Turbulence: A Corporate Perspective on Collaborating for Resilience

Kupers, Roland (Ed.) Book — Published Version Turbulence: A Corporate Perspective on Collaborating for Resilience Provided in Cooperation with: Amsterdam University Press (AUP) Suggested Citation: Kupers, Roland (Ed.) (2014) : Turbulence: A Corporate Perspective on Collaborating for Resilience, ISBN 978-90-485-2435-8, Amsterdam University Press, Amsterdam, https://doi.org/10.26530/OAPEN_477310 This Version is available at: https://hdl.handle.net/10419/181380 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/ Turbulence A Corporate Perspective on Collaborating for Resilience EDITED BY RolanD KupERs TuRbulenCe Turbulence Turbulence A Corporate Perspective on Collaborating for Resilience Edited by Roland Kupers Amsterdam University Press Cover design: Maedium, Utrecht Typesetting: Crius Group, Hulshout Amsterdam University Press English-language titles are distributed in the US and Canada by the University of Chicago Press. ISBN 978 90 8964 712 2 e-ISBN 978 90 4852 435 8 (pdf) e-ISBN 978 90 4852 436 5 (ePub) NUR 800 Creative Commons License CC BY NC ND (http://creativecommons.org/licenses/by-nc-nd/3.0) © Roland Kupers / Amsterdam University Press, Amsterdam 2014 All rights reserved. Without limiting the rights under copyright reserved above, no part of this book may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the written permission of both the copyright owners and the authors of the book. Every effort has been made to obtain permission to use all copyrighted illustrations reproduced in this book. Nonetheless, whosoever believes to have rights to this material is advised to contact the publisher. The chapter ‘Building resilience through teamwork: Seven tips to make it work’ by Marco Albani and Kimberly Henderson simultaneously appears in the McKinsey on SRP Compendium. Contents Editor’s foreword 9 Roland Kupers Preface 13 Peter Voser Turbulence – by way of an introduction 17 Michel Liès Part I Introduction to RAI 1 The Resilience action initiative: Anintroduction 23 Maike Böggemann and Norbert Both Understanding the ‘stress nexus’ 24 The Resilience Action Initiative 26 Definition of resilience 27 The RAI approach 28 Knowledge projects 30 The challenges of resilience in practice 31 Broader sharing and dialogue 32 Collaboration and leadership 33 Part II The resilience lens 2 A pragmatic frame to explore resilience 37 Marco Albani and Roland Kupers A diagnostic frame 38 Beyond a diagnostic frame 42 The boundary conundrum 43 The difficult relationship between efficiency and resilience 43 Dealing with multiple scales 44 Making system assumptions explicit 45 Open questions and dilemmas 46 3 A resilience lens for enterprise risk management 49 David N. Bresch, Jaap Berghuijs, Rainer Egloff and Roland Kupers Enriching corporate risk management 49 Structural resilience 52 Integrative resilience 56 Transformative resilience 60 4 Multi-sector collaboration for resilience 67 Mark Smith Change for resilience 68 Collaboration for systemic change 69 Applying collaboration to resilience 73 Conclusion: A collaborative agenda for resilience 77 5 Building resilience through teamwork 79 Seven tips to make it work Marco Albani and Kimberly Henderson Part III Resilience in action 6 The case for green infrastructure 87 Neil C. Hawkins and Glenn Prickett Introduction and objective 88 Green infrastructure: Concept and definition 89 Green infrastructure: Solution examples 89 Identifying areas of opportunity 94 Key conclusions 96 Moving forward 98 7 Nexus! Resilience in a pressure cooker 101 Herman van der Meyden The game development process 101 The game mechanics 102 Simulating aspects of resilience 105 Insights from a year of Nexus! sessions 109 8 Getting to resilience from the bottom-up 111 Thekla Teunis Fading boundaries and stronger horizontal and local networks 112 Initial results 115 Main lessons 119 Barriers for breakthrough bottom-up innovation 120 Business value 121 9 Corporations and Resilience 123 Simone Arizzi, Maximilian Egger, Dawn Rittenhouse and Peter Williams The Resilience Action Initiative 123 Conclusion 128 Epilogue 131 Brian Walker Appendix 137 Author biographies 175 Bibliography 181 Index 187 14 Peter Voser both energy and water to produce food. We saw that the water-energy nexus was going to make itself especially felt in arid regions with growing populations like the Middle East and North Africa. The 2010 conversations were the beginning of a new phase of strategic thinking to broaden the company’s understanding of the linkages and stresses in the world’s energy, food and water systems, to identify key factors that make companies, cities and countries resilient in the face of these stresses, and, finally, to build partnerships to drive progress in these areas. Shell’s New Lens Scenarios, published in 2013, included more thinking on energy-water-food, resilience and urbanisation than ever before. The scenarios were built on several years of joint research with academic institutions and think tanks. We included water data in Shell’s World Energy Model, so that Shell’s scenario team can now factor both CO2 pricing and water constraints into their modelling, thus contributing to the long-term resilience of the company. Working on solutions to address the nexus and increase systemic resilience require new ways of working, as these complex challenges cross boundaries between countries, industries as well as the public and private sectors. Solving them requires a broad, holistic approach, an open mind and an understanding beyond our own areas of expertise. To further foster systemic thinking and collaboration, I convened a small group of chief executives from a number of different sectors. We wanted to show that big corporations can make progress even if there is no pressure from government and civil society to do so. We were like-minded CEOs of companies that face similar or similar-scale challenges. We quickly found that mayors of cities are natural partners to CEOs, since their problems are just as concrete and their solutions have to be just as real. And we like to work together with NGOs such as The Nature Conservancy (TNC), Wetlands International, International Union for the Conservation of Nature (IUCN) or the World Resources Institute (WRI) that have the capacity and will to look beyond single issues and deal with complexity. The first CEO meeting was held in Davos in early 2012 and brought together CEOs with a personal passion, a long-term vision, and a willingness to drive progress personally from the top. This meeting in Davos led to the creation of the ‘Resilience Action Initiative’. Since then, we have made progress, made mistakes and learned a lot. The rest of this book serves as testimony. For CEOs interested in driving progress in areas that are unexplored and where progress cannot be measured in next year’s shareholder returns, I have some tips: Preface 15 – Build your narrative carefully and gradually. Don’t give the whole story too early if you can’t make a link to foreseeable benefits. You will need to use lots of psychology. – Show resilience as a leader – keep pushing it through until key leaders and staff are convinced. At Shell, it took two years, and now senior Shell leaders in critical areas of the company are deploying systemic thinking and resilience methodology in different areas of operation. – Small pilot projects can be difficult to set up and finish, but they are good for inspiration and encouragement and for creating feedback loops with knowledge work streams. – Embed new ways of thinking in your overall innovation drive and make clear innovation goes beyond technology. – Promote integration of thought leadership in these new areas with the brand expressions your people are already familiar with – the synergies will surprise and inspire your people and help you to overcome resistance. (For instance, at Shell, we developed close integration between our resilience work streams and the Shell Eco-marathon and Shell Powering Progress Together events.) – Finally, be a collaborative leader, which means having the curiosity and willingness to learn, the humility to work with partners whose skills and capabilities complement your own, and the sense to be practical and action-oriented. Looking back at my years as a leader at Shell, I am more convinced than ever that effective leadership is about having the right balance between focus and vision. It’s not an easy balance to achieve or maintain. The leader of an industrial company that aspires to be competitive had better stay focused on the company’s core skills and capabilities. At the same time, one needs to have the societal antenna to position the company in the cycle of major policy and technology trends, so it can help shape them. The stress nexus is going to be with us for decades to come, as will be the search for resilience. This search will require closer cooperation between companies, cities and NGOs than ever before in modern corporate history. It is satisfying to know that the Resilience Action Initiative has given its member companies a chance to dip into the future and position themselves as active and innovative players, rather than as passive bystanders. Peter Voser, The Hague, May 2014 Turbulence – by way of an introduction Michel Liès Sipping a cup of tea during a flight through blue skies is easy. If stormy weathers bring about considerable air turbulence, this simple task rapidly becomes pretty difficult. Clouds announce a storm – hence one can prepare and safely stow the cup away in due time. But what if there are no visible early warning signs, as is the case with clear–air turbulence? And what if turbulence prevails? When will be the next chance to take a sip of tea again? Such are the challenges for a global economy, which has grown fast for decades, providing wealth and more favourable conditions to ever more people. Stresses in critical sectors such as water, energy and food increase. These three sectors are inextricably linked, and changes in one area very often impact one or both of the others. The respective resources form a nexus which itself is affected by external factors such as a growing population, changing economies, international trade, governance issues, health impacts, environmental degradation, and climate change. This high level of interconnectedness and the growing scarcity of resources will likely lead to prolonged times of turbulence – and their onset will be ever harder to predict. Holding steady despite of turbulence might still work for some time– but resisting change will come at an ever higher cost, possibly until it is too late to change at all. Much better it seems to be to navigate turbulent waters in a more adaptive fashion, guided both by foresight and flexibility. There are at least three elements that need to be present in order to do so: the willingness to collaborate, a shared vision, and a conceptual frame to integrate required actions. The concept of resilience lends itself to fostering concerted action and hence provides such a frame. Resilience is understood here to be the capacity of business, economic and social structures to survive, adapt, and grow in the face of change and uncertainty related to disturbances, whether they be caused by resource stresses, societal stresses and/or acute events. A more resilient approach does not come for free – in fact costs will appear high compared to what the continuation of an assumedly a steady world would require. But with increasing levels and/or persistence of turbulence, benefits will outweigh costs. Hence a resilient approach will turn out to be the most economic one – for those who are in for the long run, at least. 18 Michel liès Looking into a specific case, namely how to strengthen disaster risk resilience in the face of climate change, decision makers need facts to start with: Not only do they need to know the potential climate-related damage over the coming decades, but also how these risks can best be managed, what measures need to be taken. They also need to know what investment will be required to fund those measures – and whether the benefits will outweigh the costs over time. When studying the situation along the US Gulf coast, we learned that losses related to hurricane risk will increase substantially in the coming decades. The primary driver will be economic development, with the situation likely further aggravated by climate change. The good news is that a substantial amount of the risk can be cost-effectively averted. This does not come for free, but will nevertheless be far cheaper than bearing the cost of future damages. Investments in risk prevention and preparedness are complemented by risk transfer solutions designed to cope with low frequency/high severity events. Insurance puts a price tag on risks, hence provides risk transparency. This helps decision makers to internalise known externalities, even future ones, such as climate change impacts – and in addition, such a price tag incentivises preventive action. Decision makers are thus enabled to integrate adaptation with economic development and sustainable growth. Commercial players in the Gulf region further realised that the earlier and more deeply they engage with the communities they serve, the better off both their customers and they themselves are – hence building the case to strengthen societal resilience. In the context of the present book, we have expanded on such findings, since their relevance and effectiveness strongly depends on the character of the specific company and the environment in which it is embedded. By introducing a wider concept for enterprise resilience, we hope to provide practitioners well beyond the risk community with a novel and practical approach, namely the companies’ opportunity to look at their challenges through a series of resilience lenses. Admittedly, in many areas, there are trade-offs between short-term efficiency and long-term resilience. But instead of waiting for the occasional shock to reveal whether enough responsive diversity is in place, the resilience lenses described in this book can be used to identify adequate levels of modularity and redundancy. Such modular and redundant control systems are at work in airplanes, but more is needed to keep planes flying. Pilots do not fly in isolation. They are in regular contact with air traffic control and are provided with meteorological forecasts. This way, clear–air turbulence can be anticipated in Turbulence – by way of an inTroducTion 19 the cockpit – and experienced turbulence is reported back. While weather matters for the single flight, thinking on longer timescales is required for the airline and its fleet: What destinations will be served, which technology will propel the planes, what stresses will need to be coped with? To answer these questions, forecasts will not be enough. Scenarios help to test the resilience of strategies for actors to navigate the unknown. In this context, continuous experimentation and innovation allow a company to learn faster. This increases adaptive capacity – to develop emergent responses in turbulent times. Michel Liès, Zürich, May 2014 Group CEO, Swiss Re Part I Introduction to RAI 1 The Resilience action initiative: Anintroduction Maike Böggemann1 and Norbert Both2 At first glance, large multinational companies such as Dow, DuPont, IBM, Royal Dutch Shell, Siemens and Swiss Re are resilient companies: they each have been around for over a century. But the future is volatile. The challenge these companies face today is how to help strengthen societal resilience in the face of increasing systemic turbulence caused by resource and environmental stresses – posing new risks to business continuity and therefore to their existence over the next 100 years. These companies share a belief that the resilience lens can help. Resilience is the ability to absorb disturbances, to change, to reorganise, and to learn from them at the same time. Resilience thinking goes beyond traditional risk management. It also prepares a society or a company for systemic changes or unforeseen events. The financial crisis of 2008 is an example. How likely is a crisis of this magnitude to reoccur, or should policy focus instead on increasing the systemic resilience for such shocks? A major challenge for countries and companies is the security of global energy supply. The world needs to increase energy supplies for a growing and more prosperous population. This in itself will put the resilience of the energy system to the test. Because of the stresses on resources like energy, water and food – augmented by their interconnectivity and climate change – the world also faces an enormous systemic challenge. Growing prosperity can lead to stresses – environmental, political and social – that can undermine some of the benefits of prosperity. The interconnections are complex, and there is an urgent need to understand these connections and formulate answers. This is a collaborative task, with the dual aim of building society’s resilience and corporate resilience. With the aim to improve understanding of the nexus, drive thinking on resilience, and test ideas on the ground in pilot projects and operations, the CEOs of a number of companies3 came together in Davos in January 2012 1 Project Manager, Strategy & Scenarios, Shell. 2 VP Corporate Communications, Shell. 3 Dow, Dupont, IBM, McKinsey & Company, Rio Tinto, Royal Dutch Shell, Siemens, Swiss Re, Unilever; Yara joined subsequently and Rio Tinto left the group. 30 Maike BöggeMann and norBert Both working through our insecurities. The open challenge and collaboration developed a significant trust base between the individuals and teams involved. Knowledge projects The knowledge projects in 2011 focused on a ‘methodology and framework for improving resilience’ and ‘green infrastructure’. In 2012 further projects looked at the topics of ‘collaboration models and success factors’ and ‘resilience in relation to (enterprise) risk management’. The methodology work explored ways in which resilience can be approached, discussed and improved. Its aim has been to develop a process and toolkit. As resilience challenges are inherently complex it serves as a useful handrail for aligning stakeholders in a collaborative effort on a process and guiding the dialogue. It was developed in several stages and re-assessed with the lessons from the on-the-ground engagements and pilots. This work is described in the following chapter. Green infrastructure solutions integrate value and risk assessment across different parts of the nexus. Biological systems, in contrast with engineered systems, are generally more compatible with a resilience perspective. The focus of the green infrastructure knowledge workstream was sharing best practices and identifying tools, approaches and barriers that would improve the ability of companies to consider, evaluate and implement ‘green infrastructure’ options in addition to or instead of traditional ‘grey infrastructure’ choices. ‘Green infrastructure’ can be defined as the use of natural ecosystems to provide a service that is often provided by traditional ‘grey infrastructure’ engineering solutions. For example, protection from floods and storms can often be accomplished by levees, but can also be accomplished via the use of wetlands and coastal marshes in place of and/ or in addition to levees. In many cases, ‘green infrastructure’ solutions can provide not only the same functionality as the ‘grey infrastructure’ alternative, but usually also provide valuable co-benefits to ecosystems and are more cost-effective. Chapter 6 lists a number of examples of green infrastructure and what the barriers are to scaling up such solutions. In the RAI journey we discussed and re-evaluated the RAI operating model at many stages, which led to the realisation that different collaboration models exist and are useful for different objectives. It also became clear that collaborations often struggle and there was a desire to understand better why that is the case and which ingredients can add to the success of collaborations. A broad review was done on multiple existing collaborative the resilience action initiative: anintroduction 31 projects and lessons on structure and critical enablers were extracted. The broadening of the RAI agenda to include multiple stakeholders culminated in a conference hosted at the Rockefeller Foundation’s Bellagio Centre, and organised by the International Union for the Conservation of Nature (IUCN). This work is elaborated on in Chapter 3 and Chapter 4. What began as a translation of the resilience thinking in corporate terms, relating it to enterprise risk management, grew to become a framework for examining properties of any system which can increase its resilience, and where resilience properties require balancing or trade-offs with other organisational objectives. It furthermore explores the role of generic resilience, the resilience of a complex system to yet unknown stresses. This work is covered in Chapter 5. The challenges of resilience in practice The on-the-ground engagements and pilots have generated great interest among local government and other stakeholders to engage with the RAI partners on resilience. The focus in the pilots differs by location. Da Nang, a major port city in Vietnam, was the first location where RAI engaged with a city government. The aim of the engagement was to explore options for the city to enhance its ability to adapt to and to recover successfully from acute threats such as floods and earthquakes, chronic threats such as constrained energy supplies and unanticipated threats such as political transitions and economic transformations. The pilot covered several issues like water, transportation, energy and economic development and produced recommendations on integrated water management and food safety. In Rotterdam, the second-largest city in the Netherlands and one of the largest ports in the world, the resilience of the port and its relation with the city were subject of an ongoing dialogue between RAI and public stakeholders. Particularly the challenges of a delta-city and the interconnection between the municipality and the port were discussed. Subsequently, Rotterdam was selected as one of the 100 resilient cities in the Rockefeller Foundation programme and will continue to explore resilience as an opportunity. To develop energy resilience, RAI members shared best practice as most had quite some experience with energy efficiency within their own operations, or working with suppliers and customers on their energy efficiency. From initial sharing of best practice it became clear that a relatively unexplored area of opportunity is improving the energy efficiency within a geographic industrial cluster and possibly with a neighbouring city. The impediments for integration 32 Maike BöggeMann and norBert Both in an industrial cluster were identified not as lack of technology solutions but rather the lack of data sharing, agency issues (risk-reward balance) and the lack of proven business and financing models. The members decided to explore this opportunity for resilience through an energy resilience pilot at Jurong Island in Singapore. The McKinsey Green Campus (a small-scale refinery turned into an energy-efficiency training facility on Jurong Island) served as the base for this exploration of the opportunity to improve the overall utility (power, heat, steam) efficiency and resilience on Jurong Island by improving the connections between neighbouring companies’ data, people and assets. A multi-stakeholder dialogue in Houston has led to multiple collaborative efforts in the areas of waste-to-energy and lowering CO2 emissions from transport. For example ‘Houston Flows’ is a project seeks to help reduce the environmental footprint from the transportation of people, goods, and services within and through the Greater Houston Area, which currently account for over 40% of the City of Houston’s GHG emissions. One component being explored is to drive behavioral changes that help create more sustainable mobility choices by Shell Houston employees within and across facilities. In a multi-year programme in South Africa RAI members have brought together a broad group of global and national, public, private and civil society organisations to better understand the country’s nexus, resilience challenges and policy options. One of the topics is the collaboration between sectors to be more resilient to water stress and the policy environment that is a critical enabler for cross-sector collaboration. In an on-the-ground pilot in a watershed the insights from the national engagement are tested. Bottom-up initiatives by young professionals from different organisations coming together have led to ‘real action’ and spin-off business in Rotterdam and South Africa on urban farming and ecosystem restoration. Further initiatives are underway in Manila, Groningen and Nigeria. It is fair and important to note that some initiatives did not take off and many initiatives developed at a much slower pace than expected. A significant amount of time and effort was invested in building trust. Sometimes it was difficult to identify shared interests that were a priority to the partners in the collaboration. Often it was a challenge to not let one’s own organisation’s short-term interests undermine the collaborative effort. Broader sharing and dialogue Some of the RAI knowledge work has also been captured in Nexus!, the RAI resilience game. This is a fast-paced, interactive resource development and the resilience action initiative: anintroduction 33 trading board game aimed at letting participants experience the linkages between resources in the nexus, resilience strategies and collaboration challenges. To date, the game has been played by over 2000 participants from students to executives, public authorities, NGO representatives and academics. Developing awareness and promoting systemic thinking is a critical part of the journey. RAI members through organising and attending multiple conferences around the world have also promoted broader dialogue. RAI has been a vehicle for exploring resilience, however, there are many more initiatives to improve resilience outside RAI, including ones that have emerged from business activities. To quote but two examples of many: – Canada’s Oil Sands Innovation Alliance (COSIA)5 is a collaborative effort between leading oil sands producers to rapidly accelerate environmental performance. Sharing research, knowledge and expertise between 14 industry companies, COSIA minimises barriers and drives the discovery and development of environmental innovations, solutions and best practices throughout the oil sands. The COSIA model is being expanded to non-oil sands company members, in an ‘Associate Membership Programme’. The intent of the programme is to harness the vast leveraging potential from a wide range of members from engineering firms, to universities, governments etc. In just a year since startup, over 440 technologies or innovations have been contributed by the member companies, with development costs over $700 million. – The Center for Sustainable Shale Development (CSSD)6 in Pennsylvania, USA, has developed performance standards for shale gas production development and a commitment to continuous improvement to ensure safe and environmentally responsible development of the abundant shale resources. CSSD is an unprecedented collaboration built on constructive engagement among environmental organisations, philanthropic foundations and energy companies from across the Appalachian Basin. Collaboration and leadership While resilience is a concept people can intuitively relate to, it is also a mindset change. It needs an outside-in perspective, a systemic view on how the resilience of the environment in which you work impacts you, 5 http://www.cosia.ca/ 6 http://www.sustainableshale.org/ 34 Maike BöggeMann and norBert Both and in turn, how you contribute to the resilience of the environment in which you operate. It demands a deep insight into the interdependencies of success. Resilience in the complex systems of society we work in cannot be achieved without collaboration as it always crosses organisational, sectoral and geographical boundaries. When there is a shared understanding of our interdependencies, a dialogue about resilience of the broader system we all are a part of can facilitate bringing different stakeholders closer together and identifying where interests are aligned. This cannot be achieved without strong and authentic leadership, a leadership that fundamentally recognises and values interdependencies as core assets to protect and enhance value. Shell explored the role of leadership in collaborations at the energy-water-food nexus together with consulting firm Xynteo.7 In all of these collaborations leadership is critical. Experience shows that collaborations of this kind tend to struggle for a number of reasons, including the fact that sectors are not used to working together. But if leaders put in place and follow a proper process, collaboration has the potential to unlock latent value that resides at the interface between the sectors, boosting growth and adapting to the challenges. Achieving this requires a new kind of leadership – one that brings people to the table and, despite the inevitable challenges, keeps them there. With no hierarchy, and people participating as peers, traditional ‘top-down’ styles of leadership are illsuited to collaboration. Collaborative leaders are different. They instead inspire partners to commit to a common narrative, and then forge, promote and protect a collaborative process that catalyses action between the partners. They empower and enable collaborative partners to carry it out. This demands a distinct set of behaviours. First, collaborative leaders need to be able to move beyond a perspective of pure self-interest to putting the interests of the collaboration in front. Second, collaborative leaders, whose primary role is to serve the partners, need to involve others in the process to get their buy-in as well as ensuring that the best solution is tabled, while maintaining a decisive hand to keep partners within the process. To behave in such a way, collaborative leaders, unlike with a traditional leadership style, need to be comfortable with releasing control of the situation. This may require collaborative leaders to remove a number of personal barriers, such as ego, defensiveness and a desire for power, that are preventing them from inspiring commitment and catalysing action. Not an easy feat. 7 http://www.xynteo.com/ Part II The resilience lens 2 A pragmatic frame to explore resilience Marco Albani1 and Roland Kupers2 In a world faced with increasing volatility and turbulence, business leaders find the idea of working to bolster the resilience of the economic systems in which they operate both attractive and intuitive. Yet we found that operationalising this idea is quite difficult, and it is especially difficult to do so in a way that fully captures the richness of perspective that resilience and complexity sciences have developed over the last four decades. The complexity stems from the fact that resilience is an emergent property of complex systems that is revealed in the face of uncertain events, and as such is very hard to measure, especially ex ante. Adaptive capacity is the prime capability associated with resilience, encompassing the abilities to rapidly exploit new opportunities, manage complex and interconnected systems, and read and respond to signals of change.3 This adaptive capacity can appear either like change or stasis. In a corporate world, resilience can take the form of Shell still operating in the same main markets after a century or of IBM reinventing itself several times – both are successful, and hence resilient in their own right. So while the concept is intuitive and appealing, and can be compellingly discussed at the conceptual level, there is a real challenge in moving from the conceptual to the practical without falling in the trap of reverting to traditional risk management approaches, which are certainly useful, but often do not capture the richness of insight that a resilience lens could bring to bear. For example, Value at Risk (VaR) calculations assume that risk distributions are normal, an assumption that is often invalid for the tightly coupled complex systems for which the resilience frame is developed. In fact, most systems for which we will be interested in their resilience, have non-normal risk distributions with fat tails (or black swans) that undermine the very essence of the standard risk management tools. In our work with the Resilience Action Initiative (RAI), we found the need to develop a simple resilience frame that can be used to move from the conceptual to the practical, while retaining as much of the richness 1 Senior Expert, Sustainability and Resource Productivity Practice of McKinsey & Company. 2 Associate Fellow, the Smith School of Enterprise and the Environment, University of Oxford. 3 Reeves and Deimler (2011) 38 Marco albani and roland Kupers of insight and approach developed through resilience science as possible. We developed this frame, which we will describe in the next section, to facilitate a structured conversation around the resilience of the systems we are interested in. The frame was tested in a variety of different situations – from industrial clusters, to cities, to large regions – and with different levels of analysis and data intensity, where it proved itself both useful to spur the right conversations, and to be robust to a variety of contexts and data richness. Still, the frame is to be seen as primarily as an ‘on-ramp’ to a richer discussion of resilience. For the sake of simplicity, it leaves out a number of concepts that are important to access a full suite of resilience solutions. In the second part of this chapter we take a guided tour of these additional concepts, aided by the interviews with resilience experts that we carried out as part of our work with the Resilience Action Initiative. These additional concepts, which often take the form of open questions or dilemmas, in part reflect the gulf that still exists between resilience thinking in the abstract, and resilience practice. Still we found them very important and thought provoking, even if sometimes they led to more questions than answers. A diagnostic frame We developed a framework with five dimensions that allows a team to capture their current understanding of the resilience issues of a system. The dimensions consider external stresses to the system, their interrelatedness as well as capabilities for learning and foresight. The framework helps us understand how multiple actions relate to each other, and has been helpful in exploring resilience challenges. It has been tested for a number of different systems through a series of workshops. These ‘system elements’, represented in the exhibit below, enable, in a simple yet powerful way, a discussion of the most important dimensions of resilience. The horizontal axis of the framework focuses on the exposure of the system to stresses, inventoried in three categories: resource, societal and acute events stresses. Two additional elements, represented on the vertical axis, focus on how the system’s structure affects its response to these stresses, looking at, on the one hand, how the tight coupling of its exposure to different stresses can increase the impact of individual stresses, and, on the other hand, how the system is capable of increasing its resilience through foresight, learning and overall adaptive capacity. a pragMatic fraMe to explore resilience 39 A structured approach to resilience assessment focuses on both system exposure to stresses, and its ability to respond to them Response dimension Exposure dimensions Resilience multipliers Risk and stress multipliers 1 - Resource stress ▪Exposure to and robustness against chronic stresses from resources such as energy, water and food ▪Resource productivity levers or alternative resource choices can increase resilience ▪Exposure to and robustness against acute stresses from catastrophes or other acute events ▪Adaptation levers or other risk mitigation measures can increase resilience 3 - Acute events stress ▪Social conditions increasing system vulnerability to chronic and acute stress through e.g. –Access to resources –Distribution of risks 2Societal stress ▪Ability of the system to foresee stresses, learn from and adapt to them, and self-organise in the presence of new challenges 4 - Learning, foresight & self-organization ▪System-level correlation and critical dependencies between resources and other stresses (e.g., energy-intensive water sources) 5 - Interdependency System lens ▪Redundancy ▪Modularity ▪Requisite diversity 6 - Structural resilience ▪Multi-scalar interactions ▪Thresholds ▪Social capital 7 - Integrative resilience ▪Distributed governance ▪Foresight capacity ▪Innovation and experimentation 8 - Transformative resilience Resilience elements We now look in more detail at the three core resilience stresses described on the horizontal axis: (1) Resource stress, (2) Societal stress and (3) Acute events stress. 1. Resource stress relates to the exposure of the system to stresses on the energy-water-food nexus, but also its robustness against these stresses. Examples include increasing water scarcity or the depleting fossil reserves. Typical resilience actions include the increase of resource productivity (efficiency increase), the increase of buffers and diversity (efficiency reduction), the replacement of resources, or the reduction of volatility in resource consumption. In examining this dimension of a system’s exposure to stress, we found it useful to look at: a. Demand-supply dynamics of the critical resources (e.g. water, energy, food, land). This can be done qualitatively, but also quantitatively, building a perspective on the demand and supply growth of each resource under different scenarios, and examining what needs to happen to keep supply and demand balanced. b. Supply quality. It is not enough to examine whether future resources demand can be met – it is important to ask whether it can be done sustainably, what kind of impact future supply sources have on the systems’ natural capital, or whether future demand can be met through high dependency on imports, or by a system with limited or no diversification, and with reliability or redundancy challenges. 46 Marco albani and roland Kupers Open questions and dilemmas “Resilience is always, perhaps maddeningly, provisional, and its insistence toward holism, longer-term thinking, and less-than-peak efficiency represent real … challenges.”9 While the frame presented above does not exhaustively describe the system, it has helped unearth new solutions and approaches when applied. A level of ‘resilience literacy’ is helpful to deepen the analysis, but not necessary for impact. In addition there are dilemmas that remain, in part because systems theory has not provided the answers, let alone articulated them in ways that practitioners find useful. The first dilemma that is often raised is the understandable call for metrics: we strongly recommend resisting this. Resilience is not a parameter to optimise, either maximise or minimise – and it is value neutral. Buzz Holling,10 the early champion of resilience, has described the resilience cycle through a figure-eight graph that describes the need for resilience to wane occasionally, to allow for change. When a system is stuck in a bad state, resilience must be reduced, to allow the transformation into a new, more adaptive state. But to reach successful transformational change, a very long-term perspective of the system is required. Transformation is not possible without a shared vision of the future to frame the actions in the present and hence it is important to envision system outcomes as separate from company outcomes. Resilience is only a means. The tension between efficiency and resilience is challenging. Optimising and controlling a part of a system in isolation can result in the decline of the resilience of the broader system. This is a matter of understanding the impact of the choice of boundary, but also in assessing fit-for-purpose diversity and buffers. These will often come at a cost that will need to be justifiable within a resilience frame. How to value resilience in the context of investment constraints and customer requirements is a key challenge that remains unresolved. This also raises the question of who is accountable for resilience. For example, in the run up to the financial crisis of 2008, the optimisation of the health of individual banks appears to have eroded the resilience of the overall financial system. In a resilience frame, should banks have been more concerned with the stability of the system? How does resilience affect the 9 Zolli and Healy (2012) 10 Gunderson and Holling (2001) a pragMatic fraMe to explore resilience 47 reach of corporate responsibility? What new types of collaborations are required to achieve resilience? Solutions to resilience will be found in practical action and will likely not come in the form of blueprints, but in frames that are evolving and adapting. This shifting nature will create tension with the trend towards standardisation and reproduction that is at the heart of the scaling of industrial enterprise, but it opens the opportunity to discover solutions that deliver greater and more long-term value. 3 A resilience lens for enterprise risk management1 David N. Bresch,2 Jaap Berghuijs,3 Rainer Egloff 4 and Roland Kupers5 Enriching corporate risk management What happens when a fire strikes at the manufacturing plant of the sole supplier of semiconductors used in millions of cell phones? What can a food company do when the natural environment from which it draws its resources is increasingly degraded? And how can a company increase its fitness with respect to unforeseeable challenges? To survive and thrive in the face of stress and disruption, a company can seek for enterprise resilience, which we here define as the capacity of business to survive, successfully adapt and prosper in the face of change and uncertainty related to disturbances with a high impact and a low probability. Natural disasters, economic crises, political turmoil, terrorist attacks, environmental degradation and disruptive technologies are just a few examples of the many kinds of stresses and disruptions that can impact a company’s bottom line. In a global, interconnected world such shocks become more complex, have increasingly big consequences and leave less time to react. Seemingly harmless events, which arrive with little or no perceived warning, may turn out to have serious consequences. It is sometimes only in hindsight that the root causes become visible. Striving for resilience requires a systemic approach – a strategic and operational perspective that treats the company as a system, and emphasises criteria applicable to any system. A resilience lens in enterprise risk management empowers a company’s structural ability to ‘bounce back’ after 1 The authors would like to thank the RAI Working Group for its contributions and support, and expresses its gratitude to the participating companies and their risk management representatives for the willingness to share their thoughts and feedback on project drafts in bilateral telephone interviews: Dow, DuPont, IBM, McKinsey & Company, Shell, Siemens and Unilever. 2 Global Head Sustainability, Swiss Re. 3 Junior Strategy Analyst, Reinsurance Strategy, Swiss Re. 4 Senior Risk Manager in Swiss Re’s Emerging Risk Management unit. 5 Associate Fellow, Smith School of Enterprise and the Environment, University of Oxford. 50 DaviD N. Bresch, Jaap BerghuiJs, raiNer egloff aND rolaND Kupers a shock or disturbance. It also strengthens the firm’s capacity to survive, continuously develop and transform to prosper in complex environments. It prominently does so through widening the system’s horizon, including social, environmental, economic and emergent factors that a company may not ‘own’ and be unable to directly control. Finally, to foster the resilience of a company also means to build its long-term adaptive capacity. In short, a resilient company can absorb disruption, acknowledge its interconnectedness and proactively change. Company boards recognise that both the speed with which risk events unfold and their impact on business appears to escalate. They express concerns that their current risk practice no longer adequately protects their company.6 ‘Black swans’7 or ‘fat tails’ have been recognised for some time now, yet much of risk management still heavily relies on traditional Value at Risk (VaR) analysis assuming normal risk distributions and to a large extent neglects uncertainty, i.e. risks with hard-to-define probability. A company that ignores fat tails underestimates its total risk exposure. On the other hand, the effective anticipation of rare high-impact disruption can lead to a competitive advantage, and thus should be viewed as a business opportunity. Traditional enterprise risk management is optimised to assess and mitigate risks that follow normal statistical distributions, i.e. that are well defined, linear and measurable. However, it does not account well for risks that are difficult to model because of their non-linearity, multidimensionality, propagation over multiple scales or by their mere rareness to actualise. A resilience perspective in enterprise risk management shares many traits with traditional Enterprise Risk Management (ERM) – it supports the survival and thriving of business. It enhances a more traditional focus by applying a systemic approach and by emphasising low probability, slowly accumulating, discrete or unknown risk, dynamic developments, feedback loops and thresholds. The main goal of enterprise resilience is to ensure the adaptability of a company – subjected to an acute or chronic stress, and with a long-term perspective. We propose a set of resilience lenses grouped in three dimensions or levels: Structural resilience focuses on the systemic nature of the company itself, with a view to improve business continuity management. Redundancy, modularity and requisite diversity are important aspects to this. Integrative resilience emphasises the complex interconnections of the company 6 PwC (2011), 3 7 Taleb (2007) a resilieNce leNs for eNterprise risK maNagemeNt 51 with its environment. We highlight multi-scale interaction, thresholds and social capital. Finally, transformative resilience adds a longer time scale and so opens the range even more, to ensure and enhance a company’s transformability. Here we discuss distributed governance, foresight capacity, and innovation and experimentation as enablers. One can also frame the presented lenses as different facets of the same prism providing different ways to look at the same thing: the resilience dynamics of an enterprise. The structuring in levels – from structural to transformative – allows shifting focal scale: from (1) the company through (2) its interconnections with its environments to (3) long-term adaptability. The project documented here is part of the Resilience Action Initiative (RAI). Privately launched at WEF 2012, RAI was set up with the vision of business, by working and innovating together, making their value chains and local economic partners (i.e. at city and regional level) more resilient to stresses arising from the energy-water-food nexus, amplified by climate change risk factors. This chapter turns the focus of resilience to the companies themselves, going beyond a mere focus on the energy-water-food nexus. The chapter represents a pioneering effort, stressing the importance of putting resilience on the enterprise risk management map. For the individual company, this chapter serves as a starting point to deal with resilience, from which its resilience approach can be ‘customised’ according to the specific environment and factors of importance for that company. Because specific resilience requirements may vary strongly between industries and companies, we here deliberately refrain from providing detailed practical advice on an individual company basis. Similar type of disaster – different effects: Deepwater Horizon vs Exxon Valdez the comparison of two equivalent high-impact low-probability events, the 1989 exxon valdez and 2010 Deepwater horizon oil spills, illustrates how the risk landscape has changed in recent times. Both spills were the largest ever in american waters at their time, had a severe environmental impact and resulted in the pollution of vast stretches of us coastline. from an enterprise risk perspective, however, a strong contrast between the two disasters exists. While the exxon valdez spill resulted in strong uproar amongst locals and environmentalists, other stakeholders largely ignored the incident. this gave exxon ample time, first to handle clean-up operations and subsequently to take a strictly legalistic hard line on claims and regulatory issues. News of the Deepwater horizon catastrophe, on the other hand, instantly spread around the 52 DaviD N. Bresch, Jaap BerghuiJs, raiNer egloff aND rolaND Kupers world and produced an outcry from stakeholders and the general public through digital social media that did not yet exist 20 years before. extensive media coverage, including 24-hour webcam footage of oil spewing from the well, made the world’s eyes turn to the incident and lead to close scrutiny of Bp’s reaction to the event. in contrast to exxon’s 1989 spill, in 2010 Bp only had a fraction of the time of its predecessor to react while the impact of the event was much more severe, both regarding environmental damage and from an enterprise risk point of view. the enterprise-wide reputational damage for Bp was enormous, and the event’s impacts have swept across the industry. Source: Adapted from PwC (2011) Structural resilience The focus of structural resilience, which is also known as ‘engineering resilience’, lies on bouncing back faster after stress, enduring greater stresses, and being disturbed less by a given amount of stress.8 In other words, this first level of resilience is all about enhancing capacity to withstand disruption. It concentrates on resilience aspects that are internal to a given company, such as its strategy and organisational structure. Structural resilience aspects and measures are therefore easiest to implement and control, and form a fundamental step to increase resistance against disruption. Structural resilience comprises three different lenses – redundancy, modularity and requisite diversity – each of which will be discussed below. Redundancy Before September 11, 2001, many financial service firms had a massive network of IT infrastructure in and around the World Trade Center, which formed an important connection to the US markets. When the terrorist attack on and subsequent collapse of the towers left Deutsche Bank’s New York’s facility in ruins, redundant IT systems in Ireland took over operations. On the very same day, the company was able to clear more than USD300 billion with the Fed.9 Deutsche Bank used a conceptually simple and intuitive way of limiting the potential impact of disruption: the introduction of redundancy, i.e. putting in place buffers that can absorb the impact of 8 Martin-Breen and Anderies (2011) 9 Sheffi (2007) a resilieNce leNs for eNterprise risK maNagemeNt 53 a shock. Such buffers can be of many different kinds and generally come at a cost, such as the safety stock kept by a manufacturing company or redundant production capacity for a company’s most important product lines. Redundancy also comes with company size: a large multinational has more physical and financial capital to absorb shocks of a given size than a medium-sized enterprise. It provides overcapacity that protects against critical failure or, more plainly put, keeps the company running when it receives a blow. While redundancy is a simple and effective measure to increase resilience, it goes against the efficiency push many companies established over the last decades. Cutting inventories and building leaner supply chains resulted in a very high efficiency and a strong increase in quality of products and services. Rather than reversing the gains of these efforts, companies need to critically assess the costs and benefits of redundancy in its different forms and independently determine their own position in the trade-off between resilience and efficiency. Modularity In businesses that are internally strongly connected, shocks that initially only hit a small part of the company may propagate rapidly, causing extensive damage. Conversely, in an organisation with a modular internal structure, such shocks can be contained, and business is more easily restored. Modularity can be understood as a form of decentralisation, which has several additional advantages. Decentralised decision-making, such as in many franchises, empowers those who know the local business environment best. This ensures faster as well as more accurate and effective action than in a centrally governed organisation. Also, decentralised supply chains focusing on local suppliers are less vulnerable to shocks. Another benefit of modularity is the exchangeability of individual components, which allows for dynamic reorganisation and more flexibility. Systems may appear complex from the outside but often have a surprisingly simple, modular internal structure consisting of components that plug into one another – much like Lego blocks – and, equally importantly, can be unplugged and reconfigured easily when necessary.10 This allows for a much faster and more dynamic reaction to changing circumstances. Additionally, a modular structure allows for scaling up and scaling down – the ability to flock or swarm – by increasing or decreasing the number of linkages between components or by breaking them, whichever 10 Zolli and Healy (2012) 54 DaviD N. Bresch, Jaap BerghuiJs, raiNer egloff aND rolaND Kupers a specific situation might call for. This ability to flock or swarm increases a company’s adaptive capacity – the ability to aptly react to a situational change. Cloud computing, for which linked, redundant servers are used to complete a specific task, forms a specific example. A modular organisational structure, however, does have certain disadvantages. Increased independency of organisational modules can result in a loss of uniformity, which can cause problems with safety and risk tolerance. These disadvantages can be offset with a global governance framework based on principles, standards and a strong company culture. However, one should be aware of the danger in translating such global principles into local rules, as this can effectively annul the intended modularity. Introducing less visible links can make the modules act in concert. The 2008 financial crisis made it apparent that investment resilience through portfolio diversification often failed, as other financial instruments had forged strong de facto connections between portfolio elements. Similarly, if companies adopt modularity as a resilience strategy, they should critically inspect the implicit interdependencies between the modules. On a USD70 trillion global annual economy, the $600 billion bankruptcy filing of Lehman Brothers in mid-September 2008 was a relatively modest event. However, through an epidemic of fear and uncertainty it lead to a global collapse of the financial system. The crisis revealed that the system of financial companies and institutions, although modular, was (and remains) vulnerable because it was much more strongly connected than it was previously perceived. Requisite diversity Diversity is most often discussed and applied in the human resources. Workforce diversity often refers to the gender ratio in a company or in its upper management, to the ethnical background or age of employees, to the representation of cultural and language groups, etc. Such aspects of workforce diversity all contribute to diversity of thought and skills, which stimulates discussion, fosters wiser and more considered decisions, and enhances creativity and innovation. In other words, they enhance functional diversity and allow a company to operate more effectively. More important in the context of enterprise resilience, however, is what is commonly referred to as responsive diversity11: Various ‘components’ (i.e. employees, systems, strategies, suppliers, production methods, services, etc.) within a functional group respond dissimilarly to different kinds of disturbances. This is most valuable when disaster strikes. For example, a 11 Walker and Salt (2006) a resilieNce leNs for eNterprise risK maNagemeNt 55 diversified supply chain enables a company to cope much better with any particular disruption within that chain; a diverse set of strategies allows an enterprise to react more effectively to a change in market conditions. Analogously to a portfolio of financial products and irrespective of whether disruption is anticipated, a company with a whole range of diversified components is less prone to company-wide shocks because its risk is spread through responsive diversity. Diversity may be associated with reduced short-term efficiency. Inhomogeneous subsystems (whether that is a workforce, supply chain, strategy or product portfolio) can demand more time and effort to manage because with diversity, certain advantages of economies of scale are lost. Diversity should not go unchallenged, and companies will be wise to ask what the appropriate focus and amount for diversity may be in particular circumstances. To increase its resilience, a company should constantly determine the right amount of diversity in all relevant components; it should strive for requisite diversity. South Korean electronics giant Samsung believes it can leverage on its diversity range of products and strategies. While it is challenging to be successful in many businesses at the same time, it gives the company an advantage over its more specialised competitors in several ways. For example, Samsung adjusts more easily to the common trend of blurring lines between product segments – as, for example, is the case for mobile phones and tablets. Further, a diverse range of relatively similar products, combined with a high reaction speed to the market’s response, allows the company to discover and cater for new markets quickly. The successful combination of diversity and agility proves useful both to seize opportunity and to adjust to shocks – it adds to the company’s adaptive capacity and, therefore, to its resilience.12 Structural resilience: Rabobank’s unique organisation rabobank ranks amongst the top-20 banks in the world by equity and is one of the few that remained relatively unscathed during the 2008 financial crisis. unlike many others, it did not require government support. can we pinpoint the origin of its higher resilience? its origins in 1890 as a cooperative agricultural micro-finance bank endowed it a unique cooperative structure. today, it is a network of 140 member banks, 12 Nisen (2013) 62 DaviD N. Bresch, Jaap BerghuiJs, raiNer egloff aND rolaND Kupers their impacts on present decision-making, allows the company to integrate uncertainty into their planning and actions. An effective foresight strategy may comprise scenario planning,24,25 emerging risk detection, modelling, war-gaming26, visioning, reverse stress testing,27 red team simulations28, or any other means of engagement with the future, depending on the specific needs of a company and the character of the economic system it operates in. Irrespective of its exact form, such foresight activity increases resilience because it allows a company to adapt to and reduce vulnerability against potential disruptions and their common consequences before these actually occur. As the Shell Scenarios team has famously shown during the 1973 oil crisis29, even if no specific mitigation measures are taken, mere awareness enables a quicker reaction that can be enough to give the company a crucial edge over its competitors – that is, as long as challenges such as obtaining the sincere interest of upper management and dealing with too high expectations about taming the future are met. Tackling a security threat, even before it becomes an issue to be dealt with – that is what Singapore’s Institute of Policy Studies aims to do with its Prism scenarios. The scenarios present a set of alternative stories of how the country may govern itself over the next ten years based on three driving forces – credibility of government, society’s definition of success, and distribution of resources. Rather than a prediction of the future, the scenario-planning method is designed to help question assumptions and develop flexible mental models for operating in the future.30 Innovation & experimentation In 1999, the chairman of home appliance market leader Whirlpool set out to make innovation a core competence at the company. Over a period of three years, the company involved roughly 10,000 employees in the search for innovation breakthroughs. Some 7,000 ideas where created, which spawned 3,000 small-scale experiments and led to a whole stream of new products and businesses. The success of this focus on innovation transformed the company for good. Today, Whirlpool continues to be recognised for its 24 Wilkinson and Kupers (2013) 25 Dunn Cavelty et al. (2011) 26 Starr et al. (2003) 27 PwC (2011) 28 Sheff i (2007) 29 Wilkinson and Kupers (2013) 30 IPS (2012) a resilieNce leNs for eNterprise risK maNagemeNt 63 innovation. It actively manages a broad pipeline of ideas, experiments, and major projects from across the company.31 Any company that wants to survive in an uncertain future has to be ready to react swiftly to a wide range of possible scenarios. A resilient company therefore does not depend on a single product, strategy, technology or supplier but rather aims to create diversity in every aspect of business – analogous to a financial portfolio.32,33 Under continuously changing circumstances, whether these comprise an abrupt shock such as a financial crisis or a slow system shift like climate change, previously successful activities of an enterprise may no longer be beneficial. In this regard, innovation and experimentation are crucial as they enable the creation of new ideas and options – they increase diversity in all aspects of the business portfolio. A resilient company has the capability to self-renew over time through innovation – aimed at invention, not optimisation – and experimentation, by reinventing business models as strategies and circumstances change.34 Long-term resilience: The Subak system of Bali examples of successfully harnessing risk for long-term resilience are rare in the corporate world, but we may draw inspiration from the terraced rice field systems in southern Bali known as the subak. this millenary system manages known risks such as pests and water, but also unknown risks from internal warfare, colonisation, natural disasters, the green revolution and, increasingly, tourists. traditional Balinese techniques for water control and terrace management are based on principles nearly opposite to those of the top-down control structures favoured by the planners. the Balinese manage things from the bottom-up, by means of nested hierarchies of water temples that cooperate in setting irrigation schedules. these temples are ritual places where farmers make decisions on water flows and construction. since the whole system is deeply interconnected, both through the spread of pests and water; no decision stands in isolation. the subak system has been simulated ‘in silico’ in order to understand its resilience to changing circumstance. Not only does it perform in the computer as in the rice fields, but more strikingly the simulation shows how governance system itself will co-evolve with the nature of the problems. as such the governance is not only multi-scalar and polycentric, but it is also itself adaptive to 31 Hamel & Välikangas (2003) 32 Välikangas (2004) 33 Zolli and Healy (2012) 34 Reinmoeller & van Baardwijk (2005) 64 DaviD N. Bresch, Jaap BerghuiJs, raiNer egloff aND rolaND Kupers emerging risks. in June 2012, the subak has been designated a uNesco cultural landscape world heritage site, throwing a new problem – that of tourist hordes – at the adaptive capacity of the system. uNesco aims to identify and preserve such cases of resilient resource governance. the risk management approach of the subak holds lessons and provides new science-based tools to be adapted in corporate structures for resilience to systemic risks. Sources: Fox (2012), Lansing (2006), Lansing (1993), Schmuki (2009) Conclusion We have introduced a concept of enterprise resilience that builds on three pillars or levels. For each resilience level we described different relevant aspects or resilience lenses, and we gave examples of adaptation measures. Note that these measures should be considered as examples only, since their relevance and effectiveness strongly depends on the character of the specific company and the system in which it is embedded. However, this does not take away from the fact that the resilience lenses themselves are relevant for business across industries. Structural resilience is about internal adaptation measures that a company can adopt to become more resistant to disruption. It includes the assessment of cost and benefits of redundancy and determines trade-offs between resilience and efficiency. It identifies adequate modularity, such as the decentralising of service and production chains. Shocks reveal whether enough responsive diversity is in place, and they can be dealt with and avoided by cultivating functional or requisite diversity. Integrative resilience acknowledges that companies are embedded in a social-environmental-economic system, with which they need to interact both to cope more effectively with disruption and be more agile when it comes to seizing opportunity. As companies are part of complex multi-scale interactions, effective enterprise resilience allows the establishment of an adequate focal scale (including time scales) for each and every problem, and the mapping of linkages ‘up/further’ and ‘down/closer’ from or to this scale. It is adopted to identify critical thresholds and closely looks into feedback loops, not least to monitor system status with respect to thresholds. Finally, it’s crucial to build public trust or social capital well in advance of crises, as it will be difficult to impossible to develop these relationships under stress. a resilieNce leNs for eNterprise risK maNagemeNt 65 Transformative resilience builds on the former lenses, but additionally calls for continuous adaptation and transformation needed to survive and thrive under new operating circumstances. Distributed governance allows for sustainably self-organised adaptation. Compared to classic, hierarchical governance, distributed decision-making leads to better results for complex and ambiguous tasks – and allows for emergent response in turbulent times. Resilient enterprise management creates and safeguards a safe space to explore options under various scenarios. Foresight capacity increases awareness and alertness that reaches beyond specific mitigation measures. Last but not least, continuous innovation and experimentation allow a company to learn faster than its competitors – it increases adaptive capacity. 4 Multi-sector collaboration for resilience Mark Smith1 Change is a challenge familiar to corporate leaders. Professor John Kotter of Harvard Business School, in his classic book Leading Change,2 set out an 8-step process for successfully managing change in organisations. These build from creating a sense of urgency and convening a coalition of champions through to empowering people to take action and embedding change in new cultures. Kotter argued for strategies for managing change that are not trapped by top-down, command-and-control dominance. He made the case that organisational change will be more successful where efforts are made to help people to re-learn the expectations and norms within an organisation, supported by data, communications, empowerment and learning-by-doing. In the public realm, the language used may be different, but the ingredients for change are similar. Based on the Nobel Prize-winning work of Elinor Ostrom, adaptive governance of natural resources, for example, is more effective in achieving beneficial change where decentralised, self-organising institutions are rich in information and empowered to make decisions on collective action through dialogue and deliberation.3 Whether the aim is organisational change or adaptive governance, both represent processes of social change put to work to reshape and re-orient a system from within. Both provide some clues on how to tackle the broader challenge of change in complex systems that is needed to build resilience. Johan Rockström and colleagues laid out an hypothesis in a 2009 paper in the journal Nature that the human population, through natural resource exploitation, is pushing against ‘planetary boundaries’ and losing its ‘safe operating space’. 4 This points to a world that is becoming riskier and, as Earth-system thresholds are approached and crossed, more prone to instability and surprise. Thomas Homer-Dixon wrote of five ‘tectonic stresses’ that link ecological, social and economic pressures and amplify risks: Energy stress – especially from increasing scarcity of conventional oil, Economic stress – from more instability in the global economy and a widening gap between rich and poor, 1 Director, Global Water Programme, International Union for Conservation of Nature (IUCN). 2 Kotter (1996) 3 Dietz, Ostrom and Stern (2003) 4 Rockström et al. (2009) 68 Mark SMith Demographic stress – from differences in population growth between rich and poor societies and from expansion of megacities, Environmental stress – from worsening damage to land, water, forests and fisheries, and Climate stress – from changes in the composition of Earth’s atmosphere.5 Both natural systems and the global economy are becoming more turbulent under these converging and interconnected stresses. There is, however, a competing narrative, as global GDP is projected to almost double by 2030 (from a 2010 baseline), from $50 to $95 trillion, driving growth in demand for primary energy of 33%, food of 27% and water of 41%.6 There are contradictions in these narratives. In a riskier, more turbulent world, reconciling them will need transformations that make communities, ecosystems, the economy and societies more resilient. Deep change is needed in the complex dynamics of the social and ecological systems that shape the future. The private sector, governments and civil society have interests that align with changes needed to build resilience. Each sector needs effective strategies for building resilience that will help them succeed in achieving their goals in a more turbulent world. Just as leaders in each of these sectors need effective strategies for organisational change to ensure that their businesses, agencies or NGOs are dynamic, effective and adaptive, they need tools for creating the changes needed for societies to become more resilient. Just as Kotter understood organisational change as a social process, they will need to find avenues for collaboration, empowerment and learning needed to change complex systems from within. Change for resilience Resilience means being able to survive, adapt and improve in the face of stress and change, to be able to withstand shocks, but reorganise and rebuild when necessary. The capacity to bounce back, but ‘bounce forward’ to a better state if possible. Humanity’s response over millennia to new demographic, environmental or climatic stresses, or to energy constraints in the economy or natural resource scarcity, has been invention and innovation. New technologies have repeatedly emerged to deliver not only solutions, but also economic advancement that has created new employment and new 5 Homer-Dixon (2006) 6 Dobbs et al. (2011) Multi-Sector collaboration for reSilience 69 national wealth, new entrepreneurship and new value for companies and their shareholders. In a world of converging stresses where there are Earthsystem thresholds and tipping points at play, a different path is needed. Current technological pathways, while hugely successful historically, have favoured narrow optimisation of solutions to problems. Over time, unintended social and environmental consequences have accumulated – such as climate change, species extinctions, fisheries collapse or impoverishment downstream from hydropower dams. Seen through a systems lens, technological innovation has tended to help in optimising exploitation of individual natural resources, industrial sectors or enterprises, but caused broader ‘knock-on’ effects across social-ecological systems. These effects are typically poorly understood or unknown because of complexity. In response, investment to improve knowledge of how social and environmental impacts unfold has increased. With the speed of technological advance and global interconnectedness, however, the unknown impacts of actions accumulate faster than knowledge of them. Requirements for innovation are hence accelerating as global stresses converge but knowledge cannot keep pace,7 creating an ‘ingenuity gap’ that technology alone cannot bridge.8 The technological pathways we have relied on historically are not suited, by themselves, to the deeper changes needed to provide the building blocks for resilience to converging stresses. Collaboration for systemic change Innovation for resilience must influence the workings of complex systems, with uncertainties, unknowns and nonlinearities at play. It needs to help communities, companies or countries develop leverage they can use to bounce back or bounce forward – to survive, reorganise, learn and improve in a future more prone to instability and surprise. Innovation for resilience contributes to systems change, with social, economic and environmental dimensions. It needs to provoke and steer transformations beyond technological change, of management regimes, governance and the ways natural capital and social capital are built (or rebuilt) alongside economic value. In a past era, there might have been an expectation that it was the job of governments alone to set such transformations in motion. Today, however, society’s toughest problems are increasingly being tackled by collaborations 7 Westley et al. (2011) 8 Homer-Dixon (2000) 70 Mark SMith that combine the capacities, talents, reach and resources of the public and private sectors and civil society. In The Solution Revolution, William Eggers and Paul MacMillan tell the stories of citizens, businesses and philanthropists who are working together to solve problems rather than relying solely on the public sector.9 Cross-sector collaborations aim to leverage business and social entrepreneurship, social networks and new kinds of investment alongside platforms for negotiating consensus. Multi-sector collaboration is being used by governments, business and civil society to activate change. Collaboration has in part grown out of the experience of conflicts between communities and companies. Public and NGO pressure in natural resource sectors (energy, mining, forestry, agriculture), for example, has undermined social ‘licence to operate’, increased costs and, ultimately, forced companies out of particular markets. Companies face costs; therefore, they shrink from societal change. Governments can help by putting in place rules to create sanctions and incentives that encourage companies to invest in change and avoid social conflict. As standards and regulations have tightened, many companies have learned in response that the better path, instead of battling protestors in the courts, markets or even physically, is to work with stakeholders to avoid or mitigate environmental and social impacts of business operations. They work collaboratively with civil society and governments to ‘co-create’ solutions. Companies have learned, further, that possessing the skills needed for stakeholder engagement and co-creativity brings competitive advantage. 10 Case 1 – Marine Stewardship Council the global seafood industry was under intense public and consumer pressure in the 1990s because unsustainable fishing practices were blamed for severe degradation of marine ecosystems. With the collapse of the newfoundland cod fishery in the early 1990s, there were calls for urgent action to halt the overexploitation of major fisheries around the world, to protect not only the marine environment, but also fishing livelihoods. unilever, the largest fish retailer at the time, and the World Wide fund for nature (WWf) joined forces to respond. they jointly led and financed a two-year process to build consensus around the design for a sustainability standard for marine fisheries and to launch an organisation to develop and operate a certification scheme. With effective leadership, resistance to a standard from many fishing companies and some governments was overcome, and in 1999 the Marine 9 Eggers and MacMillan (2013) 10 Higginson and Vredenburg (2010) Multi-Sector collaboration for reSilience 71 Stewardship council (MSc) was launched as an independent organisation. almost 15 years later, 10% of global marine fish harvest is certified through MSc, with a value of $3 billion annually. the MSc operates as a non-profit, under governance that brings together civil society and business, including through a Stakeholder advisory council comprising representatives from nGos, academia, fishing companies and trawling industry associations. the MSc is contributing to pulling many fisheries back from the threat of collapse, or at least slowing the approach. In the case of innovation for resilience, governments, civil society and the private sector have different motivations but they share interests in a more resilient future. Governments aim, for example, to find resilient pathways to creating prosperity in a riskier world. Civil society aims to use its networks and knowledge to champion solutions for resilience based on social justice or a reawakening to benefits from nature conservation. For business, resilience will help to build and protect long-term shareholder value under converging stresses, but transitions to resilience also offer opportunities, as customers will increasingly need expertise and services that strengthen resilience. Understanding among sectors of mutual advantage and opportunities in supporting greater public good through resilience will be key.8 Case 2 – Urban Resilience, New York City11 the new York metropolitan area is home to almost 20 million people and a large number of smalland medium-sized businesses as well as multinational corporations. Sitting at the hub of the global finance and trading systems, new York’s interconnectedness is deep and global, creating vulnerabilities worldwide to disaster in new York city. Superstorm Sandy caused an estimated $50 billion in damage in 2012. the frequency of such extreme climatic events – including flooding, heat waves and tornadoes – is expected to increase because of climate change. flood hazards that have occurred once every hundred years are projected to occur at a frequency of once every fifteen, for example. the resilience of new York city is a concern for citizens and public agencies, but also for business, whether operating locally or globally. 11 The City of New York (2013) 78 Mark SMith emerging from a variety of cases in which change is demonstrated in response to vulnerabilities or collapse that combines elements of, for example, community action, innovation in programmes of local or national governments, or new services and leadership from business. These contributions reflect the interests of each sector in resilience, but also the potential of using collaboration among sectors to more effectively achieve results. Businesses, governments and civil society are just beginning to discover where there is mutual advantage in collaboration on resilience. A collaborative resilience agenda that focuses on well-defined, practical problems will help to activate change and accelerate progress. Institutions and individuals who can act as brokers and facilitators to bring the sectors together are needed, not least to help build a common understanding of resilience and a common language that is shared by all sectors. They should work with leaders from the sectors to champion change needed for resilience and to promote learning from practical experiments with resilience that show results. Better metrics for resilience and diagnostics that will enable comparisons and monitoring of changes will help further. Finally, a collaborative resilience agenda should put in place networks that will share and elevate successful resilience practice for the scaling up of change, supported by partnerships that are able to leverage the needed knowledge, resources and financing. 5 Building resilience through teamwork Seven tips to make it work1 Marco Albani2 and Kimberly Henderson3 Resilience often challenges cross-jurisdictional boundaries and require systemic changes beyond the capabilities of individual companies or even of an entire industry. In these cases, the best approach for business can be to partner up – with governments, investors, local communities, non-governmental organisations (NGOs), and other companies. Think of these partnerships as distinctive and complicated joint ventures, often with multiple parties. Such collaborations often go through phases – good, bad, and sometimes ugly, particularly in the early days. In its first few years, the Marine Stewardship Council, a partnership that sets standards for the fishing industry, struggled with high staff turnover and unstable funding. In the past decade, however, it has become a force. Its certification standards cover 10 per cent of the global seafood harvest and almost a quarter of global shoppers recognise the MSC label. This covers more than 20,000 products, sold in over 100 countries. To understand how to make these collaborations work, McKinsey & Co. has interviewed dozens of business, government, and NGO leaders. From this research, we have identified seven essential principles of success. 1. Identify clear reasons to collaborate “The effort needs to help each partner organisation achieve something significant. Incentives such as, ‘we’ll do this for good publicity,’ or ‘we don’t want to be left out’, are not sufficient.” Nigel Twose, director of the Development Impact Department, International Finance Corporation, World Bank Group 1 A version of this chapter appears in the summer 2014 issue of McKinsey on Sustainability and Resource Productivity. 2 Senior Expert in the Sustainability and Resource Productivity Practice of McKinsey & Company 3 Consultant in McKinsey & Company’s London office. 80 Marco albani and KiMberly Henderson When organisations sign up for a sustainability partnership simply because they don’t want to say no or be left out, commitment can be weak. Founders of a nascent partnership must instead identify strong incentives, such as maintaining a licence to operate, or ensuring the long-term endurance of a profitable resource or input, such as fish stocks, clean water, or forests. If participants cannot pinpoint such motivations, that may be a sign that the mission is ill-defined. Any collaboration must make sense for all parties, whether their primary interests are commercial, environmental, or social. Enlightened self-interest is the only genuinely sustainable motive. That was certainly true for the firms that set up COSIA, the Canada Oil Sands’ Innovation Alliance. This is an alliance of companies that mine oil out of Canada’s bituminous sands; their goal is to share R&D in order to improve the environmental performance of an industry that is the subject of significant public debate. Sometimes external events can force different players to acknowledge that change is necessary. The collapse of the North Atlantic’s Grand Banks cod fisheries in the early 1990s made commercial fisheries much more interested in sustainable harvesting practices, laying the ground for the birth of the Marine Stewardship Council. A small problem can be more difficult to collaborate around than a big one, because the reward for solving it does not excite people or justify the effort involved. It also helps to stay in the limelight. Although no one should join a collaboration just for PR reasons, publicity and progress can go hand-in-hand. Attention can bring more support, add credibility, and generate momentum. A partnership to improve agriculture practices in Africa seems to be off to a good start in this regard. In 2011, the World Economic Forum worked with the African Union to create Grow Africa, a public-private partnership platform focused on increasing private investment in African agriculture. And in 2012, US President Barack Obama threw the G8’s weight behind this partnership approach for African agriculture by announcing the New Alliance for Food Security and Nutrition. By the end of 2012, the G8’s New Alliance and Grow Africa worked closely to secure over 3 billion dollars in private-sector investment commitments from nearly 50 local and global companies. 2. Identify a ‘fairy godmother’ “It is important to have a core of totally committed, knowledgeable people who would die in a ditch for what the organisation is trying to achieve.” Environmental NGO campaign head building resilience tHrougH teaMworK 81 Behind most successful collaborations are one or more organisations that are willing to invest more than their share of financial, human, and political capital to make the effort a success. Coordinated action can be difficult because first-movers take the biggest risks, while later entrants can benefit without much investment at all. So the temptation is to come in late. But someone has to start, or nothing will happen. ‘Fairy godmothers’ stop that from happening. They take on much of the risk and provide the generosity and sheer force of will that helps to build trust. Any high-performing, credible institution may be a fairy godmother, as long as it is passionate, credible, and courageous. GE’s CEO, Jeff Immelt, took on this role for the US Climate Action Partnership in 2007, driving the start-up phase and recruiting other companies to join. 3. Set simple, credible goals “They [the NGO and the private sector] had different motives, but the same objective: Ensure sustainable fish stocks.” Antony Burgmans, former chairman and CEO of Unilever; co-founder of the Marine Stewardship Council (MSC) One certain way for a collaboration to stall is when the partners have different agendas. To guard against this, set an aspirational goal that everyone agrees on—and, preferably, one that could fit neatly on a bumper sticker. The collaboration should be anchored on an exciting, big idea, and create a vision that others will mobilise behind. Don’t be afraid that it could also mobilise opposition; if there is no pushback, that may be a sign that the goal is not ambitious enough. The MSC shows how this can work. The MSC started as a collaboration between Unilever and the World Wildlife Fund (WWF) in 1997; at the time, Unilever was the world’s largest fish retailer. Each organisation faced challenges in starting the partnership. Some non-profits criticised the WWF for, in their opinion, compromising itself by working with a multinational. Unilever’s leadership was divided on whether this was a good idea. Many fishing companies, and some governments, opposed developing marine sustainability standards. Still, with leaders from both the WWF and Unilever committed to a clear goal of encouraging sustainable fishing practices, the project went ahead. The partners, using the successful Forest Stewardship Council (FSC) as 82 Marco albani and KiMberly Henderson an example, started by consulting with stakeholders, such as commercial fishermen, governments, and environmental organisations. Only then did they design the standards for what constituted sustainable fishing practices and seafood traceability; these are reviewed on a regular basis. In 1999, the MSC began operating as an independent non-profit, free of Unilever’s and WWF’s control. 4. Get professional help “It is very important to have an honest broker. The facilitator must be neutral and very structured and keep people moving along at a brutal pace. You need someone who can bring things to a close.” Darrel Webber, Secretary General, RSPO Most collaborations need a facilitator to get started. When organisations come together, they each have their own incentives, biases, and organisational cultures. These can clash. Odds of conflict are highest when the organisations are either competitors or when they are from completely different sectors and cultures. The first few months tend to be particularly rough. Members are often slow to commit staff, and the tendency is to wait for others to offer resources first. By pooling funds for a facilitator, the collaboration can progress, even when staffing is still under negotiation. In establishing the certification standard for palm oil, for example, the Roundtable for Sustainable Palm Oil (RSPO) needed to create a consensus among seven distinct interest groups, ranging from environmental non-profits to palm growers. It took two years of negotiation to develop RSPO’s first standard. In reflecting on the arduous process, RSPO ’s chief executive credited the independent, third-party facilitator with keeping the discussions (even heated ones) going until the parties could find common ground. Over time, as trust and confidence builds and as the group moves from design to institutionalisation, a successful collaboration can and should phase out the facilitator. Ideally, individuals who started out as representatives of companies with competing interests become a cohesive group working toward a common goal. building resilience tHrougH teaMworK 83 5. Dedicate good people to the cause “If a company like ours believes something is strategic, then we resource it like it is strategic.” Neil Hawkins, corporate vice president of sustainability, Dow Chemical If member organisations decline to dedicate qualified staff, check those organizations against point 1, and ask why they are in the collaboration. If good people are not volunteering, then check against points 2 and 3. Point 2 gives people security: They have a fairy godmother. Point 3 gives people clarity: They know what they’re meant to do, and that it’s worth doing. Working on a major collaboration should be an exciting career-builder, not a dead end. The collaboration’s vision is particularly important at the beginning, when the effort is like a start-up. Talented individuals will give their all when they believe in the goals. As one of the participants of the US Climate Action Partnership said, “If I were to put anything on my tombstone, it would be this effort.” Internally, it’s important to dedicate senior leadership. Without leadership, middle management often lack the incentive to take action, as well as the necessary decision-making power. Instead, they tend to favour business as usual.Cross-sector collaborations are inherently ‘business as unusual’. Successful collaborations, at least at the start, are led by senior leaders from the founding organisations. When Yara, a Norwegian fertilizer company, agreed to become co-chair of Grow Africa, it dedicated a senior vice president to the role, and supported it with the sustained public engagement of its CEO. 6. Be flexible in defining success “Partners think that collaboration will change the world. Then it doesn’t, and they think that it failed. But often the collaboration changed something – the way some part of the system works and delivers outcomes. It is a matter of understanding the nature of change itself.” Simon Zadek, visiting fellow, Tsinghua School of Economics and Management, Beijing Success may come from unexpected directions. Be ready to embrace, and build on it. 84 Marco albani and KiMberly Henderson The US Climate Action Partnership (CAP) set out to pass national capand-trade legislation. While that did not happen, 11 US states have instituted such systems, and many other countries are implementing or considering them. Is any of this directly attributable to US CAP? No. Did US CAP help to pave the way, through developing a business-friendly approach? Quite likely. Similarly, the MSC is changing the fishing industry beyond the 10% of fisheries that have signed up. A multitude of NGOs and other actors are working with fisheries that may never achieve the gold standard of MSC certification, but are nonetheless improving their practices. So remember, while your collaboration may not change the world in precisely the way you intend, it can still change the rules of the game in a positive way. 7. Prepare to let go “I’ve been absent from the FSC since 1997. The organisation had been born and was a teenager and needed to go off and find a job and do its own work.” NGO campaign head during the formation of the Forest Stewardship Council At some point, the partnership will either wind down, or become an independent entity. That process should be planned for. Some collaborations are designed to achieve a certain objective. Once that objective has been achieved, or once the window for achieving it has closed, it’s time to shut the doors. No collaboration should be kept alive beyond its useful lifetime. Others evolve into permanent, self-sustaining, and independent institutions, such as the Forest Stewardship Council. In these cases, founders typically move out of the picture once both a long-term funding model is in place and there is a capable leader on the job. Like good parenting, you know you’ve succeeded when you are a welcome visitor, but you are clearly no longer needed on a day-to-day basis. Part III Resilience in action 6 The case for green infrastructure Neil C. Hawkins1 and Glenn Prickett2 Green infrastructure (GI) was investigated as part of a joint-industry programme that aimed to find ways to increase business resilience to external economic and environmental stressors. For the purposes of this study, GI solutions are defined as planned and managed natural and semi-natural systems that can provide more categories of benefits, when compared to traditional gray infrastructure. Experts from the Dow Chemical Company, Shell, Swiss Re and Unilever, working with The Nature Conservancy and a resilience expert,3 evaluated a number of business case studies, and developed recommendations that green and hybrid infrastructure solutions should become part of the standard toolkit for modern engineers. Green infrastructure employs elements of natural systems, while traditional gray infrastructure is man-made. Examples of green infrastructure include creating oyster reefs for coastal protection, and reed beds that treat industrial waste water, and restoring natural riparian habitat to enhance water provision. The research team evaluated the assumption that green infrastructure can provide more opportunities than gray infrastructure to increase the resilience of industrial business operations against disruptive events such as mechanical failure, power interruption, raw material price increases, and floods. The evaluation concluded that hybrid approaches, utilizing a combination of green and gray infrastructure, may provide an optimum solution to a variety of shocks and improve the overall business resilience. The case studies gathered to support this research encompass a wide array of possible applications of green infrastructure. They range from planting trees that cost-effectively remediate contaminated soil (phytoremediation), to constructing wetlands that naturally treat industrial wastewater, to mitigating air pollution through innovative forest-management approaches. The hope is this work will influence fellow companies and organisations to pursue green and/or hybrid solutions when financially appropriate. 1 Corporate Vice President Sustainability, Dow Chemical Company 2 Chief External Affairs Officer, The Nature Conservancy 3 Roland Kupers was an advisor to the green infrastructure work. 94 Neil C. HawkiNs aNd GleNN PriCkett efficient control of groundwater due to their rapid growth, high rooting capacity, extensive root systems and high water use. Pipeline projects involve many stakeholders with specific interests and concerns. The pipeline right of way often traverses lands with rights of use belonging to multiple indigenous communities. The indigenous communities are often concerned with the fragmentation of the land and its impacts on the local ecosystem. Therefore, all solutions are strictly reviewed with these local concerns in mind. Advantages: – Lower overall environmental impact, potentially including CO2 offsets – Solutions are known to be superior over time compared to the more traditional stabilisation methods – Hands-on work can be structured as a team-building/educational activity for Shell employees – Job creation for local labour – The solution can be designed to be sensitive to the local environment (e.g. allow access to local wildlife) – These green solutions do not require regular maintenance as compared to gray solutions that often require mechanical intervention (e.g. for the excavation of existing banks or transport of materials) – Low operating and maintenance cost Disadvantages: – Not a one-stop solution, but very much site specific (dependent on soil types, moisture level, light, etc.) – Requires a different skill set for the design and implementation phase – Time constraints: any project would need to be started as early in the winter as possible – Survivability of the planting sites is an important requirement to establish long-term success Identifying areas of opportunity The key differences between green and gray infrastructure are summarised in Table 1 and illustrate the trade-offs involved when evaluating green versus gray solutions. These trade-offs help identify the specific areas of opportunity for optimum resilient infrastructure which are often combinations of new GI solutions integrated into existing facilities, creating tHe Case for GreeN iNfrastruCture 95 so-called hybrid solutions. This evaluation and opportunity assessment was conducted during a meeting of the participating organisations.5 Evaluation criteria Green infrastructure Gray infrastructure Stakeholder involvement extended stakeholders are often required to support the project and may have an active and ongoing role in the project design and operation stakeholders are often engaged with the aim to create local support for the project, but without active involvement in the project design and operation Engineering approach Gi solutions require a custommade, location-specific design and do not lend themselves to standardisation and replication traditional engineering solutions enable standardization and replication which can significantly reduce project costs and delivery times Physical footprint a large physical footprint is often required due to low energy density usually, only a small physical footprint is required due to high energy density Environmental footprint often reduced environmental footprint due to Gi solutions being nature-based and self-regenerating often increased environmental footprint due to material and energy intensive processes (manufacturing, distribution, operation) Speed of delivering the functionality Gi solutions may take time (years) to grow to provide a certain service and capacity traditional engineering solutions provide a certain service and capacity from day1 of operation Susceptibility to external factors Gi solutions are susceptible to extreme weather conditions, seasonal changes in temperature or rainfall and disease Gray infrastructure is susceptible to power loss, mechanical failure of industrial equipment and price volatility Operational and maintenance costs operating and maintenance costs are often significantly lower (only monitoring and feedback is required) operating costs are often significantly higher due to power consumption, operational and maintenance requirements Risk of price volatility Gi solutions are relatively insensitive to fluctuations in the cost of raw materials, oil, gas and power traditional engineering solutions are sensitive to fluctuations in the cost of raw materials, oil, gas and power Approach to system monitoring and control Gi solutions are living and complex systems that can be monitored and effectively managed by a deep understanding of the key control variables traditional engineering solutions are man-made systems that are typically designed with established monitoring techniques to effectively manage and control system performance 5 Hawthorne, New York, October 2012 96 Neil C. HawkiNs aNd GleNN PriCkett Evaluation criteria Green infrastructure Gray infrastructure Required operating personnel No need for 24/7 operational supervision Complex control and safeguarding systems typically require 24/7 operational supervision Expenses for increasing capacity of system relatively inexpensive to extend the capacity of the Gi solution, provided there is physical footprint available extension of capacity could be relatively inexpensive as long as significant modification or redesign is not required Need for recapitalisation recapitalisation during the life of the Gi solution is usually not significant. the end-of-life replacement/decommissioning will vary greatly depending on the Gi technology selected but is usually not necessary as Gi solutions are self-sustaining and do not depreciate Gray solutions are depreciating assets with a finite performance capacity and usually require significant replacement/decommissioning at end of life Key conclusions Assessments of a range of examples, some operating over more than a decade, have clearly demonstrated the role that green infrastructure can play within a portfolio of technology options. GI solutions form an essential element in a portfolio of solutions to increase the resilience of industrial business operations, but do not provide resilience against every potential stressor and therefore benefit from thorough site investigation and management of location specific risks. This is an important caveat when assessing the preferred option or combination of options for a specific situation. The research team found that GI solutions often demonstrate financial advantages compared to gray infrastructure due to a reduction of both initial capital expenses and ongoing operational and maintenance expenses. GI solutions can also be used to strategically recapitalise aging assets. While one might expect that these financial advantages would drive and reinforce use of GI technologies, our research indicates that this is often not the case. The lack of integration into technology capabilities, capital reviews or assessments, champions are required in today’s organisations to investigate and drive these non-traditional, cost-advantaged solutions. Engineers build what they know. “It’s hard to sell a swamp to an engineer”, was a key message from one of the project team. GI solutions offer opportunities, often overlooked in current project assessments, to effectively manage socio-political risks through innovative collaboration with key tHe Case for GreeN iNfrastruCture 97 stakeholders. Yet evaluation of the business case studies showed that a lack of expertise, lack of practical experience and other cultural barriers have hindered the full adoption of GI options with a variety of organisations. This is a critical dimension to address when integrating GI into evaluations of options and technologies. Failure to address this will result in missed opportunities and sub-optimal designs. GI solutions often leverage existing natural resources. For example, as part of Shell’s Natural Reclamation and Erosion Control for Onshore Pipelines project, local plant species are used to construct soil bioengineering solutions. Further, the regenerative processes of GI solutions consume less energy and are thus less sensitive to power loss and fluctuations in the cost of energy, as compared to gray infrastructure. This inherently adaptive capability of GI solutions can be very attractive to reduce ongoing operations and maintenance costs. While this might seem to confer an inherent resilience to GI options, it is not necessarily the case since both green and gray infrastructure resist shocks, but in different ways. Hybrid approaches, utilising a combination of green and gray infrastructure, may provide an optimum solution to improve the overall business resilience. Expertise and experience with both green and gray infrastructure options should be most likely to lead to the more resilient approach for any given project. Organisations which hope to make the most of green infrastructure would be well served by the following considerations. They should employ a more comprehensive economic and environmental footprint analysis relative to traditional models and techniques to more accurately compare green versus gray infrastructure and to investigate, and when relevant, appropriately assess the co-benefits of GI solutions. GI solutions benefit from pilot projects and engagement of external partners to glean expertise, experiences and innovative approaches that can de-risk the GI solution and accelerate implementation. GI solutions invariably require organisations to engage in multi-stakeholder discussions. This is particularly true when building acceptance and consensus with regulators and local stakeholders who may benefit, or be impacted by, a GI project. Since organisations are currently not staffed with the requisite skills nor supported by the culture necessary to bring GI solutions to scale, this needs to be accounted for by either building capability in-house or leveraging others, including NGOs, who have the requisite expertise and experience. Leadership emphasis and change management is required for successful implementation. Through whatever combination of resources and expertise, organisations are advised to build a fit-for-purpose set of capabilities integrating the areas of strategy, innovation, new business development, project economics, engineering and 98 Neil C. HawkiNs aNd GleNN PriCkett environmental sustainability. Green infrastructure, as an underutilised capability, stands to enhance an organisation’s resilience and provide financial benefits as well. Moving forward Dow has undertaken significant efforts to further the use of GI solutions within their operations. A concrete example is Dow’s effort, as a first step in realising the business potential for green infrastructure, in ensuring that the proper tools are available to assess projects. A full retrospective analysis of the Seadrift constructed wetlands (CW) discussed above was performed using two conventional Dow tools, a replacement cost methodology for financial assessment and a life cycle assessment (LCA) for environmental impacts was completed and published in April 2014 in the Journal of Industrial Ecology. The Seadrift cost-benefit analysis yielded a net present value on the order of $200 million. The LCA showed clear advantages for the CW, based on its much lower use of electricity, chemicals, and capital.6 Based on the success of this project, Dow has dedicated staff resources to evaluate opportunities to deploy green infrastructure solutions at sites around the globe, integrate GI solutions as part of its global project management process and create both an internal and external network of GI practitioners building knowledge and experience in this emerging field. Additionally, Dow is working with The Nature Conservancy to continue to explore specific green infrastructure opportunities along with developing and testing methods for businesses to evaluate green infrastructure solutions alongside gray infrastructure solutions. The most promising result to date involves the progress made on the case study mentioned previously dealing with air pollution mitigation via reforestation in Texas, USA. The collaboration team is working with key stakeholders to seek approval of reforestation as a compliance measure for inclusion in the Texas State Implementation Plan (SIP) for ground-level ozone. Letters requesting consideration of the inclusion of reforestation in the Texas SIP have been submitted to the US EPA and the Texas Commission on Environmental Quality. If approval is granted, this could provide Dow and other companies based in Texas with the ability to consider large-scale reforestation as a method to help reduce components that form ozone. The evaluation tools 6 DiMuro et al. (2014) tHe Case for GreeN iNfrastruCture 99 developed to accomplish this pilot study should also be useful to other businesses.7 TNC is working to advance the current science and tools for incorporating GI into coastal hazard mitigation, inland flood risk reduction, urban water supply, as well as for improving water and air quality. TNC scientists, corporate practices and external affairs staff are working with engineering firms, reinsurers and other corporate partners to understand the opportunities as well as barriers to incorporating GI into corporations’ plans for coastal and riverine natural hazard mitigation. As TNC and partners advance the science, tools, processes, policies, and market conditions needed to realise these opportunities, the results from such collaborations will enable corporations to enhance the resilience of their facilities by incorporating GI. As a result of this study, RAI organisations have recognised the strategic importance of green infrastructure solutions and the need to include them among the suite of most effective technology options available to engineers. 7 Further details on this specific effort along with a complete summary of other efforts initiated by the collaboration between Dow and the Nature Conservancy can be found in The Nature Conservancy and Dow (2013). 7 Nexus! Resilience in a pressure cooker Herman van der Meyden1 Nexus! is a board game simulation of an economy that faces energy, water and food stresses. The Resilience Action Initiative developed Nexus! to create an environment for experiential learning. The game energises participants ahead of discussions and allows an easy on-ramp to the somewhat abstract concept of resilience. It is a fun and interactive way to start engagements on the energy, water and food challenge for groups that are new to the topic. For experienced decision-makers, it provides good anchor points for reflection on cooperative behaviours. In a two-hour workshop, participants get to experience tough choices from the interconnections between resources, the resilience of growth strategies, as well as the challenges and opportunities of collaboration. Nexus! has been designed to confront its players with a number of dilemmas that are at the heart of resilience, and give them a direct experience of dealing with the associated ambiguities: – Resilience versus efficiency – Do I buy new assets as fast as I can or do I first build some buffers to guard against unforeseen events? – Local sufficiency versus global trading – Do I try to produce all the resources I need within the boundaries of my own country or do I rely on the global market? – Cooperation – Do I monopolise the available water to maximise my own use in the short term or do I cooperate to ensure a sustainable division of the available resource between all players? – What is success? Players are told the winner will be the one with the most money at the end of the game, which players are free to interpret as maximising their personal wealth, or that of their game table. The game development process The developers of Nexus! have used a rapid-prototyping approach. The idea for the game was first conceived in January 2013. The final product was available in May of that year. In only four months, five different prototypes were built, tested and adjusted. Weekly tests were followed 1 Commercial advisor for Royal Dutch Shell in the Netherlands, and designer of Nexus! 102 Herman van der meyden by a fast evaluation of lessons learned and redesign. This approach combined rapid progress with the incorporation of views from many different stakeholders within the Resilience Action Initiative, who acted as test players. Nexus! has drawn upon experience with the design of the Perspectivity Game,2 a simulation of climate change dynamics. The team further took inspiration from games like Carcassonne, Settlers of Catan and Risk to design the fun factor into the game. In addition, it applied key concepts from the valuable game development guidebook “A Theory of Fun”.3 The element of simultaneous player decision-making, different from most turnbased games, was taken from Diplomacy. Lessons on social gaming were learned from the games Ökolopoly4 and the Horn of Africa Risk Transfer for Adaptation (HARITA) project.5 None of these existing games, however, combined the theme of energy, water and food resources with a design focused on resilience strategies and collaboration. The game mechanics In order to explain how resource interlinkages, resilience strategies and collaboration feature in Nexus!, let’s start with the basic rule set. The game objective is simple: to make your economy grow. The participants play on a board with six teams, which ideally consist of two people each. An independent game leader acts as banker and runs the administration of the game economy. The rules of Nexus! are quite simple and can be explained in less than ten minutes. Three of the teams play the governments of the imaginary countries Twengea, Miristan and Praland. The other three teams direct the games’ companies. The countries are responsible for building and maintaining cities. The companies build farms, power plants and other infrastructure. The economic activities are interconnected through units of energy, water and food. 2 Perspectivity Game (www.perspectivity.org/game) 3 Koster (2005) 4 On Ökolopoly (Ecopoly – A Cybernetic Environment Game) and its author, Frederic Vester, a German biochemist and an expert in the field of ecology, see http://de.wikipedia.org/ wiki/%C3%96kolopoly (in German). 5 IRI (2010) nexus! resilience in a pressure cooker 103 While the rules are not very complicated, the game leader purposefully presents them at brisk pace during the 10-minute introduction. Most players really struggle to grasp them and are forced to start playing with a very limited understanding. In addition, the rules are not fixed and evolve during the game. These design elements put the players in a position where they need to deal with uncertainty. It makes applying simple tactics based on forecasting future developments next to impossible. This simulates the turbulent behaviour of systems at the energy-water-food nexus, and the often ambiguous ‘rules of the game’ in the real world. 110 Herman van der meyden a strong knock-on effect as collaboration on other issues also deteriorated rapidly thereafter. Finally it appears that success in the game is not much correlated to the level of education or professional development of the participants. More important than the game outcomes, most participants have left the Nexus! sessions with a better appreciation of resource linkages, a deeper insight into resilience dynamics and richer reflections on how their individual behaviour can help shape systemic cooperation. It proves to do an excellent job in providing the intended fun on-ramp into the world of resilience theory. 8 Getting to resilience from the bottom-up Thekla Teunis1 Some people see the world as it is and ask: What can I do? Young people see the world as it could be and say: Together we can. – Paul Polman, CEO of Unilever, paraphrasing George Bernard Shaw2 Corporations as centrally governed structures themselves, have a tendency to view the world as being composed of large chunks. These chunks are in turn governed by authorities who establish policies and fund projects. When reflecting on resilience, the natural tendency is to focus on large projects that would enable a particular city or region to cope better with the stresses it may be exposed to. To complement this reflex towards top-down change, a project was initiated to explore how bottom-up projects might contribute as well. Young professionals from the Resilience Action Initiative (RAI) companies were invited to design and implement solutions to increase the resilience of the areas they are living and working in. The project worked. As we have seen in several large cities in 2013, bottom-up initiatives can help corporates to find new business models for collaboration. The Resilience Action Initiative has sparked a movement of young professionals who act as local changemakers all over the world across company fence lines. Connecting people from different backgrounds and jointly generating action can help to build trust-based relationships locally. The skills, passion and expertise of young professionals can be leveraged to start and scale new collaborative business models addressing the energy-water-food challenges. In Rotterdam young professionals finalised business cases and presented and launched three pilot projects, on the subjects of ‘edible walls’, a ‘floating greenhouse’ and ‘clean driving’. The edible wall pilot has led to a spin-off company that will scale the concept, starting in Rotterdam. This success led to initiatives from young professionals elsewhere to set up similar projects. 1 Business developer at the Ecosystem Return Foundation in South Africa and Director Africa for the Land Life Company. Previously Thekla Teunis worked for Shell in Group Strategy, where she co-developed the RAI bottom-up programme. 2 Polman (2013) 112 Thekla Teunis Initiatives are underway in South Africa, the Philippines, and other cities in the Netherlands. Next to selecting and identifying projects to increase resilience from the top, corporates can invite individuals from within companies to incubate a solution when there is a need and enthusiasm. This can become a bridge to move from global issues to real action on the ground, provided there is sufficient training and support. The focus should be on leadership development, building local trust by co-designing projects with local players and by generating chains of local joint success/actions rather than solving the entire issue at once. This way small solutions can be replicated rapidly, to get the action where the opportunities are. The first section of this chapter describes a broader trend of bottom-up initiatives. In the next section, the specific developments of social innovation, which were sparked from the Resilience Action Initiative, are described. Finally, I give a perspective on how corporates can use bottom-up innovation to create a competitive advantage, while also touching upon some of the key intrinsic challenges of bottom-up innovation. Fading boundaries and stronger horizontal and local networks Young people are less reliant on traditional institutions like governments, NGOs, corporates or political parties to create impact. This could be witnessed with the Arab Spring and the Occupy Wall Street movement. Bottom-up initiatives develop against a backdrop of increased responsibility, fading corporate boundaries and stronger horizontal and local networks. We are becoming increasingly aware that solutions to our global challenges must purposefully engage youth, at all levels – locally, regionally, nationally and globally. This generation has the passion, dynamism and entrepreneurial spirit to shape the future. – Professor Klaus Schwab, World Economic Forum Founder and Executive Chairman Several factors have led to an increased sense of responsibility from people within existing institutions, and in particular corporates, to act for the better and improve the state of the world. These are the visibility of negative effects of the way we manage resources; the increased empowerment mainly driven by financial independence for individuals to react to this GeTTinG To resilience from The boTTom-up 113 and mobilise their peers via social network sites to protest against existing policies and institutions; as well as the inability of existing institutions to address these challenges alone. If we all act together, business, governments, NGOs and citizens – and especially the young – just imagine the good we could create. We not only need the help the young can give us but their enthusiasm, ambition, drive and ideas, too. Today over half the world’s population is under 30. […] There is a new, more entrepreneurial spirit among today’s young people. Young people have the opportunity, the responsibility and duty to be the catalysts for change. They all have the potential to be leaders and changemakers. – Paul Polman, CEO Unilever CEOs like Paul Polman of Unilever are front-runners in showing what is possible – and show that these changes can go hand-in-hand with direct business interests. At all levels individuals are responding. Within corporates social intrapreneurship is the new buzzword – intrapreneurs are people who act as social changemakers from within existing corporates. At the same time, corporate boundaries are fading. Challenges are increasingly interconnected. By solving an energy shortage, a water shortage can be created – because most forms of energy production require water. When producing ‘clean energy’ from biofuels, large amounts of arable land have to be planted with energy crops – land which otherwise could have been used to produce food. Therefore, companies can take a competitive advantage when they operate across their traditional vertical boundaries. Shell is growing reed beds in Oman to green the desert, using wastewater from its oilfield operations. Utilities in Europe and the USA develop apps for their customers to be able to bring down their energy demand. Coca-Cola invests in ecosystem restoration to improve water catchment in areas where they bottle their drinks. An important driver for bottom-up innovation is the development of stronger horizontal and local networks. Most of these networks are enabled through the Internet. The demonstrations at Tahrir Square in Cairo were not organised by one single leader, but by the local community as a whole. And they were supported by the global community – through social media. These events showed the world that many small initiatives, organised by individuals who feel responsible and act across traditional institutional boundaries, can have a tremendous impact – and are very difficult to manage from within the traditional response framework. 114 Thekla Teunis How to engage with a movement, when you don’t know whom their spokesperson is? Local and horizontal networks create an entirely new way of doing business with a focus on sharing rather than having. A prime example is Airbnb, which is becoming a threat to the hotel industry by offering low-price accommodation within large cities by people renting out their own home.3 Also car sharing is becoming increasingly popular.4 The sharing economy is based on local and horizontal networks, operating in the absence of large head offices and associated vertical structures, based on trust between individuals. In this world it doesn’t matter which company you work for and which title is on your business card – it matters what you do with it. Against these trends, the development of bottom-up initiatives to increase resilience is a natural phenomenon. It sparks from the increased sense of responsibility of employees working for large corporates, who feel their own responsibility to make their local communities more resilient to energy-water-food stress. It also sparks from the interconnectedness of these challenges and the realisation that it is impossible to tackle these challenges in isolation. Lastly, the existing horizontal networks support informal local collaboration to address these challenges in unconventional, bottom-up structures. What would a world look like if networked, horizontal, local initiatives become the standard rather than the exception? If individuals take more responsibility for their environment? If corporate boundaries are fading such that a person’s skills and expertise for a certain job become more important than their rank or seniority? This is a world in which corporates (and governments) are structures along which knowledge, resources and networks are shared and in which society’s challenges are addressed. Every company and every country is managed through the lens of social enterprise – aiming to minimise the costs of social and environmental externalities, and to have a net positive impact. There are billions of self-employed, highly skilled and flexible workers, who deliver on a demand basis, locally embedded but globally connected. A sense of meaning and trust-based relationships, more than a sense of status and financial reward for performance, will attract the 3 Airbnb has served 9 million guests since it was founded 5 years ago (in 2009), and has doubled the number of guests from 2012 to 2013. Techcrunch.com 4 The number of carsharing members in the US and Europe has grown from 1 million in 2009 to 3 million in 2012 and is expected to grow to 10 million in 2016 (Rocky Mountain Institute [2010]). GeTTinG To resilience from The boTTom-up 115 highest talent to deliver a certain job. Talent will search for the most challenging issues, with the highest societal relevance (meaning a positive environmental and social impact). They will seek institutions that stand out as taking the responsibility to act – because there they find a match with their values. The millennials leverage their own networks. All they need is space and the freedom to decide how best to spend their time, with whom to connect and where to do work.5 The bottom-up perspective significantly challenges existing corporate business models. It requires a shift from upscaling towards downscaling: rather than looking for a country-wide solution to address all challenges at once, start small and replicate successful approaches quickly. It needs a shift from short-term thinking to meet this quarter’s targets to longer term thinking to serve the consumer’s needs 20 years on. It also needs a shifting perspective: rather than looking forward, looking around. What solutions and opportunities are already available? But most of all it needs a shift in the way the company is managed. Creating space for social innovation means creating time for employees to work on this, making this an integral part of their job. This implies creating the right incentives, as well as a high level of trust. Initial results Under the Resilience Action Initiative, a programme of bottom-up innovations has been rolled out in multiple locations. In the programme, Shell young professionals mobilise their peers from other multinationals, NGOs and city government as well as local entrepreneurs. Together they make a plan to increase the resilience of the community in which they are living and working, and realise it. The approach is highly action-oriented. The projects need to have tangible results within one year, results that you can touch and feel, while at the same time they need to have a sustainable and scalable business case. The teams design their own urban projects from scratch, based on the demand from the city and their most critical issues with respect to the nexus, their own capabilities and the passions of the individual team members. Pilots are run by local project leaders on a voluntary basis. They chair a cross-functional team with other young professionals from different companies and government/civil society to run the projects. Funding require5 PwC, University of Southern California and London Business School (2013) 116 Thekla Teunis ments are small in the first year (€5 to €50k per project) – funding is the responsibility of local project teams and can be organised from companies, government and/or other investors. Once the projects achieve scale, they can lead to start-ups or can be incorporated in existing businesses. A central programme manager provides support to local project team leaders. This support involves a link to strategy, knowledge on resilience/ nexus and process such as how to manage a bottom-up project. The programme manager facilitates peer-to-peer connections and knowledge sharing between different projects worldwide. Example: Edible walls Young professionals from Shell, Yara, McKinsey & Co and IBM helped schools to build ‘edible walls’ to make children aware of their own role in local sustainable food production and to make them see the connection between food production and use of energy and water. Innovative? On 27 September 2013, 20 children from Rotterdam opened an edible wall at the Klimop school in the north of Rotterdam. Since then, kids at the Klimop can eat from the walls of their school. “Everywhere around the world you find vertical gardens, but producing food vertically is still unexisting. Except for now, at these two schools in Rotterdam”, says Charlie Minter, local project leader from the National Thinktank. “We should be proud of this!” Getting started The schools were happy to collaborate on this initiative. Kids design and plant their own vertical vegetable and fruit garden with strawberries, herbs and berries. They learn to take care of the wall and the crops, how to prune and harvest, and thereby they become more aware of how fruit and vegetables are being produced. Thekla Teunis from Shell explains: “With this project we want to make children and young professionals aware of the fact that they can contribute to increasing the resilience of the food supply chain, with a tangible local project. To realise this initiative, Shell worked together with young professionals from Yara, McKinsey & Co., IBM, Stichting Move, the National Thinktank, the Rotterdam Climate Initiative and STEK urban garden shop in Rotterdam. All organisations care about making children and young professionals aware of their own role in local and resilient food production. The interlinkages between energy, water and food production play an important role in the project. Edible vertical walls are water-efficient and you need less energy to get the food on your plate than when you transport it from the other side of the world.” GeTTinG To resilience from The boTTom-up 117 The founders of the initiative are seeking to expand it to other schools, individuals and public spaces in the city. To be able to expand the initiative, the costs need to be reduced. Therefore the team is working on developing a low-cost system for the walls. The final ambition is to make vertical urban gardens and food production in large cities worldwide possible. The following criteria were defined to determine what constitutes a successful bottom-up project under the Resilience Action Initiative: – The project contributes to increased resilience in terms of energy-waterfood issues. – The project is tangible and doable: it is designed and executed by young professionals from within multinationals, linked with local entrepreneurs. – The business model is replicable. – It leads to a spinoff business and/or is incorporated in a government or multinational. The participating institutions are seed funders/shareholders in the initiative locally. – It is a collaborative effort; preferably there is a mix between public and private sector investors. – The young professionals consider their experience in the project useful and indicate they have learnt new ways of collaborating across the fence line. The objective is to generate sustainable and scalable business models. This is done by developing a funnel of ideas through a stage-gated type of funnel. The project coordinators receive a step-by-step guide to managing the team through this process. Project generation funnel Phase Time Long list of project ideas Shortlist of top 5 ideas Feasible ideas; interest from companies Ideas with business case Funded pilot projects Spinoffs into real business Kickoff ½ day Kickoff ½ day Validation 1 month Business case 3-4 months Execution 3-4 months Scaling … 118 Thekla Teunis After the small but inspiring project in Rotterdam, young professionals started similar initiatives in other locations. In South Africa, concrete project ideas were developed for designing more resilient housing, creating a movie to raise awareness around energy, water and food stress and a creating a market where farmers can not only exchange products but also knowledge on sustainable farming practices. One of the projects is being executed. It focuses on collaborative business models for restoration of degraded land. Around 20% of the world’s ecosystems are threatened and this situation is worsening with an alarming speed. Healthy ecosystems are critical to increase the resilience of local communities, and ecosystem services like agriculture, carbon capture and water are highly valuable for businesses as well as government. The good news is that this degradation can be reversed by actively restoring landscapes. This pilot aims to make the match between the local business community (including the young professionals from the RAI companies) and an existing initiative on ecosystem restoration in South Africa. The purpose of the project is to actively create an innovative sustainable business case for ecosystem restoration and sustainable agriculture in the area, in partnership with the academic, NGO and business communities, and to explore the potential for collaboration in other areas. Key to the approach is to start creating action on the ground and learn from what has already been done locally. If successful, the approach can be scaled and rolled out to many other areas in which the participating companies have critical business interests. In Groningen in the Netherlands, young professionals from Shell are working with a team made up of all kinds of backgrounds and industries. The project focuses on consumer energy efficiency for disadvantaged communities, energy-efficient lighting and reducing food waste. Existing food box initiatives, supplying organic food on a weekly basis to customers, will be linked to available food waste in the city. The project team has identified new customers segments for these boxes in socially disadvantaged communities, but also via employees of the corporates. The leaders of the initiative state: “We set up this initiative after an inspiring story from our colleagues in Rotterdam, on stage during the Shell Ecomarathon. The idea that they had been able to achieve tangible results within one year to actually increase the resilience of Rotterdam in a collaborative effort inspired us to set up a similar initiative here. The experience has contributed to our leadership skills in the following ways: GeTTinG To resilience from The boTTom-up 119 – Contact with a very diverse group of stakeholders from the city where we live and work. – Having a broad perspective for tackling complex issues and creating connections between existing initiatives. – Generating enthusiasm and supporting a group of young professionals with a wide variety of backgrounds and interests.” The ultimate goal of this programme will be to build a movement of changemakers. The ambition is to scale up to 50 successful projects in 2016. In one location, several projects can run in parallel. To strengthen the collaborative character of the initiative, young professionals from other multinationals are invited to become project managers as well. Main lessons What went well Young professionals in corporations respond with great energy to being given the opportunity to create and execute innovative ideas. Selecting people on enthusiasm, and empowering them to get on with the job, accelerates the process and deepens motivation. Basic project management competence always matters, including being clear about timelines, responsibility and deliverables. External stakeholders, in this case from the city administration, were involved from the very beginning and the team worked with others with diverse perspectives, such as impact investors. Barriers to overcome Inevitably there was a large attrition rate amongst projects, with about one in five projects making it from kickoff to realisation. This was due to a wide range of causes, including lack of support from the line managers, poorly articulated goals, inability to attract funding or simply not enough time and energy. The most promising initiatives were chaired by the project leaders themselves, with a strong commitment to achieving impact. A few recommendations Addressing differences in company culture and way of working upfront during one of the first meetings helps. Seed funding is always a challenge for entrepreneurs, but in this case arranging some funding upfront from existing budgets within the corporates helps. These funds can be used as matching funds to accelerate piloting of potentially successful ideas. Only 126 Simone Arizzi, mAximiliAn egger, DAwn rittenhouSe AnD Peter williAmS These can then act as catalysts for resilience thinking, which hopefully over time becomes integrated into the organisation. For the RAI companies, defining the organisational anchors for resilience is very much work in progress, and will require different solutions depending on the respective organisational structure and culture. Whichever organisational home is found for resilience, there is also a risk that without collaboration across the organisation such an approach may also confine resilience to its own organisational ‘ghetto’ with no real influence over day-to-day activities. Lesson 5. Traditional business metrics do not capture resilience Businesses like metrics. They help focus and measure progress. However as we’ve seen in previous chapters, resilience is not easily captured in simple metrics, particularly as the desirable level of resilience should vary with time and context. In some cases a purposeful decrease in resilience may be necessary, such as when change is needed and rigid structures should be dismantled to allow for renewal. Advisors to RAI guarded against an early and hurried adoption of metrics, as potentially being counter productive. Still, the lack of clear resilience metrics is a problem for businesses, who need metrics to focus management and effort. The challenge in establishing clear resilience metrics then translate in a difficulty for businesses in engaging on the topic at the operational level. The tools described in Chapters 2 and 3 will lead to identifying solutions and actions to address the resilience of the particular system under consideration. Once a project is defined, one may revert to more traditional metrics to drive to results. Too narrow a focus on those results holds the danger that the project misses its target, as interactions and external factors may well require adjustment. For example, Chapter 6 describes the challenge of realising and scaling ‘green’ infrastructure projects, as these require more adaptation to an evolving context than the ‘grey’ infrastructure projects they aim to replace. Businesses need to be aware that traditional metrics do not capture resilience, and that a set of appropriate metrics for it will evolve naturally over time, based on a more sophisticated appreciation of risk and mitigation. However by applying the appropriate resilience tools, the required practical project priorities can still be set. Lesson 6. Companies struggle to take the required long-term perspective Private companies are constantly under pressure to deliver short-term performance, while keeping an eye on the long term. Both direct risks to themselves, and the broader risks of losing alignment with the concerns CorPorAtionS AnD reSilienCe 127 of society should worry them. The resilience lens helps to shine a light on both these threats. With some notable exceptions, the private sector has a tendency to ignore risks that it finds too uncomfortable, at least until some event forces an even more uncomfortable confrontation with reality. That is however starting to change. The SEC now requires publicly listed companies to report material environmental risks; the 2010 flooding in Thailand seems to have had a salutary impact in showing what can happen, especially to JIT supply chains that have been denuded of buffer stocks in the interests of efficiency; and the compilations of data from the insurance industry, EM-DAT and others, showing the trend in natural disasters are also having an impact. RAI itself is an example of companies engaging with the longer-term issues of society and how they can add value by providing new types of solutions. Lesson 7. Financing resilience requires new business models The benefits and costs of resilience actions accrue in different patterns over time – and to different stakeholders. This makes financing more resilient solutions difficult. It is perhaps a truism that governments’ propensity to invest seems to be directly related to how recent and how severe the last extreme event was. To a certain extent this is true of companies as well. When looking to increase the resilience of socio-economic systems, all these challenges are compounded: It requires a longer-term perspective, it requires a way of considering risk distributions that do not follow normal patterns as described in Chapter 3 and it requires a way to transfer value over time. These challenges have no simple solutions, but acknowledging them and making them an element of collaboration for resilience is helpful. Companies themselves can act by expanding their risk management frames, as some are already doing with the advent of supply chain problems. The Center for Resilience at Ohio State University is one example where tools are being developed to help companies execute this better.5 It became clear in several pilot projects that addressing resilience will require new business models and in particular new financing approaches that help address these shifting benefits and costs. Lesson 8. Resilience requires a systemic perspective – and that is not easy for the modern business organisation During RAI implementation work it was apparent that people from various walks of life – once introduced to the resilience topic – would readily see 5 Fiksel (2010) 128 Simone Arizzi, mAximiliAn egger, DAwn rittenhouSe AnD Peter williAmS the negative consequences of its absence and would spot different effects depending on their background or aspects important to their situation. On the other hand it is much harder to act for the prevention of the negative impacts of unforeseen, unusual or unscheduled events. Much of the difficulty stems from the fact that resilience requires taking a systemic perspective. Companies are often successful because they have perfected the art of adequately resolving a specific and difficult problem in a consistent and predictable fashion, treating it in relative isolation. Yet taking into account all the factors that can influence the problem, and collaboratively delivering solutions that are also adaptable over time, is a very big change, both in capability and also in mindset. Resilience will require a stronger capacity to recognise the impact of the broader systems perspective. Conclusion In this chapter we have described some lessons that we offer to future actors and stakeholders who will work in the implementation of resilience approaches to mitigate various stresses. By and large these were the result of hands-on experimentation carried out by motivated individuals from about a dozen multinational companies over two years, in the form of pilot projects. For companies themselves, resilience must be a matter for shareholders, supervisory boards and top management. It is the chairmen and chairwomen, the CEOs and the CFOs together with shareholder representatives who must all take a resilience lens, to look into the future of the companies they are responsible for. As we’ve seen, this requires familiarity with the new lens of resilience, the adoption of new tools and an expansion of risk management frameworks. Doing so will not only be helpful to the companies, but will also be the platform for being able to engage with customers and stakeholders to address societal resilience issues. Companies that adopt a resilience lens internally, will not only be doing their fiduciary duty of safeguarding the companies’ interests, but they will also be more attuned to emerging societal and customer needs and opportunities. Our world has become complex, multi-faceted, globalised, fast as well as interdependent. Manufacturing and trade, education and prosperity, finance and administration, politics and business, urbanisation and environment, welfare and demographic change, and another endless list of aspects bind us together or make us struggle with each other across the CorPorAtionS AnD reSilienCe 129 globe like never before in history. It is clear that increasingly we face similar problems. It is also obvious that one can’t solve these challenges alone. This complexity needs an equally sophisticated approach to solutions – a common approach. Therefore – and again, we refer to the extreme events of recent years – and to the experiences during our RAI implementation work – to strongly advocate more collaboration and joint action of private and public stakeholders. Company owners and managers and state and local government officials need to form a new joint vision and implement coordinated resilience strategies to safeguard welfare and prosperity in the face of the energy-water-food nexus. What our experience has shown is that implementing resilience also requires openness to novel formats of collaboration for solutions to be successful. In the future we may well first see working platforms that evolve on bilateral or local level. National awareness, regulation and facilitation could come from heads of state and business leaders, ministerial offices and business associations. In its magnitude and quality what we advocate may well represent a new era of broader collective action between private and public stakeholders, and make a significant contribution to prosperity for a growing world population. Epilogue Brian Walker1 The Resilience Action Initiative is an example from the corporate world of developing an adaptive approach to a difficult complex systems problem. It does not adopt a fixed policy approach; it assumes that learning by doing is necessary and that policies and management must change. It is therefore very much in line with resilience thinking and – for those involved in developing resilience ideas and theory – it is a very welcome initiative. What kinds of things does a ‘resilience approach’ call for? The best way to answer this is with an example, and so I’ll start by using one with which I’m familiar. But first let me be clear about how resilience is defined and used by scientists, because it differs somewhat from those used by practitioners earlier in this book. The formal definition is “the capacity to absorb disturbance and reorganise so as to retain essentially the same function, structure and feedbacks – to have the same identity”. More informally, a usable definition is “the ability to cope with shocks and to keep functioning in much the same kind of way”. The example I’ll use to illustrate a resilience approach is how best to use the resources in the Murray-Darling Basin (MDB), Australia’s most important agricultural region. With 60,000 farms, 15,000 of them using irrigation, lots of towns and villages and three big rivers flowing through four states, the MDB is a self-organising, social-ecological system that functions at multiple scales, with strong connections and feedback effects across scales. In its early development, before a proper assessment of the river flows had been made, water rights were over-allocated, and now in drier years there simply isn’t enough water to allocate farmers’ full rights; and if those water off-take levels were to continue the rivers and their floodplains would die. This led the states and the federal government to form the Murray Darling Basin Commission, to manage the water and determine how much ‘environmental water’ should be taken back. It produced a ‘plan’ that unfortunately dealt separately with environmental and socio-economic issues. The commission was then replaced by a new MDB Authority (MDBA), which has produced a revised Basin Plan, now accepted by the states and the federal government, addressing how best to achieve necessary levels of diversion of water from irrigation back to the environment. It considers 1 Chairman, The Resilience Alliance 132 Brian Walker the environmental, social and economic interactions arising from proposed changes in water allocations, in a resilience context. The approach it is adopting is a work-in-progress, but involves the following: It begins with developing an agreed, explicit description - a ‘conceptual model’ - of the ‘system’. This is not trivial, because different players and stakeholders have very different understandings of what is really important, what is ‘in’ and ‘out’ of the system, how it works, and what is really important. Developing such an explicit mental model emphasises things that are often ignored or not appreciated, like who are the key players/stakeholders? What are the critical scales at which the system functions? What time scales are important to everyone? What do people value – the resilience of what? Working through this develops an awareness of issues such as: – You cannot understand or manage the system at one scale; a common mistake. Like all complex systems, the MDB is a multi-scale, linked social-ecological system and the connections across scales are mostly what cause both social and ecological problems. Everyone needs to appreciate this. – Resilience, per se, is neither ‘good’ nor ‘bad’. Undesirable states of systems can be very resilient (dictatorships, saline landscapes). Sometimes it’s necessary to reduce resilience, in order to effect a positive change. – Making a system very resilient in one way can cause it to lose resilience in other ways, at other scales; there is often a trade-off in managing for resilience. – The ‘rule of hand’: At any one scale there are no more than three to five critical controlling variables – the things that really matter. As the evolving description of the system proceeds (there will never be a final, complete version), three components of resilience are considered. They are presented briefly below, but a fuller account is given in Walker and Salt (2012): 1. The existence of thresholds (discontinuities) in the behaviour of a system. 2. The capacity to deal with disturbances and to manage and change, or to avoid, thresholds. This is known as adaptive capacity, or general resilience. 3. Transformation capacity – the capacity to transform parts of the system into a different kind of system when continuation of the existing one is no longer possible. epilogue 133 I’ll briefly consider each in turn: 1. Thresholds. Two solutions to the over-allocation of water problem are being pursued – buying back water, and becoming more efficient in using it, including reducing losses in canals, and so forth. Putting a resilience lens over this introduces a focus on thresholds. Are there any known or likely discontinuities in regard to levels/supplies of water that would have significant consequences, either ecologically or socio-economically? For example, if a river needs a minimum of X giga-litres of flow for it to retain its biodiversity and avoid becoming eutrophic, there’s little point in buying back water that achieves less than X. That is so obvious that people are already working on it. But there are many other kinds of thresholds that are not so obvious. Some water for irrigation, and increasingly for mining, is pumped from aquifers and in some aquifers, if the amount of water drops below a critical level it results in a resorting of the aquifer bed such that its capacity to hold water is permanently reduced (so don’t exceed that threshold). And there are threshold effects in the industry part of the system. In one of the irrigation regions there used to be three dairy processing plants. As the number of dairy farms declined, milk supply dropped below a threshold for business viability and one of the plants has closed down. Threshold effects also occur in the socio-economic system, such in the debt : income ratio, and in levels of labour supply, so thresholds need to be considered in all aspects of the dynamics of complex systems. A resilience approach, therefore, asks the question: “What and where are possible thresholds?” and “What feedback processes are involved?” How to go about answering this is a large topic, but in essence it involves a focus on the controlling feedback processes that determine the self-organising dynamics. Negative feedbacks have a dampening effect and positive feedbacks amplify any changes. Studies of resilience repeatedly show that thresholds occur where there is a significant change in an important feedback. It can be a change from being small to big, or negative to positive, as critical parts of the system change. In the MDB the feedback changes that have caused most problems have been those between the biophysical and the socio-economic parts of the system; a change in the agro-ecological part of the system leads to a change in the behaviour of people, often elsewhere in the system, and their changed actions then feed back to further changes in the agro-ecological part, and so forth. In working with catchment managers I have found that a useful way of getting engaged has been through developing what are called ‘state-and- 134 Brian Walker transition’ (S&T) models; conceptual models that describe the possible states the system can be in (fertile soil vs salinised; floodplains with healthy regenerating redgums vs without redgums), etc. It starts by asking “What state is the system in now?” and then, “What other possible states could it be in?” Then, for each possible transition between pairs of states, ask the question “Are there any likely thresholds? If so, what is causing them – what feedbacks are involved?” These simple conceptual S&T models can be developed further into quantitative, analytical models for thresholds that are clearly important. 2. Adaptive capacity (managing and avoiding thresholds). Attributes that contribute to resilience, in general, that have thus far emerged from resilience analyses in various parts of the world include: – High functional diversity – units/groups/species that perform different, complementary functions that together keep the whole system functioning well. – High response diversity – different units/species that perform the same function but in different ways, or at different scales. This warns against blind pursuit of increasing efficiency by removing what are perceived as redundancies. – Being modular in structure – avoiding the dangers of over-connectedness (rapid transmission of diseases, malfunctions), and of lack of connections. – Having tight feedbacks – being able to detect and respond quickly to changes as their effects feed back to other parts of the system. – Being ‘open’ – allowing and enabling movement (i.e. emigration and immigration). – Having reserves – biophysical (like seed banks in ecosystems), financial and social (like memory). – Fostering innovation, novelty and continuous learning. – High social capital – especially trust, leadership, social networks. – Equality/equity – high inequity is associated with a range of negative, costly social features (prison rates, obesity, teenage births, etc.) that together lower response capacity and resilience.2 – Adaptive governance – especially overlapping institutions and polycentric governance, and flexible distributive governance. I conclude this emerging list of attributes with a comment on an important misconception about resilience: It is not about not changing. Trying to 2 Wilkinson and Pickett (2010) epilogue 135 prevent disturbance and keep a system constant reduces its resilience. A forest in which fire is always prevented eventually loses the species capable of withstanding fire; the only way for a forest to remain resilient to fire is for it to be burned every now and then. Probing the boundaries of resilience is necessary for maintaining and building resilience. To help in thinking through these resilience attributes, and which of them might be important, it is useful to do it in parallel with the attempts to develop the set of possible threshold effects. 3. Transformation. Transformation and resilience are not opposites; they work together across scales. For the MDB to continue into the future as an agricultural system delivering high levels of human wellbeing, not all the parts of it can continue doing what they are doing now. Some parts of the Basin will have to transform. Some farms will have to change from being irrigation farms to some other kind of enterprise. Transformability, the capacity to transform, involves three steps: First, getting beyond the state of denial (people hate fundamental change, and they resist it – sometimes until it is too late for other options). Second, identifying and creating new options, new trajectories for the system. This puts a focus on experiments and novelty, trying new things knowing that many will fail, and it emphasises the need for the next step. Third, developing the capacity to change, which depends on the levels of all the five capitals (natural, human, social, built and financial) and, especially, on governance and support from higher levels (like government). My experience with regional groups attempting to undergo real change suggests that under the difficult conditions when transformation is called for, government assistance is very often in the form of help not to change, rather than help to change. Transformation failure seems mostly due to inappropriate or poor governance. Conclusion I conclude with an evolving set of lessons about how to build resilience, and an observation. The lessons – Don’t try to aim for some ‘optimal’ state; learn to ride the system piggyback (‘guided self-organisation’, adaptive management and governance) – Learn about thresholds, to avoid unwanted states 142 AppenDix Key Learning – The gray solution appears easier to control and manage but the longterm economic and environmental benefits of the green solution makes phytoremediation a technology that needs to be added to the portfolio of solutions when dealing with groundwater contamination. Dow: constructed wetland for waste water treatment Source/organisation: union Carbide Corporation, subsidiary of the Dow Chemical Company Scale: Large – 110 acres within the fence line of union Carbide Corporation’s Seadrift Operations Key stakeholder(s): union Carbide Corporation; The Dow Chemical Company; regulatory body: Texas Commission on environmental Quality (TCeQ); Dow ‘near neighbours’ Community Project phase: Fully operational (in operation for 15 years) Geographical location: north Seadrift, Texas, uSA Project overview Seadrift is a large industrial complex containing several manufacturing units involved in the production of plastic resins and other organic chemicals. Waste water from the facility and storm water captured in containment areas are routed through the wastewater treatment system. The original water treatment system consisted of primary/secondary (anaerobic/aerobic biological) treatment ponds and a shallow tertiary pond which is approximately 267 acres with water depth ranging from 1 to 4 feet. The tertiary pond is basically operated as a solar stabilisation pond (no active mixing). Lower organic loads and long detention time within the aerobic section and tertiary pond resulted in ideal conditions for phytoplankton (floating algae bloom). This resulted in exceedance of the plant’s discharge permit criteria (40 mg/l) for total suspended solids (TSS) and required extensive pH adjustments. This project was driven by the necessity to meet EPA Effluent Guidelines for OCPSF (organic chemicals, plastics and synthetic fibres; 40 CFR 414) facilities with regards to TSS. Several alternative treatment options were investigated. A pilot-scale constructed wetland project was successfully completed onsite (roughly one 144 AppenDix year of data prior to launching the full-scale project). The conversion of part of the tertiary pond into a constructed wetland was implemented in roughly 18 months and has been in full operation since then, meeting all discharge requirements for TSS, eliminating the algal bloom issues and additionally eliminating the need to adjust discharge pH (previously done around the clock). Technology maturity Fully proven. Investment/costs/time – 1-2 year pilot study; small constructed wetland in operation in a sister plant in Mexico City. – Fully operational 18 months after the contract was awarded. – Initial capital investment $1.2 to $1.4 million with maintenance/operation costs dramatically reduced. Project management considerations – Driver: reduce operational and maintenance cost while ensuring longterm compliance with EPA effluent guidelines (OCPSF). – Upper management champion played an instrumental role in making this project a reality; data speaks for itself, therefore pilot study a good approach (“selling a swamp is not an easy task”). – Project selection criteria: capital expenditures/time to install/ease of implementation/ease of operation. Benefits – 100% compliant from day zero for over 15 years while eliminating the need to adjust pH. – Low initial and operational capital required ($1.2 to 1.4 million as opposed to $40 million for gray alternative). – Low energy and resource requirements with the corresponding environmental benefits – minimal equipment, no pumps, no additives, no oxygen system, no added water, no bio solids to handle or dispose. – Operational support drastically different as a wetland requires minimal support from operations and maintenance, while the gray alternative requires 24/7 support. – Construction and implementation time reduced. – Co-benefits identified but not valued: positive impact on ecosystem (provides habitat for wildlife/educational opportunity and other soft benefits to Dow personnel and local community). DOw: COnSTruCTeD weTLAnD FOr wASTe wATer TreATmenT 145 Risks/challenges – Potential new regulations (such as coliform bacteria). – Criteria for application of this technology: compliance with applicable regulations, water quality, salinity and large on-site physical footprint (this system would require 50 acres as opposed to 4 to 5 acres for gray alternative). – Biotic stresses (nutria/alligators/bobcats, etc.) are the main disturbances that the system has to manage. – There is always the potential risk that a threatened or endangered species might be found in the wetland. In the case of Seadrift, this is unlikely as none of the 46 threatened or endangered species listed by the State of Texas in the vicinity of the constructed wetland would be expected to occupy this habitat. Resilience aspects – Self-organising process – the wetland does not look like what was built. Now a diversified biota from plants to micro-organisms increasing the built-in stability of the mini-ecosystem to respond to fluctuations. Biodiversity is much greater in the constructed wetland than the microbiology found in conventional waste water treatment plants. – Innovation: looking to recycle the water to attain zero discharge. – Building understanding and management practices of ecosystems dynamics (learn to switch from operate to manage mode and to leave it alone). Key learning – A win in all aspects (no waste; no energy; no 24/7 operation; no landfill; safer; meets permit 100% of time at a fraction of the cost). – Must expand the project boundaries to fully account for all benefits such as ecosystem services (life cycle costing). – Green infrastructure projects require different technical skills than the traditional gray alternative. – Since green infrastructure solutions were not widely accepted when this was adopted, it required someone with passion to really drive and support the project. Upper management buy-in was a must. – Need to have data to support a green infrastructure – this may point to needing more pilot-scale work in the general area of green infrastructure. – The proper assessment of the ‘full value’ of the green infrastructure may help in the alternative assessment process and push green infrastructure project over gray ones. Dow/TNC: air pollution mitigation via reforestation Source/organisation: The Dow Chemical Company and The nature Conservancy Scale: Local, regional Key stakeholder(s): Dow plant management, environmental protection Agency (epA), Texas Commission on environmental Quality (TCeQ), conservation community Project phase: research and evaluation stage Geographical location: houston-galveston-Brazoria (hgB) area near Dow’s Freeport Texas Operations The Dow Chemical Company Project overview This project will produce a methodology for the use of reforestation for air quality maintenance or enhancement instead of, or in addition to, reducing emissions through end-of-pipe control technology or changes in operations. Forests could be part of the solution by modifying the environment and removing pollutants from the air. Dow Texas Operations is located in the US Environmental Protection Agency (EPA)-designated Houston-Galveston-Brazoria (HGB) non-attainment area for ground-level ozone. The HGB region has been in violation of National Ambient Air Quality Standards (NAAQS) for ozone since the establishment of those standards in 1979. The HGB area failed to meet the revised 1997 NAAQS for ozone by the 2007 deadline, which has resulted in the mandatory imposition of Clean Air Act (CAA) penalty fees ($5,000/ ton) on all large sources in the HGB area that exceed their allowed emission limits. Technology maturity Early: research and pilot stage. DOw/TnC: Air pOLLuTiOn miTigATiOn viA reFOreSTATiOn 147 Investment/costs/time – 2-4 year pilot study. – Reforestation and other costs TBD. Project management considerations – Identify suitable planting sites and tree species that also yield conservation benefits. – Estimate removal of ozone and NO2 by the reforestation project to estimate total NOx credits the project could claim under the State Implementation Plan (SIP). – Estimate the cost-effectiveness of the proposed green infrastructure solution (reforestation for NOx control) to allow for comparison with alternative gray control methods. The analysis estimated NOx abatement by a hypothetical planted forest, and found it was cost-competitive with the evaluated next round of ‘gray’ technology options that might be deployed should further NOx controls be needed. – Identify and estimate the value of additional benefits green infrastructure options offer. – Need to get reforestation approved as an ozone precursor control strategy in ozone SIP (for the HGB area in this case). – Work with appropriate federal and state regulators to increase likelihood of acceptance of and then ensure compliance with the proposed methodology. Benefits Anticipated: – Reduced costs of additional ozone precursor abatement, if additional control efforts are deemed necessary to achieve compliance with National Ambient Air Quality Standards for ozone. – Improved public services such as recreational opportunities for local residents and visitors and habitat for rare species. – Air quality improvements which could lead to improved human and environmental health such as: • Carbon sequestration by the forest helps mitigates greenhouse gas emissions contributing to efforts to manage atmospheric concentrations of carbon and possibly creating value from pollution offsets or credits. • Reduced ground-level ozone formation (a smog-related pollutant) by mediating the urban heat island effect, leading to reduced energy use for space cooling, resulting in reduced pollutant emissions from power plants. 148 AppenDix Risks/challenges – Reforestation still needs to be approved by agencies as a strategy for air quality compliance. This requires that emission reductions be quantifiable, additional, enforceable and permanent. This requires verification of approaches, validation of the complex models involved and a thorough risk assessment analysis. – Trees naturally emit volatile organic compounds (VOCs), which may lead to increased formation of ozone. This can be avoided if reforestation projects are sited in areas where ozone formation is NOx-limited. – Emissions from tree maintenance activities can also contribute to air pollution, so reforestation projects must be planned to minimise maintenance needs. This is achieved by designing such projects to be self-sustaining early on, using ecologically appropriate species, and planting forests rather than street or neighbourhood trees. – If ex-post verification of estimated pollution removal reveals that actual removal is less than originally estimated, offset quantities would be reduced and the cost-effectiveness of reforestation as a control strategy would be less than originally estimated, and possibly may fall below that of conventional control approaches. Resilience aspects – Adding another option to the solution set increases flexibility while potentially reducing marginal costs. – Stronger collaboration links with regulators increase social and governmental participation and thereby societal resilience. – Forests damaged by extreme weather events or fire require more time to replace than gray solutions. – Gray solutions are susceptible to events such as power loss and mechanical failure. Key learning – This proposal deals with a novel GI solution requiring testing and by in from a multitude of stakeholders and will therefore require a long period of study. – Early stage – to be determined later in pilot, implementation, integration phases. – Using reforestation for ozone abatement has broad relevance: a high share of the total area of ozone non-attainment and maintenance in the US is NOx-limited and thus may be suitable for ozone removal through reforestation. Shell: produced water treatment using reed beds Source/organisation: petroleum Development Oman LLC (pDO): joint venture with The Shell petroleum Company Ltd and the government of Oman (majority) Scale: Large – world’s largest commercial wetland covering more than 360 ha and treats more than 95,000 m3 of produced water per day Key stakeholder(s): government of Oman, BAuer nimr LLC, Oman (a subsidiary of BAuer resources gmbh in germany). Project phase: The plant came online in late 2010. Geographical location: nimr, Oman (nimr is located inland in south-west Oman) Project overview At the PDO Nimr oil fields, a tenth of the total production is crude oil. The remaining production, around 330,000 m³ per day, is water that is brought to the surface together with the oil. This water used to be disposed of by injection into a deep disposal well. To reduce the high costs of treating and re-injecting the produced water, PDO together with BAUER, developed a project proposal that would reduce or eliminate the power consumption and CO2 emissions associated with the operation of equipment for deep well disposal. The solution was a four-tier gravity-based wetland design. As gravity pulls the water downhill, the reeds act as filters, removing oil from the water. The oil is eaten by microbes that naturally feed on hydrocarbons underground. Locally grown Phragmites australis plants are used for the purification of produced water. The composition of the produced water from the Nimr oilfield is brackish; with total dissolved solids (TDS) 150 AppenDix ranging between 7,000 mg/l and 8,000 mg/l, and the oil in water content varies between 100 to 500 mg/l. The plant layout includes a pipeline, which enters the NWTP system and leads to an oil/water separator. The water is then distributed into a wetland facility where it is channelled through four wetland terraces by gravity feed. Finally, evaporation ponds are used to recover the salt while the biomass is land filled. Alternative uses of the water and biomass that could offer a variety of environmental and socio-political benefits are being explored. The constructed wetland is designed to treat 95,000 m³ per day (30% of the daily volume of water produced by the oilfield). The facility was constructed under a build-own-operate contract and as such, BAUER designed and built the facility and is now operating it for a 20-year period. As with every effluent treatment plant, the subsoil must be properly sealed. In selecting suitable sealants, synthetic materials were rejected in favour of a natural product. The surrounding desert areas were searched for suitable clay until an appropriate sealant mixture was found. A pilot study was used to evaluate and optimise reed bed efficiency. The reed beds have proven to be capable of efficiently, and cost-effectively, handling the treatment of the produced water from the Nimr oilfields. Technology maturity Proven; fully operational since late 2010. Investment/costs/time – The project required a pilot study of more than 2 years. – The wetland was fully operational 2 years after the contract was awarded. Project management considerations – Project selection criteria: capital and operational cost reductions, lowering the carbon footprint. – Construction time of the wetland was roughly half of the traditional, gray infrastructure. – Pilot studies involved recording and determining temperature, evaporation and evapo-transpiration rates as these can highly influence the performance of the constructed wetland. – Pilot studies also investigated throughput parameters like retention time and hydraulic load for winter and summer seasons. SheLL: prODuCeD wATer TreATmenT uSing reeD BeDS 151 Benefits – Significant capital cost savings compared to the man-made produced water treatment and injection facility. – The gravity-based wetland design requires close to zero energy for water treatment, thus reducing power consumption by approximately 98% (for the 30 vol% of water treatment) due to the elimination of electric powered water treatment and injection equipment. Also, the new facility enables an additional crude oil recovery of 200 barrels per day. – Satisfactory water treatment performance ever since the start of the wetland operation (December 2010). The oil content in the produced water is consistently reduced from 400 mg/l to less than 0.5 mg/l when leaving the wetland system. – CO2 emissions reduced by approximately 98% (for the 30 vol% of water treatment) due to the elimination of electric powered water treatment and injection equipment. – The wetlands provide habitat for fish and hundreds of species of migratory birds. Also, the wetlands offer potential for innovative customer value propositions that could provide a variety of socio-political benefits e.g. through by-product optimisation (fresh water, biomass etc.). Risks/challenges – Large required land footprint: more than 360 ha to treat 95,000 m3/d of produced water. – Long pilot period (>2 years) required to de-risk the constructed wetland technology and find the optimum wetland design. – Operational risk of the wetland: potential risk of not meeting the performance requirements due to external factors (e.g. seasonal temperature swings, biotic stresses). Resilience aspects – This system is modular and the capacity can be increased stepwise. – Potential for achieving improved system resilience by increasing biodiversity (using various types of reeds). – The facility makes use of feedback loops for monitoring the health and efficacy of the wetland system. Key learning – Climate data and local soil conditions are essential design parameters. – A champion was required to push this project even with positive results from the pilot study.