HOW NATURAL CAPITALISM TRIGGERS CHANGE

In Business, September-October, 2004, Vol. 26, No. 5, p. 24

In this interview, Hunter Lovins explains her vision of what it takes for a business and society to turn large concepts into meaningful change.

Ellen Drew

TRAINED as a sociologist and lawyer, L. Hunter Lovins - now president of Natural Capitalism, Inc. (NCI) - cofounded the California Conservation Project (Tree People), and subsequently, Rocky Mountain Institute, which she led for 20 years. Lovins has consulted for scores of industries and governments worldwide, including the Pentagon, U.S. EPA, Department of Energy and other agencies, multinational companies such as Shell Oil, the International Finance Corporation, Interface, Inc., as well as hundreds of local community groups around the world.
Her areas of expertise include sustainable development, globalization, energy and resource policy, economic development, climate change and land management. Recipient of numerous awards, she was named Time Magazine 2000 Hero of the Planet. She has coauthored nine books and hundreds of papers, including the 1999 book, Natural Capitalism: The Next Industrial Revolution.
Excerpted here is a conversation in question and answer format which took place on August 23, 2004 at the Dushanbe Tea House in Boulder, Colorado.
Q: Since the first printing of your book, Natural Capitalism, in 1999, has the concept of Natural Capitalism taken on its own life outside of yourself, Amory Lovins and Paul Hawken, who coauthored the book with you?
Lovins: It was my intention that Natural Capitalism become a stream of work, a discipline, an area of expertise that would be much bigger than any one of us.
With Natural Capitalism, we sought to state very clearly the business case for sustainability in pure profitability terms. Approaches like resource efficiency and other forms of green design can cut costs, enhance equity, drive innovation and build all aspects of shareholder values. Proving this, we are making the case for behaving more responsibly towards people and the planet. I think we did a pretty good job of that. Natural Capitalism crisply states that there is money to be made here and provides a whole lot of examples of just that, in a variety of contexts.
What it did not do was to give an equally crisp framework within which business could begin to implement Natural Capitalism throughout all the divisions of a traditional business. There are a whole host of tools out there swimming around in the river of sustainability. These include everything from Factor 4 to Factor 10 (how you can increase resource efficiency four-fold to ten-fold), lifecycle assessment, ecological accounting, green marketing and all of the efficiency technologies that we talked about in Natural Capitalism. Where do they all fit? Who's responsible within a business for choosing among all these techniques and how do you actually go about seeing that this stuff gets implemented?
Q: Is that the reason you started Natural Capitalism, Inc.?
Lovins: Yes. It is not enough for me to have made the argument. I want to see it put into practice. That's the work we are doing now with Natural Capitalism, putting it into a deliverable, into a package, into a product that a business can take and, either with our help or with the help of their favorite consultant or on their own, implement and capture all of the opportunities we outlined in the book. It's time to stop talking about this in the abstract and start getting it implemented. It's one of the reasons I'm so excited about an opportunity NCI now has to work with the Chicago Manufacturing Center because it's the real thing. When we wrote the book at RMI, I said, “Now we need to implement it.” We built a consulting group at RMI, but it never quite got out of the realm of talk. We have partnered with some of the most exciting work being done in Australia, led by a group called The Natural Edge Project to provide businesses with a field guide to choosing among all of the available tools, and then applying them to each company's unique circumstances.
Q: Do you think people will feel that your company's product is a one size fits all?
Lovins: I hope not, because it's very clear that this cannot be a one size fits all. Our approach, called the Helix of Sustainable Business Practice, enables a company to implement sustainable practices through all of its divisions. It enables the business to set for itself its own definition of what sustainability means. It helps a business define for itself the sorts of indicators it wants to use to judge its own success, to lay out its own unique strategy and then, to go about implementing all of these opportunities within its specific context. So, for each client, we develop a tailored set of implementation tools.
Q: Does this apply to big businesses, small businesses, manufacturing, municipalities, hospitals and others?
Lovins: Yes, it's equally applicable by such businesses as manufacturing and services and by governments and nonprofit organizations, both large and small.
Q: How would this apply to a community?
Lovins: This goes back to the work I did at the Rocky Mountain Institute in creating the Economic Renewal Project. That work looked specifically at, “How do you strengthen a local economy and make it more viable economically, more resilient, as well as preserve a high quality of life?” We developed a set of basic principles to achieve that. The first step is to stop the unnecessary outpouring of money.
Q: Is the goal to have the local economy provide 100 percent of the goods and services used locally?
Lovins: No. Such an economy, called an autarky, would be impossible to achieve and still enjoy a modern standard of living. It would also be economic lunacy. However, especially in a globalized world, a community should control as many of the things that its citizens just cannot do without, such as energy, water, essential food, health care, housing and jobs. The vitality of Wall Street has to start on Main Street and build from there, not the other way around. Create a short list of things that you really have to have, then take actions to increase your self-reliance in as many of these areas as is possible, cost-effectively.
In fact, vibrant intercultural exchange is an important component of sustainability. This tea house was a gift from the people of Dushanbe, Tajikistan to the people of Boulder. In return, the people of Boulder have gifted a cyber-café designed here by local architects that is now being constructed in downtown Dushanbe. This kind of cultural exchange enhances our well-being and quality of life. But we don't have to have it to survive.
Q: Do you think that a community has to sit down and say there are certain principles that it is going to adhere to? Does there have to be a specific level of agreement?
Lovins: Does there have to be? No. Is it a good idea? Yes. Democracy rests on citizens coming together to set their agenda and see that it gets implemented. Dictation from afar, even by benign experts, erodes democracy.
Q: Are those principle-based strategies that communities find themselves agreeing to, whether they call it that or not?
Lovins: That's essentially what the activity is. You can call it creating sustainability indicators, you can call it strategic planning or you can just call it democracy. A community coming together to agree on what it cares about and then putting in place programs to ensure that it retains what it cares about is the way to capture the opportunities going forward.
Q: What are the ingredients that need to be present?
Lovins: Leadership. Somebody needs to step up and take responsibility for making it happen. Without that, well-intentioned pronouncements go nowhere. The leader can be an elected official, an appointed official, a leader of a nongovernmental organization or a self-selected citizen. Here in Boulder, Alison Burchell has been doggedly dragging this community into the 21st century. She continues to raise questions about energy and energy efficiency. She's not an official. She doesn't have a job doing this. She hasn't been appointed by anyone to do it. She just won't shut up. And it's great! She is making a huge difference. Richard Sandor is another such leader within the business community.
Q: Let's talk about the relationship between local economy health and trying to be more and more sustainable within that local economy. How do you live in the context of a global world as well as in the local community in which you reside?
Lovins: We've made a fundamental mistake in this country in using a mental model that people serve the economy; as if the economy were the point. The economy is not the goal. The goal is human satisfaction, human well-being and, beyond that, planetary well-being and the well-being of all life on the planet. The economy should serve that. Now, how do you do business in such a way that you have a healthy, vibrant economy in which businesses can prosper, people can prosper, communities prosper, natural ecosystems can prosper? If you look at the early economic theorists, David Ricardo (who first articulated what later became known as the Law of Diminishing Returns) and the work of Adam Smith (the father of modern economics who wrote the Wealth of Nations and introduced the concept of the invisible hand of the market), they were writing precisely about how to best meet human needs, to ensure genuine human satisfaction. The neo-conservatives have parlayed this to, “There should be no interference with the market.” But the founders of market economics would not recognize what is now being said in their name.
This approach may benefit a few powerful interests now, but it is neither true to real free market economics, nor is it in the interests of most people now on earth. It might conceivably be true if we truly had a market. But we don't. Adam Smith stated that markets depend on such characteristics as all the actors having perfect information, equitable access to capital, no monopoly and no monopsomy. In Chapter 13 of Natural Capitalism, we laid out a whole list of what it takes to have a properly working market. We don't have any of it. We have massive subsidies: the Cheney energy plan would spend $87 billion of our tax dollars to subsidize the building of one coal or nuclear power plant a week for the foreseeable future. We have perverse incentives. We have government interference. What happened in the California energy crisis? Seven actors were able to control the energy market. That wasn't a true market; it was a variant of monopoly.
Q: What do you think other triggers of change are going to be?
Lovins: The triggers are everywhere. The Europeans and the Japanese are increasingly implementing regulations that will affect business around the world. If you want to do business with us, they say, you simply are going to behave in more responsible ways towards your workers and towards the environment. U.S. companies used to think that they could write off the rest of the world and continue to behave irresponsibly. We are finding that our markets are being constrained and our economic vitality is suffering. The European and Japanese companies that are meeting these regulations are finding that, far from making them uncompetitive (the American line) they are driving innovation. Strong environmental regulation makes companies stronger and more efficient. The smart businesses are beginning to build a bridge between their current unsustainable behavior to a realm of relative stability on the other side. The smart businesses are using the principles of Natural Capitalism to reduce their costs, drive their innovation, build their core business value and prosper.
Q: With globalization as a trigger, how do you see the markets changing?
Lovins: Globalization is forcing a number of changes. David Ricardo said that nations trade to comparative advantage. Because Ricardo and Adam Smith assumed that capital was immobile, their mental model was that economies operated within national boundaries; within which the nation states controlled the economic activity. Because money, in particular, didn't flow freely all around the world, the system worked to most everyone's advantage. The whole approach of trading to comparative advantage held up, by and large until the late 70s. According to the Washington consensus, the idea of free trade and globalization will benefit everyone; that anything that one can do to make for freer markets and increased global trade will benefit everyone, or most everyone. This may have been true under the old mental model. It's no longer true. We now live in a world in which, because financial capital is so mobile, you can transfer trillions of dollars at a keystroke instantaneously all around the world. What this means is that countries are now trading to absolute advantage. Massive flows of money will go wherever they can get the highest return, and leave just as rapidly. Some countries have conditions that are enhanced by this advantage, but most don't. In this new world, there are absolute winners and absolute losers. This is why I think all the mental models of the past are breaking down and why we are floundering so much. The game changed but no one has recognized it. The promoters of globalization and free trade are wrong. I don't think they are evil, I think we live in a different world than their mental models believe we do.
ROLE OF NATURAL CAPITALISM
Q: Where does Natural Capitalism fit into this?
Lovins: The way out is to recognize there are forms of capital that are inherently mobile, financial and manufactured, and are enhanced by trading. There are forms of capital, equally and arguably more important, natural and human capital, that are not mobile and therefore are not necessarily enhanced by trading. Trade in the mobile forms of capital appears to be destroying the immobile forms of capital. But without them, you cannot have genuine wealth, genuine progress or genuine human well-being. Adam Smith and David Ricardo would be the first to step up and say we need a new mental model of how you enhance human well-being in this different world.
I think that the approach of Natural Capitalism goes a long way towards solving these challenges because it enables you to behave as if you were properly accounting for the value of human and natural capital even when no accounting mechanism exists to do that. The World Bank, the United Nations and people like Herman Daly (founder of the International Society for Ecological Economics) are all working on how to properly account in national accounts for the values of natural and human capital. At present, they are having to use surrogate measures, but it's better than not counting at all. For all of modern economic history, we have treated natural and human capital as having a value of zero.
Similarly, I think we haven't a clue how the economy works. The Gross Domestic Product (GDP) is clearly a horrible measure of anything. It is the sum total of the goods and services and the bads and nuisances. It's counting the transactions as opposed to the stock of wealth in our society. There have been efforts like the Genuine Progress Indicator (GPI) and Herman Daly's work that better address what it is that we want more of and what it is that we want less of. How do we organize society to achieve that? When we started to write Natural Capitalism, arguably the best of all possible worlds would be to accurately and properly account for all forms of capital, have a market that was as perfect as we can make it and then just let the sucker function. I think my ideology is that this would get us the highest and best outcome. But, given that we don't understand how the economy works, we don't have any means of properly accounting for all of these. Do we wait until we have all of this figured out? No, we developed Natural Capitalism as a way of behaving as if it were being properly accounted for and getting on about business in ways that are more profitable.
Q: What is the future for communities in the global economy?
Lovins: Globalization is a fact. You do not have to like it. Local economies will be steamrollered by the forces of globalization if people in them don't take care of themselves. But the answer is not to try to stop globalization. Rather, communities should do all that they already know they can do to build strong local economies so that they can compete successfully in a global world. This is the work of a great little consulting company, called On The Frontier (OTF), with whom we are working in Afghanistan, Jamaica and various other developing countries. OTF helps clusters of businesses in those countries compete globally. We are working with OTF on the idea of clusters. They are looking at tourism, at handicrafts, at fruit and nuts. We are arguing that they need a “development technologies” cluster. These are the technologies that enable people in a local area to meet basic human needs. They will do a better job of basic development and you can then build an industry around them. There is already a gentleman in Kabul selling solar panels. There's another guy with whom I worked, 20-30 years ago, Mike Burgey, who has a wind project going on in Afghanistan. I think sustainability is key to rebuilding Afghanistan. It is key to building a network of businesses in Kabul and other cities around Afghanistan that can help to build the local economy and, at the same time, help to build a viable national and globally competitive economy.
Additionally, we are working with Engineers Without Borders through a saint of a man, named Dr. Bernard Amadei. A professor at CU-Boulder, he has been asked by the University in Kabul, Afghanistan to help revamp the engineering curriculum around sustainability. If you are going to rebuild a country from scratch, you should teach the local engineers how to do it right the first time.
PROTECTING THE LOCAL COMMUNITY
Q: What do you do to protect yourself as a local community in this new world?
Lovins: A community should, first and foremost, ensure that it can meet the necessities of its people with as much self-reliance as it can cost-effectively manage. It should be able to supply its water, energy, food, housing health care, etc. locally as much as possible. Doing this will give a community a strong base that cannot be taken away from it. A community should then support its existing business base, enabling business people to add a few jobs here, a few more there, in already viable enterprises, rather than go looking for silver bullets or government subsidies. Most small businesses fail because of very fundamental business reasons. They confuse the difference between profit and loss and cash flow. They can't do accounting, they can't keep track of their inventory and they lose control of their supply chain. As I said before, citizens should come together and decide what sort of future they want for themselves. There is no “they” who will come and save us - there's just us.
Q: What is your company developing in support of these issues?
Lovins: A large number of things. I am teaching at Presidio World College (PWC), the first accredited business school of sustainable management, which I helped to found a year ago. We've just enrolled the second class of MBA students. PWC's program differs from other MBA programs anywhere in that it uses a whole-systems approach, weaving sustainability throughout such conventional business topics as economics, accounting, finance and strategy.
We are also writing a new book, called “Sustainable Business Practice: A Field Guide.” The book focuses on how businesses can implement all of these ideas, but will also be relevant to nonprofits and to governments. Charlie Hargroves is a visiting scholar at Colorado University doing his Ph.D. on the role of policy and government in implementing this tool, and is also the CEO of NCI. The Field Guide will continue building this component of Natural Capitalism over the next year or so.
We are chasing down all the latest case studies and embodying them in the tool and updating the statistics. Charlie, and his colleague Mike Smith from The Natural Edge Project, are about to bring out a new book, the Natural Advantage of Nations (coming out in January 2005), that updates Natural Capitalism by four years, drawing primarily from Australian and Asian contacts for his examples. For me it is very exciting that this stuff is happening faster there than here. America is no longer the leader. Every state in Australia has undertaken a sustainability strategy. Western Australians are a year into the process and are now implementing it.
Q: I know that over the course of your career you have met with presidents, kings, heads of state, you've testified before congress on numerous occasions and you were chosen as Time Magazine's Hero of the Planet in 2002. Who has most inspired you in your lifetime and for what reasons?
Lovins: There's no one answer. I guess my first hero was my mother. She grew up a coal miner's daughter and, although her dad was a coalmine owner, she organized with John L. Lewis in the coal fields against her dad. She took a law degree with Dick Nixon, became a pilot, was a disciple of Wilhelm Reich, studied with A.S. Neal of Summer Hill and founded a school. So, I grew up with a sense that I could do anything that I wanted to do.
Another person who has greatly inspired me is the late Dana Meadows, the first person to use the words “sustainability” and “love” in the same context. Her book, Limits to Growth, largely began this whole field of sustainability. She went on to give the movement heart and soul for the rest of her life.
My mentor Dave Brower was another. Dave was once begged by Russ Train, “Dave, please be reasonable….” Dave shot back, “Reasonable people have never accomplished anything.” He is responsible for much of the environmental movement as we know it, yet he always supported our approach of working with business. He reached out to the peace movement, to the labor movement - realizing that meeting the needs of people was just as important as preserving the wild places of the earth. When I got fired from RMI, I grinned and asked myself, “What would Dave do?” He, of course, had been fired from both Sierra Club and from Friends of the Earth. He would just start a new organization. So that's what I've done.
I greatly admire Richard Sandor with the Chicago Climate Exchange. Here's one person who has created a whole new institution. I recently asked Richard, “Suppose the U.S. passes Kyoto, what will you do if there is no need for CCX?” He grinned and said, “Maybe we'll start trading water.” He's always on to something new. Then there's Bernard Amadei, of Engineers without Borders. He created that organization because he met a little girl in Belize who spent her days hauling water up to her village rather than going to school. So he took some of his students to Belize and built a ram pump for the village so that the little girl could go to school. He now has over 40 chapters in universities around the country running similar projects in developing countries. The students get the finest form of education, learning a form of engineering that will help them design and build a tomorrow that really works. Then there are people like Alison Burchell, who, with a group of about ten other women, is creating Women in Sustainable Energy (WISE). There are so many amazing people doing the hard, on-the-ground work, making a difference. I am honored to be a part of this great wave of positive change working with so many wonderful people. There is a lot to be done.

Hunter Lovins currently resides near Lyons, Colorado and works in Eldorado Springs, Colorado. She is engaged in numerous Natural Capitalism projects around the nation and world. She is available for consultancy services and speaking engagements. Please contact Charlie Hargroves, NCI, for more information: (303) 554-6550. If you are interested in receiving Hunter Lovins updates, and information, please send an e-mail request to: info@natcapinc.com. If you are interested in receiving the newsletter from Hunter's nonprofit organization, Natural Capitalism Solutions, please send an email to: info@natcapsolutions.org. Visit www.natcapinc.com. Ellen Drew lives and works in northern New Mexico; she is a sustainability consultant, writer, and international matchmaker building markets for sustainability products, services and technologies. This article was coedited with John Offersen. Ellen Drew can be contacted at (505) 421-0261, edrew@dimensional.com.

COMMUNITY ECONOMIC DEVELOPMENT 101
ECONOMIC RENEWAL examines the things a community can't do without and then looks at ways to supply those locally, to the extent of doing it in the most cost-effective way to meet people's needs. Energy is a great place to start. Improving the energy efficiency of a community is extremely cost-effective. For instance, the communities of Osage, Iowa, and Sacramento, California, where the utilities have helped their customers become more energy efficient, have saved millions of dollars and have enhanced the economic vitality of the community. With oil headed to 50 bucks a barrel, that is Community Economic Development 101.
Any community that does not have an energy efficiency program underway is bleeding money. It's like trying to argue over how to get a bigger water heater when you have a bathtub with all of its water running out. You don't need more hot water, you need a plug. This is something every community can do, every business can do; it is the first principle of both economic renewal and Natural Capitalism. Every community that has hired a community energy specialist to guide the process has more than paid for that person's salary through the savings; sometimes ten times over, or more, per year. It's a very cost-effective thing to do.
A community that wants to increase its energy efficiency can go at it using a different route, just cowboy up and join the Chicago Climate Exchange (CCX). This is something every business, big or small, can do and should do. My business has joined Chicago Climate Exchange. If you are talking at all about sustainability, and you haven't joined CCX, you, simply put, are green washing. This is a step that everyone can do to walk the talk.
CCX, run by Richard Sandor, is a very new institution. It just opened last December and is now trading carbon in real time. By joining CCX, you make a commitment to reduce your carbon emissions one percent per year for four years. By making good on this commitment you will put in place the energy efficiency programs that will save you money, increase your self reliance, and strengthen the local economy. I've recommended the city of Boulder join CCX and I'm currently working on the University of Colorado. Let's make sure that this new institution prospers.

Copyright 2007, The JG Press, Inc.