Climate Finance Accelerator DAY 5: Financing the Future

On Friday, Government delegations from Nigeria, Colombia, and Mexico presented their climate finance propositions to a diverse group of investors, at the close of the week-long Climate Finance Accelerator.

These engaging read-outs of their learnings marked the culmination of 5 intense days where country delegations worked alongside the finance community to test and develop climate finance plans. The delegations were praised by Aziz Mekouar, from the Moroccan COP Presidency, for “showcasing leadership and forward thinking”, by taking part in this first Accelerator. The delegates themselves showed remarkable progress and cohesion – remarking on how impressed they were with the commitment of the financiers to supporting them in developing bankable pipeline.

The climate imperative for all stakeholders

Private sector, Governments and NGO’s reiterated that there is no alternative to action on climate change. Steve Waygood, our host from Aviva, spoke of climate change as a business imperative with Aviva committing to invest £500m annually in low-carbon infrastructure projects and actively diversifying out companies that are not responding to the climate agenda. Mr. Mekouar set the bar high “We shouldn’t speak of climate finance”, he said “all finance needs have a component of climate.”

The countries presented exciting opportunities but showed that there is no ‘cookie-cutter’ approach to financing, even across the same sectors, as each country’s context differed

Miguel Angel Gomez from the Columbia delegation had three key messages for his audience: Columbia has ambitious goals, the institutions necessary to deliver these goals are in place and there are bankable projects underpinning them. He presented a sustainable mobility plan for Bogota that, using the proposed Metro as the core, creates an extended proposition to increase climate impact by integrating with other modes of transport such as cycling. The $4bn capex required is proposed to be funded by a mix of trade finance and green bonds. Columbia overcame the issue of fragmented finance requirements in both energy efficiency and agriculture by proposing an ESCO structure and Climate Smart Ag fund, respectively, that would each aggregate smaller projects into more attractive / “mainstream” investments size-wise. The ag fund was worked out during the course of the CFA as the country delegation and financiers from BNP Paribas and Enclude looked for ways to move away from small, single, idiosyncratic projects likely to be dependent on grants, to more commercially sustainable structures. Colombia also identified $ several billion of further NDC related projects requiring finance, in just the transport, energy and agriculture sectors.

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Giesela Meindez and Daniel Chacon-Airaya presented on behalf of the Mexico delegation. They focused on energy and transport, which together make up 50% of Mexico’s carbon emissions. An e-taxi pilot project to convert 2700 taxis in Mexico City (2% of fleet) and Colima (40% of fleet) was proposed. In addition, through clever structure to reallocate existing subsidies, devised during the CFA as a result of the team’s work with HSBC, a further project to provide solar for 25 million households and 4 million SMEs was put forward.

 

Olukayode Ashuolu from Nigeria’s central-bank sponsored agriculture guarantor NIRSAL, presented an electrifying speech on behalf of the Nigerian delegation. He spoke of his governments’ strong commitment to NDC-related projects, as they are vital for climate compatible development, diversification of the economy and economic and social inclusion. Nigeria’s initial NDC plan has outlined more than $142bn of investment.  Working wth Deutsche Bank during the CFA, they had identified  8 projects for immediate focus in the agriculture and energy sectors. cfa9

A statement by Ha Han Nguyen from the Vietnam delegation, who observed the weeks proceedings, confirmed her country’s eagerness for further future engagement in the CFA process, for which a funding package is now being sought.

All speakers remarked on the value of the Accelerator and the pre-London processes run in-country to bring together people who needed to be at the same table. In a panel, country representatives discussed their thoughts from the week’s proceedings. Some of these were:

  • “We [governments and financiers] speak different languages, but we can learn to understand each other”
  • “We need to enhance dialogue between the private and public sector at international, but also local levels, to know what is already happening inside the country [finance-wise] and to leverage that”

“There is a huge amount of focused work required to move from plan to projects to desired outcomes and results”

  • “Climate finance is still finance, and needs to manage risk and be linked to returns”
  • “We need access to international funding to enable us to pursue larger projects outside boundaries of local finance and to access other networks and knowhow”

The rigour and attention to detail of investment bankers is vital to successful climate projects

In a panel with the investment banks which had worked with the country teams, Tessa Tennant praised the bankers for their commitment to the process – even earning the kudos from one country delegation of “these bankers, they’re actually quite nice”! She spoke of the importance of having term sheets to act as ‘dictionaries’ between financiers and policymakers, to ensure everybody understands and can act on the spectrum of issues that need to be addressed to get projects over the transaction line.

Graham Smith from HSBC spoke of three considerations to access finance: ensure the rule of law is in place (i.e. contracts enforceable and protected), know your customer (clarify if the mandate allows for customer type and country risk, and ensure the right people are on board); and lastly, check that the project is ‘bullet-proof’ (i.e. practically workable in context).

Bankers spoke of their delight to discover that dialogue was constructive and friendly and were impressed by the interest of the delegations in unpicking what risk really meant. They were pleasantly surprised that their colleagues from other parts of their institutions were also interested in the opportunities and ready to get involved.  They saw the CFA as a ‘deal-flow network’ and all were keen to stay involved with this and future processes.

“Further, faster, together…”

Nick Nuttal from UN Climate Change summed up the main objective of the 5-day process: “The Paris agreement was like a shiny new concept car – looks incredible, but there’s as yet no engine under the bonnet. The CFA is helping to create that engine, and move the car from concept to the road”. His final words rang true for the audience: “This”, he said “is where the future is…”

Want to learn more about what went on at #CFA17? Sign up for our ‘NDC Financing Made Easy‘ webinar, which will expand on the outcomes and teachings, read our twitter feed and previous blog posts. 

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Climate Finance Accelerator Day 3 and 4: Navigating the obstacles

Days 3 and 4 of the innovative Climate Finance Accelerator, brought countries and financiers together to co-create solutions to meet climate commitments. This is the third in this series, following the process and highlighting insights from the day. 

“I’m learning to be flexible”, said a senior country delegate on Wednesday, “to get on board and not give up – to jump, to hide, to move around obstacles – make it happen, and keep going until it’s done”. 

All participants are showing entrepreneurial grit and determination as they begin to align agendas, reframe projects as bankable solutions and develop workarounds to challenging contexts.

Plenary discussions focused on four challenge areas:

  1. Aligning interests, priorities and ways of working

Policy-makers and financiers have different mandates, related accountabilities and ways of operating. As one person pointed out “it’s like getting people speaking only Spanish to understand those speaking only Chinese”.

This is further complicated by the fact that within government institutions and across different parts of the finance community objectives differ and ‘green’ and ‘climate’ are understood differently.

A delegate from the public sector spoke of the insight that behind every question asked by the finance expert was a set of measures and the answer given is rated objectively in terms of commercial return. Once this was understood and the questions and underpinning framework made clear, the projects could be better framed against these terms.

A discussion on linking hard currency to local cash flow helped another group realise the value of local banks to fund local solutions. This group pointed out that even if there is good dialogue, it’s important not to lose focus on independent goals and the results needed to get to the best solution for end-beneficiaries.

A bemused banker spoke of trying to get a delegation to vote to prioritise projects – only to realise that they operate on consensus. Not only are people ‘speaking different languages’, often they don’t realise different cultures exist. However, it was acknowledged that “No single person or entity has all the knowledge needed to complete a deal. Everyone has a role to play”.

  1. Scoping the opportunity

The discussion within the groups looked at how to understand the opportunity beyond financing a single project to: extend impact (e.g. by taking a regional view), leverage grant funding (by taking a longer term view of finance needs) and find finance for joined up solutions that address the problem in its entirety.

For some of the policy-makers, it was important to stretch projects to meet the scale of their ambition to maximise impact on NDC’s, and then work out how to finance this project. This meant understanding other sources of capital beyond project finance e.g. local funding, guarantees, etc.

A frustration was “how green is green enough?”  In many cases funding is needed for both the transition (e.g. LPG) not just destination (e.g. renewable) in order to shift systems and this was not always aligned to funding mandates.

  1. Funding set-up

Most funders are focussed on commercial returns from specific projects. However in order to get to this, there is an investment of time and resource and the need for capacity-building. A significant amount of work is required in order to find the data required to get funding. Time is required to engage all stakeholders – no matter how brilliant the projects. More work is required where no single policy champion exists to get support for opportunities through multiple government departments. Technical expertise and other resource is required to develop transition plans that contextualise projects over time.

There is a major need for specialist financial intermediation – people who have the structuring skills and investor networks to help project sponsors meet the needs and objectives of investors and get the deals done. In many markets this is not available except for very large projects and at high cost. “Lower end” intermediaries need to be developed both in number and capacity, and this will probably require concessional funding.

There is a potential role for Development Banks and Foundations to fill this gap.

  1. “Oiling the wheels”

Doing a deal is easier where clear policy signals exist that welcome the private sector and any investment made is respected and protected.

Further, it is easier to move projects forward where early success stories or precedents from other places can be shared to create an evidence base against relevant metrics (e.g. number of jobs) for the change.

On Thursday, the discussions started to coalesce as teams look beyond individual projects to how a financing plan for their NDC has a whole can be brought into shape.

Follow @Money4NDCs and #CFA17 on Twitter to stay up-to-date with the latest from the event.
Want to learn more about what goes on at CFA17? Sign up for our ‘NDC Financing Made Easy‘ webinar, which will expand on the outcomes and teachings.

 

CLIMATE FINANCE ACCELERATOR, DAY 2: SOLUTIONS TO CONTEXTUAL CHALLENGES

Yesterday we introduced you to the exciting, innovative Climate Finance Accelerator, bringing countries and financiers together to co-create solutions to meet climate commitments. This is the second in this series, following the process and highlighting insights from the day. 

Today country delegates were paired with experts from international banks to discuss the enabling environment within each country involved. This was in order to understand which projects to prioritise and what financing mechanisms would be most appropriate. This technical deep dive session took a sector by sector focus to explore barriers to financial access and potential solutions.

All change happens in context and today’s process enabled finance participants to better understand the specific market conditions in each country, discussing policy and regulation, financial and economic, technical and market, social and cultural factors in detail. One delegate said that her views of emerging market opportunity had shifted because she’d realised that for the country she was involved with climate change was a very live issue and finding a solution is viewed as a necessity. This meant that engagement with both government officials dealing with extreme weather conditions and communities’ dealing with livelihood loss was easier and faster, than in other, more developed and resilient countries.

The afternoon plenary was opened by Dr Daniel Klier from HSBC, who heads up both strategy and climate finance for the bank. His compelling presentation outlined the gap the Accelerator is here to fill – pointing out that, based on HSBC research: 97% of investors want to increase their climate related investments, yet the market was viewed as ‘shallow and illiquid’, with a lack of clear definition on climate investment or transparency of opportunities. He stressed that the finance community has a role to play in creating liquid markets through standardisation, working closely with transition clients to reduce risk and in improving transparency through better data and disclosure.

A few cross-cutting themes included:

Developing a strong, diverse narrative

Part of the discussion across the groups centered on how to create a narrative to maximise the benefits and impact of investments and create access to more sources of finance. An example was how to finance fresh food value chains in Nigeria – to focus on strengthening local value chains for better production to create jobs, resilience, and shift from import dependency. The tomato crop alone has a deficit of 1.2m tonnes that is created by under-production, spoilage and lack of adequate distribution. This is an opportunity for the economy that could support climate-smart agriculture and local livelihoods.

Finding solutions outside current definitions of bankable climate projects

All the teams noted that it was harder to work on agriculture than on transport and energy – yet this sector was vital for the transformation of these economies both because of the high climate impact and because of the co-benefits in livelihood and community development. Agriculture initiatives engage rural populations and support political stability. It was noted that taking a regional, portfolio approach might allow for insurance which would lower risk and make projects more attractive to finance.

A similar question arose on how to best package and then measure smaller energy efficiency projects – vital for the transformation – for financing.

Learning from each other

While there are nuances at sector level in each country, the similarities of the challenges faced allows for cross-pollination of ideas and sharing of precedent and practice. A call was made for an ongoing platform to be created to support countries in sharing experience.

Nigeria was paired with Deutschebank. The team developed a set of criteria to evaluate projects based on a detailed discussion of enabling environment. These included: having generation and distribution embedded in the community, developing clusters below 1MW to side-step time consuming regulation, ensuring developers and project leads have strong track records and focussing on smart models to collect money. A delegate from the country said a key insight for him was to how to approach and set up investments to better protect investor money. Nigeria is focusing on 3 mini-grid projects which will engage multiple communities.
Mexico worked with a team from HSBC. Looking at the transport sector, they expressed the need for supportive policy at all levels of government. They used precedents internally and from other countries, particularly Bogota in Columbia, to learn how to transform transport. Insights included exploring the opportunity for electro-mobility working firstly with taxis and distributing subsidies for a shift to electro-mobility directly to the end-user. However, there are still many questions on how to incentivise the shift, access best practice and technical assistance, invest into technology – particularly software required, develop T’s and C’s for fleet renewal and leverage international pressure to support the transformation.

A similar dialogue in the Mexico team on the energy sector raised questions on how to fill capability gaps, create working renewable systems and overcome “oil inertia” in culture and values. A delegate noted that a recurrent problem of land rights could be overcome through focussing on cash flow guarantees.

The Columbia team, working with BNP Paribus took a systems approach to the projects they set-out. This meant looking to expand large, bankable projects to incorporate other, smaller projects that were less easily financed but vital to the transformation of sectors. They looked, for example, at how to incorporate the development of bike lanes (which are hard to finance) with the larger metro development project to enable a complete transport system. A question they worked with was how to access funding not only for the project but to address the enabling conditions to better make the project work.

The day closed at the Crystal Exhibition on Sustainable Cities with inspiring talks from Pete Daw of Siemans and Matthew Scott from the Bank of England with insights on crowding in private finance and creating orderly transitions.

Day 3 is about priorities and we will dive deeper into the opportunities.

Follow @Money4NDCs and #CFA17 on Twitter to stay up-to-date with the latest from the event.
Want to learn more about what goes on at CFA17? Sign up for our ‘NDC Financing Made Easy‘ webinar, which will expand on the outcomes and teachings. 

SIGN OF THE TIMES: COUNTING DOWN FROM $90 TRILLION

Today, above the flickering red and green signs of company stock at the London Stock Exchange, appeared a new symbol: “Climate Finance Accelerator”.

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This sign, in this context, is a strong signal of a movement gathering momentum to shift countries and companies towards a low carbon, sustainable economy.  It marked the launch of the first Climate Finance Accelerator, a bold initiative bringing together countries and financiers to co-develop plans that can help counties transform their economies to mitigate and adapt to climate change.

Country delegations from Nigeria, Mexico, Columbia and Vietnam have been teamed up with London based financial experts and development banks to co-develop detailed investment plans for bankable projects in an intensive 5-day process. The CFA is the brainchild of serial climate change-makers Ian Callaghan and Tessa Tenant and was set-up together with PWC and Riccardo. It provides a structure to help countries attract the finance needed to meet the climate targets they set out in the Paris Agreement.

One can understand why this is attractive to the private sector, once the sheer scale of the finance gap becomes apparent – Sir Roger Gifford, speaking this morning, put the need at $90trillion. Mexico alone is looking for more than $100bn by 2030. Countries have already committed massive budgets and are looking to the sector for smart financing arrangements for further billions.

This mini-blog will follow the teams over the next few days and highlight some of the emerging themes, resources and ideas coming through that may be useful for others working in similar areas.

A few themes that emerged today, including:

The power of multi-stakeholder dialogue

Nanno Kleiterp, development financier, said “it’s all about learning to understand each other’s language”. Hans Verholme, supporting the Nigerian delegation, mentioned “It’s about merging conversations at national and international level”. The Mexico delegation, which had representation from Government, local banks and the guild of taxicabs, noted that by involving diverse stakeholders CFA-inspired conversations had already significantly progressed the agenda.

Similarity in sector focus

Of interest is the similar focus areas across counties; transport (specifically, electrification and shift from private to public modes), energy (implementation of renewable and efficiency measures) and agriculture (including smart agriculture and land-use shifts). This offers opportunities to learn from existing projects and for collaboration, knowledge-sharing and replication.

The management of risk

The CFA initiative removes the information asymmetry that raises the price on projects by making opportunities more transparent to the finance community in a language they understand. It also allows them to weigh up endogenous and exogenous risks and develop blended and specific solutions to address each of these. Ultimately this will (as Michael Lewis from Deutsche Bank pointed out), lead to suites of new products from these institutions. It is also noted that part of the bigger transformational journey will need to include insurance companies. A Government led initiative, like the Green Investment Bank, supports increased market confidence by showing intention, creating focus and offering first capital.

Link to development

As Nigeria said in their opening statement today “Climate and development are inextricably linked”. Climate projects have multiple co-benefits that make them attractive to counties. In the UK 430 000 people are already employed in the green energy sector and it is growing at more than 12% p.a. For Nigeria, the opportunity to create new value chains in agriculture will support food security and lower cost of imported food. All of the counties mentioned the projects discussed as an opportunity to increase access to energy and alleviate poverty.

A wide range of creative finance structures and solutions are already deployed

These are very diverse and include: green bonds, Green Investment Bank (UK), Green Investment Bank (Connecticut), Green Growth Fund, Denmark Climate Fund, charges on electric bills, cap ‘n trade, carbon credit, Climate Investor 1 Fund, and government guarantees. They all offer case studies for countries and finance professionals to learn from.

Finance is not the silver bullet

While this was listed as the most important barrier for countries to move forward with their plans, other factors that need to be addressed include: in country capability development, ensuring strong governance and legal frameworks and community engagement.

A great start! Ed Wells, of HSBC, said today that “the money is there. If we can create the structures, it will flow”. Today (Tuesday) we start in earnest creating those structures, with the country teams working at different banks on an immersive ‘deep dive’ into enabling environments and how to prioritise projects.

More to follow…

Want to learn more about what goes on at CFA17? Sign up for  our ‘NDC Financing Made Easy‘ webinar, which will expand on the outcomes and teachings.
Follow @Money4NDCs and #CFA17 on Twitter to stay up-to-date with the latest from the event.CFA

RISE OF THE MACHINES – TOWARDS UTOPIA OR DYSTOPIA?

This article is a collection of thoughts from many of the participants of the Monday evening Crowd Forum. We are ‘learning our way’ into a better future and would be grateful for any further thoughts, comments or references that can expand the conversation. 

Monday night’s Crowd event was packed with people curious as to whether emerging technologies could support or detract from the sustainability and business agenda. Some were there for fear of keeping their jobs safe from the rise of robots; others were actively developing artificial intelligence, technology platforms and big data solutions to support clients. Some, like me, were curious as to what capabilities we will need to be relevant in a ‘machine’ future. Others wanted to understand how they could use their agency to shift outcomes of this disruption towards the positive.

After excellent talks from Sean Culey, Kriti Sharma, Prof. Kerstin Dautenhahn, Avida Hancock and Chris Middleton, I was lucky enough to chair a table full of curious minds from business, consultancies and NGOs. Thank you to everyone for sharing your thoughts and experience. Below are some of the themes and questions that arose…

The threat

Many fears surfaced about the rapid rate of automation and the resulting job losses. We heard from Chris, that last year China bought 66,000 robots, replacing 1m jobs. As these robots learn and become more effective, more jobs will be replaced. We learnt that the 8.7m people in the US in the ‘driving industry’ are at risk from autonomous vehicles, as are the 1m people in call centres in the UK. Yet, jobs have been replaced by automation for a long time – the difference is that with adaptive robots, coupled with artificial intelligence, more ‘skilled’ jobs can be replaced. Google translate took a large team of programmers 10 years to put together, however, within a few months, starting from scratch, an AI team had a solution that was just as good. This AI solution 5-green-robots-1now has far surpassed the original one designed by humans. Pepper, a ‘humanoid’ robot recently conducted a funeral. As one speaker said, “if you can explain what you do for a living, your job can, and will, become automated”.

Another fear raised is the threat to our existing social systems. How will our economic system deal with a “zero cost society”? If we see a concentration of technology in the hands of the few and a bigger rise in inequity, how will this affect our social and political structures? And how can our slow regulatory structures respond adequately to the super-charged rate of change?

Sharma Kriti raised another issue that struck against the fabric of our social structures when she quoted Gartner, “by 2020, the average person will have more conversations with AI than with their partner”. “Already we are more ‘wedded’ to our smart phones than our partners”, quipped one person.

One of the biggest areas for emerging technology is in war. The room went quiet thinking about the possibility of an AI driven apocalypse, the ability of this technology to radically change the way in which war is waged.

This wave of automation differs from previous waves both because of the speed of change and because it is connected, machine to machine. This means machines can interact without human interventions. It is predicted that by 2045 ‘tech singularity’ will emerge where machines will far surpass humans and not be controlled by them or need to include them, at all. What then, people asked, is left for all of us?

A reality check

Before the last major technological disruption, we were a largely agrarian society. Now, only 2% globally work in agriculture. Humans are innovative and adaptive, and have managed in the intervening years to create new jobs and new ways to contribute to society. The question is how to transition as quickly and smoothly as possible in order to minimise the pain of transition.

We also forget that technology is neutral; it has no agency of its own and will only be as good or bad as how it is applied. For example, fire can burn your house down or keep you warm – it’s what you choose to do with it. We need to understand what new mechanisms we need in order to put technology to its best use in service of all of humanity.

This means that the biggest challenge is as quickly as possible to create the new societal model required for 7bn humans to flourish in a machine world.

The opportunity

On this basis there are fundamental shifts required now in every aspect of our society.

Those involved in creating technologies need to be educated to think through the implications of their activities. They should ask themselves ‘why’ they are doing a specific piece of automation – are they solving the right problems? They need to be clever about design and the databases they use to avoid coding in the social issues we suffer from today. Already we’ve seen problems emerge with MIT facial recognition software that couldn’t recognise black women and a prison system in the US that replicated the existing issues within the system when making recommendations on re-offending. An opportunity exists to use technology to build a better society and to remove the stereotypes and prejudices society currently suffers from.

Businesses need to change their mindset in three important ways: First they need to ‘think like Amazon’. They need to put the customer at the centre of their efforts and ask themselves different questions including, “How do you treat a physical product like software?” and, “How do you innovate in real time?” They need to consider localisation and micro-logistics, work with ‘prosumers’ to manufacture (possibly with 3D printing) on demand and look to shift their business models from products to servitisation. Secondly, they need to build capabilities to be resilient against whatever emerges – as Ocado put it, “forget forecasting – learn to deal with uncertainties”. Last, they need to model Tesla – create the systems of the future where, having everything interconnected means an exponential opportunity to learn.

For sustainability, the news from an environmental perspective may be good. Already the Smartphone had condensed our need for lots of different equipment into a small handheld device. We should see more dematerialisation and therefore less impact on resources. Technology can also support the circular economy through providing better designed products, tracking them and providing essential services to maintain and ultimately re-use them. Manufacturing on demand and mass customisation may lead to less waste and localisation to less carbon through distribution. From a social perspective, some argue that the rise of machines will allow us more time to focus on relationships while the robots take care of administration. They see a revival of local commerce. They believe that in a few years anyone will be able to design and automate – that it will be as simple as designing a website and that this will democratise technology. Last, they say rising transparency will force better behaviour from corporate and individuals. Sustainability professionals, grassroots activists and communities need to work with technology as an opportunity to make their agenda more relevant to businesses and to leapfrog existing systems.

As Geoff Kendall suggested, Governments need to come together as they did for the SDGs – to create regulation to ensure the social and environmental benefits are hardwired into these systems. They need to work out how to support individuals through the transition (e.g. through the Universal Basic Income), how to educate differently and how tax should be collected and distributed.

Our political, economic, and social systems were created in a very different world than we live in today. Perhaps this offers the opportunity to revisit the foundations of our society – to ask what good looks like in a machine age and whether some of our assumptions upon which we live our lives are still valid. Do we need jobs? Should everyone work? How do we all want to live? What are the components of a happy, healthy society?

As Peter Drucker says, the best way to predict the future is to create it.

Let’s get busy, then…

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This post is by Nicola Millson of The Future Academy. We work with organisations to ‘learn our way into a better future‘. Please do contact nicola.millson@future-academy.co.uk if you have any comments or suggestions.

FROM DESIGN THINKING TO SYSTEMS CHANGE

A fascinating take on expanding design thinking towards systems change from the brilliant Rowan Conway of the RSA. First published on RSA site on 26 July.

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After a prolonged adolescence where style perhaps outweighed substance, design thinking has grown up. Now is the time to combine design methods with systems thinking to enable the adaptive and innovative institutions we need for the future.

We live in disorienting and challenging times. As society becomes more networked, the traditional centralised power of governments is under pressure. It’s a tough time to be a political leader attempting to deploy tried and tested tools when society no longer behaves in tried and tested ways. Those formal, linear, definitive strategies that once cascaded down from a central point are now under continuous challenge by a youthful networked power that is digital by default and quick to adapt to change.

Design thinking was born of this youthful zeal and the last 10 years has seen a profound shift in what we understand as design. Driven by the exponential growth of the social web and digital services, designers have gone beyond the classic understanding of design as producer of artefacts, into design as creator of services, policies, processes, business models and governance structures. Human-centred design thinking methods — and service design in particular — have infiltrated business, government and third sector institutions and reinvented the way they approach innovation. And this in turn is disrupting traditional notions of how policy-making, business development, R&D, organisational design and strategy are done. As this diagram from Lean Ventures shows, rather than providing a clear route to a single solution, design thinking methods lead to many solutions, stimulating creativity and idea generation that arrive at a variety of innovation types.

Design thinking and social challenges

In a report on social innovation, the Rockerfeller Foundation suggested that this type of creative thinking is critical if society is going to respond deftly enough to the major societal challenges of our time. It says: “Due to the complex, systemic, and interrelated nature of the serious social, economic, and environmental problems confronting us, we need entirely new forms of solutions. Clearly, we humans must learn to think differently about our complex world and to work together in unusual and very strategic new ways.”

Designers are beginning to answer this call. With design thinking methods at their disposal, they are now setting their sights on the grand social challenges of our time. In a 2017 RSA lecture, Jeremy Myerson, founder of the Helen Hamlyn Centre at the Royal College of Art, described how designers are responding to the modern challenges of public health, climate change and inequality. He pointed in particular to our ageing population, and how it is both opening up new consumer markets for products like the ‘grankini’, while also providing opportunities for designers to tackle major public service challenges by reinventing services for the care of the elderly — in particular the rising demand for person-centred dementia care.

Recognising this asset, government agencies are now routinely seeking to commission design solutions to problems as broad as childhood obesity and mental health services. Challenge prizes and competitions are the obvious way to stimulate this creativity and tools like the Small Business Research Initiative and the European Social Innovation Competition are enabling government agencies to stimulate enterprise innovation for pressing societal problems.

Impact beyond the challenge prize

Challenge prizes and competitions do lead to genuinely creative solutions to social problems, but there are many stories of innovations either struggling to grow beyond their test boundaries (ie: failing to replicate a nurse-led solution in one hospital across multiple sites) or make long term traction in wider systems (ie: the challenge of scaling an innovative solution when there is no consumer market demand). For challenge prizes or procurement tools to stimulate sustainable innovation, they need to be designed with wider systems impact in mind.

In this new RSA report, From Design Thinking to Systems Change produced in partnership with Innovate UK, we look at how to go beyond the creative process to have real impacts on the wider social systems in which social challenges sit. Our report looks at the UK government’s SBRI procurement process in more detail and suggests ways to support the innovations that it stimulates to have lasting impact.

A key finding is that problems aren’t the same as markets. Competition commissioners are rarely the same as the end buyers of the solution and the social challenges or the public service problems that stimulated the brief in the first place do not necessarily equate to clear market opportunities. Challenge prizes or SBRI competitions may create ‘competition demand’, but providing the elusive first customer does not provide a guarantee that there will be a second or third customer. In one case studied, the market demand was so low that it was largely met through the competition, even though the public value of the innovation was very significant.

Design for systems change

The innovation challenge is not just the generation of good ideas — it is the application of those ideas in the world. It is impact. Design alone won’t always generate large scale impact. This report looks at how we might apply a systems thinking dimension to design thinking methods, and defines the new RSA model of ‘think like a system, act like an entrepreneur’ as a way to marry design and systems thinking (the below diagram tracks the two modes onto the Design Council’s famous double diamond model of design thinking).

Systems thinking augments the design thinking approach by appreciating the complexity of a social problem and seeking to understand factors like power dynamics, competing incentives and cultural norms. Thinking systemically about how problems are defined is an advance on traditional design thinking as it extends beyond the creative process into broader social change theories. There are pioneers in this field like the system innovation lab at Forum for the Future and the Lankelly Chase systems changers programme, but adding a systems perspective to design thinking processes now needs to move from the vanguards to the mainstream.

Making change in systems as complex as public health or education may seem insurmountable. Applying a systems lens to the question of how procurement programmes like SBRI might be optimised for innovation, we can glimpse the greater impacts that could be achieved. This is where, at its best, SBRI has the potential to serve the dual goal of both making commercial markets for innovations and delivering social impact at scale.

By applying the think like a system, act like an entrepreneur mindset, we do not attempt to take on grand societal challenges in their entirety, instead we look to identify nimble opportunities for change within the system — seeding innovations, testing prototypes and supporting successful efforts to grow and influence other parts of the system. By seeking to understand the wider system that an innovation will be born into, designers can seek to find ways to successfully affect systems change.

Download the report – From design thinking to systems change (PDF, 3.3MB)

The next big idea is a billion years old.

When we start something new, when we’re looking for solutions or are making an important decision we often look for sources of inspiration and perspective within our companies or sectors. We might interview our customers, employees, or suppliers. We might ask academic institutions or experts. We could commission research to see what competitors or even other sectors are doing.

Too often we miss out on asking advice of a rich source of wise answers that exists right in front of our eyes… nature.

Our planet is old – 4.5 billion years old. And for an astounding 3.8 billion years, it has harboured life. Life has had a bit of time to evolve strategies to maximise existence and sustain itself! It has arrived at well-adapted solutions that have stood the test of time, within the constraints of a planet with finite resources. Each new shoot or seed is nature taking a lean methodology approach to experimentation and rapid prototyping to find better solutions every time they grow. Millions of organisms have adapted and evolved to survive, to meet their needs efficiently within the limits of the planet and alongside all other life forms.

How could we learn from and emulate nature’s successful strategies?

  1. PRODUCT DESIGN

Nature is a master designer – and companies are catching on to the fact that they should look to how nature has addressed a specific challenge in order to come up with an optimised solution. This means looking at how shark skin is able to move sleekly through water and using that in swimsuit fabric and ship paint. It’s about a shift from rectangular, flat solar panels to ones that are shaped like leaves – the longest ever experiment in optimising surfaces for capturing sunlight. Interface designed pads to secure its carpet tiles to floors inspired by the way lizards have foot pads that enable them to cling to surfaces. This has transformed the carpet industry, created disruption in the glue industry and cut costs, reduced impact and provided a competitive differentiator for the organisation.

Questions to ask: What is the challenge I’m trying to solve?  How does nature perform this function?

2. PROCESS DESIGN

In comparison to the sleek processes of nature, human processes are clumsy, wasteful and inefficient.  Take manufacturing, a “take, make waste” process. We draw components out of the ground, turn them into products that may or may not be used and that ultimately land up in landfill. A tree takes resources out of the ground, moves it up a spiral and produces leaves. These resources are deposited on another side of the tree, ensuring broad distribution of essential elements that become resources for the next leaf.

Or look at innovation processes – many run by specialist teams stuck away in a room of a large building, silo’d and shut off. Nature innovates mostly in the edges – bringing together diversity between habitats (e.g. swamp land and grassland) and seeing what emerges. As the edge increases, the boundary habitat allows for greater biodiversity. Change happens at the fringes and the longer the ‘edges’ the more diversity and more change can happen.

Questions to ask: How does nature perform this process? Specifically, how could my organisation manufacture in a way that optimises resources? How can we create ‘edges’ and ‘intersections’ for our organisation to collide with others for increased diversity of thinking and accelerated innovation?

  1. ENTREPRENEURSHIP AND VENTURING

Recently I worked with a bright Imperial College graduate with an excellent idea that could shift the virtual reality industry by allowing better understanding of location for the user. He thought of how a new ecosystem would replace an old one in order to ensure that his product could be part of a technology shift into a new space. Steve Jobs did this with the iPod. Instead of just launching a ‘me too ‘music player, like the Sony Walkman, he defined the entirely new ecosystem that his music player would operate within – and the route to shift the industry. For this to work we need to think like nature – what is the broader function of this ecosystem, what are the elements that are needed to sustain it, which are key stone species?

Questions to ask: What is the broader ecosystem my venture is operating within? How do I effectively inhabit that?

  1. ORGANISATION RESILIENCE

Oak trees feed squirrels acorns, and squirrels eat harmful fungi off the oak. SABMiller buys its hops from farmers that buy its beer. Lloyd’s Bank worked with me to understand how to make the communities it operates within and takes transaction fees from, wealthier. We don’t operate in silos – everything is interconnected. Shifting thinking from being separate from the world around to being interdependent allows for greater resilience.

Questions to ask: Where can I increase my resilience by understanding and leveraging inter-dependencies?

  1. CHANGE

Nature is always in flux. We can see a tree as a static object – trunk, branches and leaves.  Or we can see it as a process in motion, taking up water and nutrients, depositing them, storing them and releasing them.  All organisations (and individuals within them) are in motion. We resist change, but it is inevitable. We can learn to flow with the changes and adapt, rather than take a static view of where we are. This involves seeing the emerging seeds of change and consciously deciding which ones to water and which ones to pluck out. It requires us to see beyond our current horizon into horizon two where these seeds will start growing to horizon three where the change will take root – and to plan and organise accordingly.

Questions to ask: What are the emergent properties of this current situation?  How do I leverage them for future success?

Einstein famously said you can’t solve a problem with the same level of thinking that created it.  Looking for answers in nature allows you to use ancient tried and tested wisdom to leapfrog contemporary thinking and to come up with better ideas.

Step away from your desk.  Walk away from the board room.  Take a walk in a park nearby. Look at patterns, look at functions and look at the way nature has worked out how to live. Be inspired. And please do remember to respect, protect and, even better to regenerate this great mentor.  

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This article is taken from a speech delivered for Interface in 2016 and to the Swiss Advisory Group in 2017. If you’d like me to speak to your audience on this and other topics that inspire action and shift perspective or to find solutions with you to tricky challenges, please do get in touch nicola.millson@future-academy.co.uk.

Learning our way into tomorrow. 

Talking shop: systems change, intrapreneurship, entrepreneurship, innovation and social impact…

Thank you Cecilia Thirlway @solverboard for a fun interview! The original posting of her interview with me is on Medium.

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Talking to Nicola was a pleasure as it brought up a topic I hadn’t thought about for a while — system change and system design. I wrote about systems, particularly human systems, a while ago and have always been fascinated by how they grow and develop. Nicola’s thoughts on the subject were a really interesting insight. It was also a joy to talk to someone who was interested in the human journey of entrepreneurship as well as the economic and commercial one — we love to tell the stories of successful entrepreneurs, but spend less time working out how more people can be helped to be successful with the right emotional and practical support. And finally, of course, the topic of tech for good is one close to my own heart.


So Nicola, tell me about The League of Intrapreneurs. What makes an Intrapreneur and why do they need a league?

Intrapreneurs as people inside companies that have got a passion to create social impact, as well as the influencing skills to be able to make good things happen. We’ve seen some outstanding examples: Miriam Turner from Interface coming up with extraordinary ideas to be able to turn ocean plastic into carpet with social returns. She’s a great example of an Intrapreneur – adding significant value to businesses whilst at the same time solving big social issues.

To be effective, Intrapreneurs need a few different things: first is the support of others to know that there’s other people like them – an identity. Second, they need community they can learn from and with, and to go on the journey with them. The third thing they need is new skills and different ways of thinking. And the last thing that they need is visibility.

The League of Intrapreneurs helps create that identity and then is supported by people like me that offer tangible services to Intrapreneurs – through peer learning circles, through workshops on systems thinking and influence and tribe creation. Others support visibility and learning through conferences like the Intrapreneurship Conference and through competitions.

Do you think anybody can be an intrapreneur or is it a certain mindset or certain set of skills that people need?

It’s a tough choice to be an Intrapreneur! I think that everybody has a seed of possibility inside them but to be brave enough to buck the system for something that you believe in is a big step.

What sort of organisations do these people come from?

We find them in almost any organisation — we’re seeing more and more people coming out of different types of organisations that could work together to shift the system. For example, the Ellen McArthur Foundation is linking together corporate intrapreneurs in the plastics space with government agencies and NGO’s. We start to see people from different organisations working together to form ecosystems of change agents tackling big issues.

And how does the League fit in with your other work?

Essentially, I do three different things:

Firstly, innovation for large organisations. This includes strategy, global innovation programmes and internal start-ups for organisations like Interface, M&S, Nesta, the Carbon Trust and SABMiller.

Alongside that I’ve been working with disruptive start-ups with the idea of helping them scale their positive impact through Upstart Advice. I coach entrepreneurs from various programmes including Climate-KIC, Mass Challenge, Climate Launch Pad, Innoenergy and Imperial Enterprises Lab.

And finally I help convene change agents and support movements for change in order for the change seeded to have somewhere to land. This means that people to have the skills, the mindsets and the ways of working in place as this change happens. All of it is a way of understanding change and the self and opportunities to create better impact.

The first one was Six Heads, which has been a huge amount of fun: it’s young and it’s quirky and it’s all on sustainable innovation. It’s a gathering place for professionals to share stories, to learn together, to run events for each other to test out their skills and that can involve anything from perma-culture to trapeze. This is now run by Louisa Harris – an extraordinary young woman. The second movement is the League of Intrapreneurs, which I’ve helped to establish in the UK. Last, is my new initiative, the Future Academy, which brings together change-makers to solve societies most challenging problems and provides capabilities required for the next economy.

So that’s my model in terms of how I think about my work within the business system: transform the big, scale the small and create fertile ground for change to happen.

What kind of things do you tackle?

We did a really interesting project with SAB Miller last year: we were asked to work with them globally to support social innovation. It was fascinating because we were working with intrapreneurs across such a range of topics: we had someone from Switzerland looking at climate change, we had somebody in South Africa looking at poverty, another looking at access to markets for smallholder farmers, at water, the list goes on. All of these were internal projects that allowed growth opportunities for the employees involved, opportunities to increase business revenue and social impact. We set-up an innovation accelerator and supported projects through structured mentoring, coaching and communities of practice.

It was wonderful getting the feedback: one of the best quotes was somebody who said I’ve finally found meaning in what I do, I’ve got purpose in my job. I can see how I can make a difference and still do what I do day to day.

I think meaning is incredibly important, isn’t itYou get to a point in your life where you wonder why you bother, and what impact you have in the world.

It’s best to think: do I want to be part of the problem or part of the solution. All of us at the moment are exposed to so much horrible stuff: you know, you can’t pick up a newspaper without seeing fish dying, climate change, social inequity and the death of democracy… so how do we sit around and not do something. I think that people are looking for ways they can work differently and I think companies are starting to take more responsibility. One of the ways that they can do that is by unleashing their talent on these issues and to look for solutions that suit multiple objectives.

Why do you think that needs unleashing and why now? There were huge amounts of innovation in the industrial revolution, but no one was an innovation consultant then.

We face bigger social issues than we’ve ever faced before, and I don’t think it’s just about unleashing it I think it’s also about channelling it. I don’t think we need any more flavours of soft drink, I don’t think we need any more flavours of ice cream, but I do think we need to channel ingenuity into solving some social problems — and not only solving them but reframing some of the ways that we’re operating as a society. From consumerism to community or from consumer to citizen.

Do you think businesses are now much more interested in doing good?

A lot of it is enlightened self-interest. If you speak to the businesses pioneering this area — Marks and Spencer, Unilever — they talk about the fact that everybody wants to work with them as a result of this approach. For all businesses, being able to capture talent is important, and millennials particularly are looking for purposeful organisations to join.

When you look at indicators about employee well-being and retention, a company that provides meaning is important. It was interesting when the retail sector here was hit how quickly Marks and Spencer bounced back versus some of the other retailers, because there’s so much trust in it as a purpose-based organisation.

And is the pace of change getting faster? Do you think movements such as Tech for Good are gathering pace?

I like to think so. Think about the progression from sponsorship 20 years ago where big corporates would give money to their local football team to modern corporate social responsibility. Now we’re seeing the third wave where it’s becoming far more integrated. You see companies having to report to investors on climate change, you see organisations having to think about purpose to attract millennials, you see them looking at their supply chains differently and having different kinds of contracts to have longer term relationships, you see choice editing which is beyond commercial.

A great example is Interface, which makes floor tiles. About 20 years ago, their CEO realised he was ruining the world by running this business and he set out to completely reinvent the manufacturing of one of the most boring things ever: the carpet tile. He’s pioneered environmental standards around how carpeting works, he invented little stickies that go on the floor so that you’re not putting toxic glue down. The most recent one uses discarded fishing nets to make carpets. These discarded nets often end up floating in the sea killing fish, but now they have a value to the fishermen so they’re not being discarded.

In one of my other interviews I discussed philanthropists like Bill Gates who make a huge amount of money and then redistribute it. Is it better to make money and then redistribute or share the talent, or is it better to have a more equitable world to start with?

I’d love a more equitable world to start with, but what I believe is that business is the biggest system that we’ve got, it’s completely powerful. It links all of us and it determines and creates the world around us, so it makes sense for us to use this system differently. What I’m really engaged in is the system redesign, because I think that business could and should be the thing that solves the problems that we’ve got. It is a social construct: we just need to construct it differently.

That sounds interesting — tell me more?

My interest in systems innovation came out of the question of whether I am doing the right thing. You try and do things, but are you intervening in such a way that you are going to make a fundamental difference? I started becoming more and more interested in what the points in any kind of system are where you can create the most change and how you work that out.

The thing that’s always fascinated me about human systems is the potential for the weird and the wonderful to happen. If you have any kind of engineering system you know you hit point a and b will happen, but as soon as humans get involved you get weirdness.

In a way, the word ‘system’ is wrong: there’s something deeply organic about the way that systems operate and in the way that we as humans operate. Where I start getting interested is in how the systems are partly embedded in the past and partly in the present, and how they are embedded with stakeholders and people. What are the stories that are being told in parts of the system, and how do we humanise it in such a way that we can start to understand where some of the levers are? A lot of the levers are around mindsets and perception.

I’m a big fan of Edison: lots of people invented the light bulb but he put the entire system together to make it work as a commercial item. Often we create something and we don’t understand what the different things are that we need to build around it. He had to carry out many system interventions to get his invention integrated — he trained people and he set up schools.

I’m noticing that coming out of the best universities are amazing post-graduates in physics and engineering and mathematics. They are the creators of the future but they don’t have a huge grounding in sustainability and systems thinking. I’m meeting some that are setting up their businesses at the moment and speaking to them about unintended consequences. People are creating drones and robotics and looking at machine intelligence, and they need to understand this stuff and go into it consciously.

It’s also important to understand that there are three journeys across any innovation programme. Of course there’s the journey from the idea to the implementation, but I think there’s two other journeys that are often overlooked. One is the journey of the self: what do I want to be, where am I going with this, but also your personal resilience — how do you make sure that you look after yourself on the journey? A personal resilience plan is just as important as a business plan or a stakeholder engagement plan.

The third journey is the journey of team, how do we get like-minded people to work together, how do you set objectives and make it work for everybody. There’s enormous amounts of literature around developing ideas and commercialisation, but the weak points making things fail are around influencing those inside your company, building a team or creating the community that can drive things through.

I think that’s what’s next for me, to think about that idea.


These articles are supported by idea management platform Solverboard. I work with Solverboard as their Head of Innovation Practice, and they have kindly agreed to support this side project of mine. Do check out their suite of idea management tools for businesses of any size, their public open innovation platform Solverboard Open, or their extremely well-written blog 😉

Toolkit for building the future: Notes from a start-up coach

We are starting to see glimpses of a future of robots, autonomous vehicles, machine learning, mapped genomes and drones. Yet, this future doesn’t appear ready-made – it is often seeded in labs and …

Source: Toolkit for building the future: Notes from a start-up coach

5 ESSENTIAL MINDSETS FOR THE MODERN CHANGE-MAKER

I came across this excellent article from our much admired heroes at Acumen – with links to upcoming courses. I particularly like the idea of focusing on possibilities rather than fears through a mind-set shift – have a look…

Posted February 6, 2017 by +Acumen in Leadership

“THE 21ST CENTURY REQUIRES LEADERS WHO CAN NAVIGATE THE UNKNOWN IN AN EVER-CHANGING WORLD AND BRIDGE DIVIDES.” – JACQUELINE NOVOGRATZ

Society moves forward when change-makers embrace mindsets that focus on possibilities rather than fears.

Here are 5 essential mindsets for the modern change-maker

Don’t lose sight of the ecosystem – Sometimes you need to get out of the bubble to evaluate the issue you’re tackling and the progress you’re making. A systems approach can help you embrace complexity and uncertainty while leveraging them to create sustainable ways to create change. Learn more about systems practice

Let empathy help you see what you’re missing – A social change addendum: always keep the customer in mind. If empathy isn’t at the heart of your process, you may be missing key insights that will help you move your project forward. The Human-centered design course will teach you how. Learn more about Human-centred Design

Done is better than perfect – the only way to keep up with the speed of innovation is to be lean. Pioneered and perfected in Silicon Valley, this idea is more than just a methodology. It’s a way of thinking. The next time you have a new idea, think first how you can testvalidate, and adapt your vision. Learn more about Lean start-up principles for social impact

Fight to reduce friction everywhere – No friction is too small in the eyes of behavioural economist Dan Ariely. According to Dan’s research, people don’t make good decisions, not because they don’t have the right information, but because the barrier to making that behaviour change is simply too high. If you want to change a behaviour, then remove the additional steps that are creating tension. Learn more about behavioral economics

Allow yourself to be persuaded – As a leader, changing your mind has always been perceived as a weakness. But, in a world that’s changing faster than ever, successful leaders realize that a genuine willingness to change their own minds is the ultimate competitive advantage. Today’s leaders must be open-minded and possess the persuasive skills on pulling on the right heartstrings. Learn more about Persuadability