The McKinsey Solution to Environmental Threats – Time to Listen Up!

In a recently released McKinsey Global Institutes / McKinsey & Company’s Sustainability & Resource Productivity Practice report entitled Resource Revolution: Meeting the world’s energy, materials, food, and water needs, the minds at McKinsey took a deep look into the state of the planet and have provided insights into how society can adjust to meet the needs of the growing population. As our society evolves, the strain placed on our planet is becoming apparent. With the global population having reached 7 billion we are faced with new and ever more complex problems with trying to house and feed everyone. Not only are there more people, many societies are shifting expectations and desires, adding even more demand on our planet’s depleting resources. As countries like China see a growing middle class with a strengthening dependency on higher protein diets; feeding this fast growing class is a serious challenge facing the Chinese government. The sustainability challenge has many moving parts operated by various stakeholders with often conflicting motives making it an intimidating (which is, at best, an understatement) problem to try and tackle. But as presented in our last blog post Problem or Opportunity? Fringe or Mainstream? How Do You See Sustainability? we discussed how problems are actually just opportunities in disguise. Below we will summarize how McKinsey sees the problems of today evolving into the opportunities of tomorrow.

Before we get into the actual technologies and tactics that McKinsey predicts will help meet the growing demands of resources, we must discuss the macro forces that are driving the momentum required to actually encourage mass adoption of needed new greener technologies. In particular, they forecast rising taxation on resource usage as the primary tool for modifying the current incentive structure for consumers and businesses. There is an expanding belief that users of natural resources for their industrial processes are not being taxed at a proper rate for the use of those resources. Right now the cost of many inputs does not reflect the environmental impact occurring in production or the fact that the activity is contributing to the eventual extinction of the resource.

Taxing of resources is already on the rise and we will likely see taxation on the extraction and use of resources continue to increase as the impacts they have on the environment remain to be scrutinized. Sustainability experts and founders of Sustainability Partners, Dr. Brian Nattrass and Dr. Mary Nattrass, like to highlight this point with an exercise they call systems conditioning. The exercise applies the 4 Natural Step System Conditions, mapping out every resource you think it takes to produce a product (any product from start to finish. It also includes all the resources used to transport both raw materials and finished products. It’s like doing a serious carbon footprint analysis but for all resources.

A very poignant example is one which Sustainability Partners provides using a “Sharpie” marker. Give yourself a few minutes to think about what actually goes into making a “Sharpie” and it will become very hard to believe they only cost a few dollars (if that) and that we treat them like they are worthless. We leave the cap off, we lose them, we lend them knowing we may never get them back. Now think how you would treat a Sharpie if at every step along the supply chain the producers of Sharpie inputs were taxed for their actual impact on the environment. They would most certainly cost a whole lot more than a few dollars and they would be treated like gold. This is a very frightening reality, one that the people at McKinsey are encouraging their clients to take very serious stock in.

According to the above mentioned McKinsey report it will be innovation and technology that will help us keep up with these challenges. Much like the team at GreenAngel feels, McKinsey sees these overwhelming environmental challenges as opportunities in disguise. In fact, they believe that “there is no shortage of resource technology, and higher resource prices are likely to accelerate the pace of innovation.” This is great for GreenAngel as it is only a matter of time until investing in green technologies will be as mainstream as investing in oil and gas.

Investment is another important component in this conundrum that cannot be ignored. McKinsey cautions that without sufficient capital behind these innovations they will fail to reach commercialization. The final puzzle piece is the need for public policy which they feel “can play a useful role in bolstering the long-term resilience of society in the face of the resource challenge”. This includes taking measures to raise awareness about resource-related risks and opportunities, creating appropriate safety nets to mitigate the impact of these risks on the poorest members of society, educating consumers and businesses to adapt their behavior to the realities of today’s resource constrained world, and increasing access to modern energy, improving the economic capacity of the most vulnerable communities.

Click Here for a >Summary of each of the 5 chapters of the McKinsey report.

As you look through the above list under #4, you will notice that GreenAngel Energy investees are busy at work doing many of these things. Light-Based Technologies is creating semi-conductors for LED lights that help build energy efficiency (#1) while DPoint is helping in the same area with their technology that helps recapture energy from building HVAC systems reducing energy costs. Paradigm’s MicroSludge technology is helping to reduce municipal water leakages (#4) by extracting more reusable resources from the waste early on in the process that decreases the volume of waste which in turn reduces the amount of waste that can be leaked while also removing resources (like methane) from the waste that can make it more dangerous to the environment in the case of leakage. Both REV Technologies and Delaware Power System Corp are helping to increase the penetration of electric and hybrid vehicles (#9) through REV’s smart grid technology and Delaware’s integrated battery technology which allows for electric vehicle manufactures to speed up their introduction to the market due to its highly universal communication tools. Meanwhile Habitat Enterprises creates software that helps identify the incentive programs that exist for those who implement measures to help realize those activities listed under #4 above.