months.

The company, however, is sitting lonely at the bullish table. Most other analysts are giving much more weight to rising U.S. production and Libya and Nigeria offsetting OPEC’s production cuts. As written one week ago by CNBC, “Don’t expect oil to reverse its bear market slump anytime soon, history shows”.

Predicting the short-term forecast of oil prices has always been a teetering game of seesaw, with winners and losers every day as new changes come to fruition. In the long run it seems reasonable to take a bullish view on oil. In the short-term? Only time will tell, but Raymond James sheds an important light on the phenomenon that can occur from a negative feedback loop caused by price declines and bearish headlines. Investors must ensure they are receiving a full story when conducting due diligence.

Fake News?

Exactly what quantity of the news we read is false? That question is beyond my realm of knowledge. In many cases, however, I believe it is not so much that the news is fake, but rather most news provides snapshots of specific data points riddled with opinions of a certain nature, and thus fails to fully explain an entire picture of reality. An article about the “threatening” oil output from Libya and Nigeria, for example, fails to detail OPEC’s production cuts successfully occurring elsewhere. Such an article isn’t lying to you, it’s just not providing the entire picture.

This poses a problem, as hundreds of thousands of articles are published every single day, many having an effect on market prices and subsequently investor action. Just how important is it that Tesla surpassed the market capitalization of GM and Ford? At the time, many articles were praising the future of electric vehicles. (GM, by the way, has already reclaimed its lead). One or two news sources is simply not enough for forecasting future prices.

Events, and reported news about such events, perpetuates a certain belief system until an event contrary to a prior belief occurs, and only when that contradictory event is strong enough in the opposite direction will the market change course.

So, I pose the question to my readers: Does the market dictate the truth or does the truth dictate the market?


Self-fulfilling prophecy: a prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behavior (Psychology Today).

China Flips the Switch

Solar power as a viable source of energy dates back to the year 1767 when Swiss scientist, Horace-Benedict de Saussure, invented a “solar oven” of sorts: a box, layered with glass, that could absorb heat energy. Nearly one century later, a 19-year old French scientist by the name of Edmond Becquerel discovered the photovoltaic (PV) effect: he noticed that when light hit the intersection of two dissimilar materials, e.g. a semiconductor and a metal, the result was an electric current. Viola – photovoltaic solar energy was born. In 1954, Bell Lab created the first functional solar cell and, by the early 1980’s, PV solar use had become widespread for a variety of consumer applications. (It should be noted: photovoltaic solar, the direct conversion of sunlight into electricity, was and remains the fastest growing solar technology, but another technology, known as “solar thermal” also exists.)

For many years, solar power was used only sporadically because of structural, temporal, and cost constraints – e.g., solar energy required a roof, the sun, and was more expensive than conventional “dirty” sources of energy.

…not anymore.

Introducing floating solar plants.

That’s right. Solar power plants that float. Such floating farms are becoming quite popular as cities continuously search for space. As you might imagine, a floating solar array frees up land, which is becoming ever-important for our rapidly growing population. In addition, floating solar farms reduce water evaporation from reservoirs and, because the surface area is cooler than that of a roof array, floating farms reduce the risk of performance atrophy and module degradation, which is sometimes caused from solar panels’ continued exposure to warm temperatures.

CHINA FLIPS THE SWITCH OF THE WORLD’S LARGEST FLOATING SOLAR FACILITY:

The world’s largest floating solar plant, at 40-megawatts, was just completed (built by Sungrow Power Supply Co.) and connected to the local power grid in Huainan, China. The panels are linked to a central inverter and combiner box. The icing on the cake? Ironically, the 40-megawatt facility was built over an old coal-mining region that turned into a lake from heavy rain. Out with the old, in with the new.

Floating solar plants are not novel, but the world has never before seen such a spectacle at this massive scale.

For size context, in March of 2016, England was installing the world’s largest floating solar array, at 6.3 megawatts. England’s solar farm still floats on the Queen Elizabeth II reservoir at Walton-on-Thames. This 6.3-megawatt-farm sprawls about eight soccer stadiums and its purpose is to power local water plants in order to provide clean drinking water to the residents of Southeast England. Today, the second largest floating solar farm is about 20 megawatts, also located in China.

China has surpassed even the largest dreams for floating solar farms. The nation, long reliant on coal and the perpetrator of an intense amount of pollution, has turned itself into a true solar leader over the last decade. In fact, China also houses the world’s largest land-based solar facility, a colossal 10-square mile grid known as the Longyangxia Dam Solar Park.

China’s Solar History, In a Nutshell 

In 2009, the Chinese government announced production in PV solar power a national priority, subsequently ratifying a number of solar subsidy programs. In just a few short years, China became the world’s largest producer of solar panels. Government subsidies allowed Chinese manufacturers to produce panels at below cost prices and the country began shipping so many panels to the U.S. that many of the panels sat unused in California warehouses until they became obsolete and eventually discarded. This, as one might suspect, had the unfortunate effect of driving solar panel prices to all-time lows, causing many manufacturers globally, even in China, to crash and burn.

China’s newest government plans fostered a dramatic purchasing of panels, establishing dominance in the global solar economy. In 2014, one-third of solar panels produced in China were installed locally. China has increased installations every year since, as shown in the chart below. In the first three months of 2017, the nation’s solar output increased by 80% to a whopping 21.4 billion kilowatt hours.

In 2016, China installed 34 new GW of solar energy, which was more than double the amount of installations in the U.S. and double the GW installed in China the year prior.Screen Shot 2017-05-26 at 1.52.02 PM

China has set forth fantastic energy plans, but challenges certainly exist. The nation’s power sector is crippled with overcapacity and slowing demand. Power generators are experiencing their lowest utilizations since 1978. Still, China’s floating solar facility exists as an example for the rest of the world, as urban planning and renewable energy sources become vital for the health and future of this planet. Progress has been made, and clean energy sources are increasingly making economic sense. Read more: Bloomberg published a bullish article on solar in January of this year, titled: “Solar Could Beat Coal to Become the Cheapest Power on Earth”.

According to the U.S. Department of Energy’s latest U.S. Energy and Employment Report, in the year 2016 – for the first time ever – the United States employed more people in solar power jobs (374,000 people, or 43% of the sector’s workforce) than in the coal, gas, and oil industries combined (22% of the sector’s workforce).

Apple pledges to do well by doing good

We are living in the world of the cool factor. It is reflected in the markets – Tesla is the ultimate example with bystanders hanging on to Musk’s every word and a market capitalization that recently surpassed that of Ford and GM. It is reflected in the massive consumption and use of technology from companies of the likes of Google and Apple. And it is reflected in the companies we deem exemplary.

The cool factor is ubiquitous and has tremendous implications for influencing behavior. Why else would one stand in line (or sit in a tent) overnight, waiting to purchase their seventh version of an Apple iPhone with roots over a century ago by Alexander Graham Bell? Because the emotional response of owning the coolest new gadget overwhelms the rational thought of staying in bed.

APPLE ASKS ITS CONSUMERS: PLEASE RECYCLE YOUR COOL GADGETS

Apple is often just one step ahead of everyone else, in terms of innovation, sexiness of products, and commitment to doing good by doing well. The company was founded upon the premise of telling consumers what they wanted, rather than asking for consumer insights – a phenomena that can truly only work for companies dripping in cool. And just in time for Earth Day, Apple recently stated its intent to make all of its products entirely from recycled materials and to “end our reliance on mining altogether.” The company has admitted this is no easy task and that it is taking a rare approach in stating a goal before fully knowing how exactly said goal will be achieved. But if anyone can do it, Apple can.

“Traditional supply chains are linear. Materials are mined, manufactured as products, and often end up in landfills after use. Then the process starts over and more materials are extracted from the earth for new products. We believe our goal should be a closed-loop supply chain, where products are built using only renewable resources or recycled material. We’re also challenging ourselves to one day end our reliance on mining altogether.” – Apple 2016 Environmental Responsibility Report

The world’s second largest smartphone maker is continuously trying to better its production process, using 27% less Aluminum and emitting 60% less carbon to make the Apple iPhone 7, as compared to the previous iteration of the Apple iPhone 6. In 2016, the company reported the use of 100% renewable energy use in powering its global facilities – the first major technology company to declare and fulfill such a commitment. The tech titan has also committed to helping its suppliers generate four gigawatts of renewable energy by 2020.

Apple’s new robot, which it calls “Liam”, has the ability to deconstruct nearly 2.4 million phones per year so that the iPhone parts can be reused. Liam will serve instrumental in helping the company produce all gadgets from recycled materials. However, Apple needs to influence its users to recycle more through its Apple Renew recycling program. (Apple users – take note!)

The force of positive externalities is strong. Corporations with vast influence and complex supply chains have the incredible power to influence the behavior of others. Apple’s seven largest suppliers have pledged to power their Apple production with 100% renewable energy by the end of 2018.

We wanted to demonstrate how business can lead in driving the reduction of global emissions.
– Apple

Apple won the 2016 Environmental Finance corporate bond of the year (yes, this accolade actually exists), with a $1.5 billion green bond – the largest ever US corporate green bond – issued in February, 2016, with lead underwriters Goldman Sachs, JP Morgan, and Bank of America Merrill Lynch.

Green bonds are a fixed-income financial instrument increasingly growing in popularity, as the capital raised from green bond issuance is dedicated to environmental programs.

The bond was the first green issuance from a U.S. technology company, eventually pricing at 135 basis points over U.S. Treasuries. The bond was 2.2x over-subscribed, reaching an order book of $3.335 million, and is expected to be fully allocated over two years. By September of 2016, $441.6 million had already been distributed to 16 projects, most dedicated towards green buildings and renewable energy. These projects are anticipated to generate over 20 MWh of renewable energy each year and save 237 MWh of energy. Moreover, these projects have been calculated to save 20.2 million gallons of water, divert 6,670 tonnes of waste from landfill,  and lead to a reduction of 191,500 tonnes of carbon emissions.

“Apple’s green bond is a terrific example of a corporation taking a comprehensive approach to sustainability. They’ve established their three environmental priorities where they believe they have the most environmentally positive impact and are ensuring that the use of proceeds fits within those parameters.” – Marilyn Ceci, Head of Green Bonds, JP Morgan

The financial markets and the role of big corporations are two of the most important levers for sustainable change. Ever the innovator, Apple is sure to develop some unique programs in the near future in order to fulfill its recycling mission. Stay tuned and Happy Earth Day!

Featured below: Earth day, 1970.

1970 earth day

This picture lends to the question: have we as a global society progressed or digressed in terms of environmental sustainability? On one hand, consumption has increased at a rapid rate, and the physical state of our Earth is in worse shape than ever before, as greenhouse gas emissions have increasingly destroyed our planet. On the other hand, sustainability has become a real focal point of conversation (for some), and advances in technology have enabled alternative energy uses never before deemed possible. Companies like Apple and Anheuser-Busch are committing to 100% renewable energy. Tesla’s market capitalization surpassed Ford and GM. Green buildings are cool and in fact, buildings like the Edge in Amsterdam generates more electricity than it uses. Paris recently made all public transportation free. So, are we progressing or digressing? Food for thought.