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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)

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

Jack Ma’s wisdom for the future: The three 30’s

Ray De Villiers from Tommorrow Today reflects on a speech by Jack Ma, the CEO of Alibaba the worlds largest online retailer. Jack Ma spoke of three 30’s at the World Economic Forum in Davos in January 2017.

  • Focus on the next 30 years of technology integration
  • Pay attention to people who are 30 years old
  • Pay attention to companies who have fewer that 30 employees

jackma_alibaba_alibabaChallenge #1: Focus on the next 30 years of technology integration

Your business has to integrate into the digital world, it is not an option – it is a survival imperative. Jack Ma gives a useful tip on where you focus should be.

It is not on trying to be the next big online champion like Google, Alibaba, or Facebook. As we navigate the transition into the digital age it is critical that every business, yours included, is able to contribute to making sense of this new era.

Focus on how your business will function in the digital age, and integrate with the broader digital ecosystem. Understand the benefits that will be realized to you and your market as you embrace the digital reality of your industry

Challenge #2: Pay attention to people who are 30 years old

Focus on people under-30 as both employees and customers. Rather than looking for a way to wring more money out of your existing customers it is time to focus on the new wallet.

What is your unique value proposition to people under-30? If you can’t clearly and succinctly articulate the value your business and product offer to a young person then you need to commit resources to doing so. Missing out on the under-30 market and talent pool is a clear indication of your inevitable extinction.

Challenge #3: Small, Medium, and Micro enterprises are the engine of the global economy.

Too many organisations try to get on the procurement list of large multi-nationals. This is good if you are sufficiently robust as a business, but it concentrates your risk and exposure in one or two places.Understanding how you can develop a customer group of SMME’s allows you to spread your risk and exposure across many fronts.In order to achieve this it is important that you examine your product lists and your sales processes.

Develop cost effective sales channels to markets that enable wide reach. Tweak your product suite so that you have significant economies of scale that will enable you to sell high volumes at lower margins.

These three 30’s will position your business for growth and success in 2017, as the global landscape continues to evolve and digitise.

Crafting a beautiful business

Alan Moore is a business innovator. He changes the way people understand and think about the world, and how their businesses can succeed in a world of constant change. Alan helps companies craft innovative, high performance businesses that are ethical, sustainable and restorative that will yield high commercial returns. Building beautiful businesses is his life’s mission.

He has worked with many leading businesses across six continents, in the form of advising, board positions, teaching, workshops and invitational speaking. These include, Google, Microsoft, KPN, H&M, The Coca Cola Company, MacLaren Automotive, Accel, and Institutional Pension Funds…and of course, me…!

This article was originally published by Hack&Craft and can be found here.

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I have always been fascinated by beautiful things: architecture, furniture, tools, books, even businesses. Beautiful things are prepared with love. The act of creating something of beauty is a way of bringing good into the world. Infused with optimism, it says simply: Life is worthwhile.

The effort to craft enduring beauty is not dependent on style but truth. Beauty is what lends things their immortality. Beauty therefore gets out of surfaces and into the foundations of things.

The time has come I believe to rethink the role of business in our world and its overall contribution to our society. We need to re-frame business in the context of beauty.

What does it mean to be a beautiful business? Beautiful businesses are transformational in the universal and valuable utility they bring to the world, joyful in experiences they create. All sourced from an embracing of clear purpose of how to serve their customers well. Beautiful businesses are restorative to people and planet. Businesses with beautiful cultures are attractive – to employees, and customers. Consequently, people want to belong, to enthuse, and support them.

This raises important questions: what is the process for making retail beautiful? What does beauty mean in software? Can beauty as a lens help guide us to arrive at better answers? Can beauty scale? Can beauty provide durability, and opportunity? Can a beautiful business be adaptive?  Can a beautiful business yield high financial returns and still be ethical? Should beauty be a commercial duty? Does beauty require us to think more holistically? What would be the language of beautiful business? Do we think differently about our environment if we see it as beautiful?

So, how do we get to beauty? It is through design in its broadest terms. We always have a choice of what it is that we create, since everything man-made is designed.  What constrains us are  our imagination and the will to apply it. Designers ask two simple questions — is it useful and is it beautiful? We can use these two principles to reshape the world we live in. Good design has always been good business. As William Morris might say, ‘have nothing in your house that is neither useful nor beautiful’.

So what might companies do to craft a beautiful business? Here are a few thoughts:

Retail

Aesop is a retail business that sells products for the hair and body. Created in a minimalist style it has 42 stores worldwide and is renowned for its commitment and attention to design and detail, “why make something ugly when it can be interesting” says its owner Dennis Paphitis.

Creating the business in 1987, Paphitis already understood  that a commitment to the ultimate customer experience is what would make his company sustainable and profitable. In the same spirit, Apple rewrote the rules of retail through its iconic store design and customer experience.

The million dollar question, is this: Is it architecture, marketing or some spiritual experience that these products and stores embody?

I guess who you are will determine your answer. Maybe it’s all three?

There is something else though that joins Aesop and Apple – they are both masters of their materials. They push engineering, manufacturing, even accepted levels of service, beyond what was considered possible.

This is the foundational work, the hard work of making beautiful products, delivered in exceptional retail environments. Apple may no longer be too cool for school for some, nonetheless, their commitment to design, exceptional design and exceptional retail experiences means they have more cash in the bank than the US Government.

The beautiful experience matters today – get out of the car at a Four Season hotel and the staff know your name; order something from Amazon and you get an almost instant email to say your package is on its way. These are all designed experiences. And we are seeking experiences.

What we call experience reflects meaning, authenticity, and an opportunity to recapture a lost essence in modern life. These are values that are difficult to represent in accounting terms. Yet they all have an important and increasing role to play. Look at the rise of artisan everything; beer, gin, cheese, clothes etc., Street food fresh and fast food cooked to high levels of quality without the retail overhead. Street food vendors, without shopfronts or or retail accouterments, nonetheless have a fanatical following.

The reason is that people don’t just want experience, they profoundly need experience to be meaningful and to make life joyful.

My local butchers, who won ‘Butcher of the Year’ award, run ‘sell out’ butchery workshops. Whoever heard of butchery workshops? Do people go to learn how to cut meat?  Yes they do. They are not the only ones passing on experience to customers. From spoon carving in a forest to making gin in a London distillery. Workshops are a form of ‘getting closer’. It is becoming additive to the retail experience but it does so in a way that renews our capacity to enjoy life.

Other recent developments have also had a profound effect on the quest for a high quality experience. We use our smart phones at a minimum 150 to 200 times a day. Touch screen technology and intuitive and simple to use apps mean our expectations of experience have increased as our ability to access new information, relationships and interests increases. Designing meaningful customer experiences becomes a key business activity.

Design as ‘experience’, for example, understands that designing and creating for our tactile selves — things that are intuitive, easy and joyful to use — will sell more products and services at a higher value. In a Temkin survey 6x more people were likely to buy with a positive emotional experience, 12x more likely to recommend the company, and 5x more likely to forgive a mistake.

Software

Our world runs on software, programmed lines of human formed code. We design it. Increasingly the design of software is mirroring the need to redesign life more generally. That is why the Blockchain is a beautiful thing. The blockchain is a universal utility to facilitate low-cost, near immediate transfers of value anywhere in the world – digitally. It comes without the need of a third party, such as a bank with all its own selfish needs and flaws. Specifically the blockchain is beautiful because it is a trust-generating engine, which is highly scaleable.

The Blockchain is like DNA / the hidden infrastructure that is life giving. The blockchain is designed to be distributed over many networks, it has no central power and is therefore social in its design.

It has a universal ledger, a database that contains every transaction ever made and that can never be tampered with. An inviolable time stamped record of transaction. It is this transacting of value that is the forbearer of what happens next: money, land registry, cultural artefacts, etc., any situation in fact where there is a transfer of value and where deeds of ownership are vital to document and record, it is in these circumstances that  blockchain technology will play a defining role.

The growth will become exponential because its protocol is open, allowing others to build new commercial, financial and transactional products and services. For example, the Linux Foundation is running the Hyperledger project an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration including leaders in finance, banking, IoT, supply chain, manufacturing and technology. Currently 95 organisations are involved including; Accenture, Deutsche Börse, IBM, and Fujitsu.

Importantly, Hyperledger is an open collaborative effort. Openness is the new global operating model especially in software where it now powers hundreds of thousands of projects and the most significant infrastructure.

Software is beautiful for several reasons that we can learn from. First, it is incredibly successful at changing the world. Second, it arises from open human interactions and collaboration where greed is suppressed for the greater good. Third, it has begun to simplify the commercial world and mediate trust in profound ways. It excludes wasteful third parties who role has been simply to create friction in order to make money. Increasingly software takes the friction out of life and helps us realise new experiences at lower cost.

Culture

The culture of the workplace is the humus for how an organisation works well. Happy staff, like rich soil, produce, yield and deliver better quality stuff.

The more a culture is focused on what it wants to do the more it can be restorative in helping its employees grow as people and as professionals.

If a business can find the point where its people are happy to produce, it will make more money. Its staff will be more productive, whilst saving the cost of sickness, stress related illnesses, and retaining talented staff.

Telus is a telecoms, TV and mobile company with a very rich workplace culture characterised by a generalised learning programme. They have a toastmasters’ chapter, a book club, guest lectures and so on. The idea is people need to approach work through the prism of learning. By encouraging learning in a broad cultural way, the company believes it is more adept at switching on specific learning needs when business changes. So they do more than most firms to bring that idea to life.

Gransfors Bruk make axes. They say they make the best axes in the world – their culture is one of craftsmanship. This is about how one have designed and built a successful company predicated on quality. A quality of product achieved through a holistic approach to design and manufacturing that incorporates a process to bring out of the workforce a commitment to craft and ethics.

The individual axe maker is given the time he or she needs to forge an axe head to the point where  they are satisfied this is their best work. Then, and only then, will they stamp the axe head with their monogram. The process means men and women are personally dedicated to give their creative best. An engaged craftsman is a committed craftsman, ergo an engaged workforce is a committed workforce. Meaning is created through a craft approach to life. You have to love the work you do. Both Telus and Gransfors Bruk are ‘crafting organisations’.

Businesses who make beautiful cultures become very attractive, because they are, ‘authentic’. People — employees or your customers— want to belong, to go the extra mile, enthuse, endure, support, and invest. No amount of incentives or motivational talks can match the power of people feeling they’re involved in something a little bit special. Indeed, that they actually have a part in making it happen. We embrace what we create.

Leadership

Pixar make much loved animated movies. Pixar are extremely successful at making great films, not only because what they create  are masterpieces of animation, but also because they tell compelling, universal stories that are often groundbreaking in the themes they explore: love, life, death, relationships as well as fantasy.

But this is not easy. After the phenomenal success of Toy Story, Ed Catmull and his team agreed there had to be a way of openly and tenderly holding a creative idea so that it could evolve to its true potential of excellence every time.

Achieving  this required the creative idea to be open to  scrutiny in every aspect of its script, design and production. So, Pixar created the Brainstrust,

This is how it works for every movie Pixar makes. Members of Pixar regularly come together to openly test the development of a film. The rules are: only constructive criticism, and to speak with candour. It requires great trust to do this, to speak plainly and honestly and for the director to listen to all feedback. Without trust there can be no creative collaboration.

The focus of Braintrust meetings is on solving a problem. Individual knowledge morphs into collective intelligence, highly valuable in examining how one gets from mediocre to world class.

Catmull believes every movie they start with sucks in the beginning. In his words, meetings are filled with ‘frank talk, spirited debate, laughter and love’; they are there to excavate the truth in a movie.

The other rule is that the director is never instructed to do something. The director listens and develops his or her own interpretation and understanding of feedback.

It is unusual for a creative company, or any company, to work so rigorously in an open, collaborative environment.

It takes patience and time – virtues that Pixar is willing to give. To create enduring beauty requires intense collaboration between people who share the purpose of creating  truly unique experiences.

What lies behind this concept of Braintrust is that, actually, leadership decisions, those that we might previously have left in the hands of the director or the CEO of a company, are better when they are informed by the group and are better again when that decision is left open to the last possible minute. A similar development can be seen in software  architectures where microservices allow CTOs to hold programming commitments to within minutes of a go-live, where previously they were committing months ahead of a release.

Anyone no matter in which industry they work, can create their own Braintrust. In fact you might need to. It might just get you from mediocre to beautiful.

Businesses practising beautiful leadership know how to bring great potency to their organisation by empowering their people. Equally leadership that engages people in thought and deed can energise all that are invested spiritually, emotionally and financially in that business. Muhammad Ali was once asked what his shortest poem was? His response, “Me, We”.

Utility

Multi story car parks are not the nicest places to be. They create their own unique social and economic problems; frustrating queues to get in and out, they are particularly unwelcoming to women, and an insurance nightmare. It is a design challenge.

How to design something more elegant, more beautiful? The city of Aarhus as the Europe’s largest AI multi-story car park. Drive your car into one of 20 booths. Step out. Shut and lock the door then press a button. The car is transported below ground. The automated, pallet-free system offers some 1,000 parking spaces spread across three floors. From the moment the driver presses the button everything is automated. Nothing is touched on the vehicle except the wheels, and the AI system calculates through the day the likelihood of your return and ensures a fast recovery of the vehicle when you want it back.

Recently, I watched people drive in, deposit their cars and then pick them up. Young and old alike were intrigued and delighted by this incredible piece of design and engineering. It is in itself a beautiful thing to see. The utility is beautiful having solved the problems of personal safety, time efficiency, insurance etc., in such an elegant manner.

Businesses that create beautiful utility will reap the rewards of that commitment to take a common object and turn it into a work of uncommon grace. It could be a car park, a spoon, a film or a phone. People that design for beautiful utility, create wonderful, optimistic life enhancing experiences in big and small ways, and always sell out.

Restorative manufacturing

Flute Office is a pioneering company that is producing an entire suite of workplace products along with a groundbreaking business model to change the way we think about what we sit on, and what we work on. The product is designed and engineered to high standards, from upcycled cellulose and is 100% recyclable. Rather than buying a desk, you buy a service, personal to each customer, with a no-quibble guarantee, rapid delivery, and end-of-use buy-back.

But it’s not just the design or manufacturing model that is of interest. It how this upcycling can displace cost inefficiency. Taking fixed costs that are redundant. allowing capital to be placed somewhere else to be more productive.

For example, it costs the NHS £84m to deal with waste. Upcycling just half of this material the NHS would save £135m per year. Moving from a capital purchase to a subscription model, a further £100m could be saved. That is almost half of the entire annual NHS budget for new equipment.

20% of all landfill comes from office furniture, it takes 540 kgs of raw material to make one desk, so why not make something that addresses those issues of waste head one? Large corporations have warehouses full of desks, it takes 20 minutes to fully install a desk, Flute office desks take 2 minutes.

Businesses that are beautifully restorative, always give back more than they take. They provide benefits, which are economic, environmental and social. Nature has been around for a long time, why not borrow from her playbook?

What makes a beautiful business?

So what makes a beautiful business? It’s purpose, it’s process, culture, utility,  leadership,  enterprise design,  manufacturing and system design. Is it possible have all in one company? Yes. Is it hard? Yes. Creating beautiful things is the hardest thing we will ever do. Ugly is easy. But there are clear benefits to creating beautiful businesses. Here are some key points that we can apply.

  • The joyful and meaningful experiences it creates for employees and customers.
  • Culturally attractive to its customers, employees and investors.
  • Optimistically works to a higher order purpose.
  • The transformational value it delivers as beautiful utility.
  • Engenders trust for all those who work for, or buy from, the business.
  • Is restorative. Giving back more than it takes. Restorative to employees, restorative to the world from which it takes, buys people’s time or harvests raw materials.
  • Understands its vision lives daily in everything it is and does.
  • Is a crafting organisation, always curious, always trying stuff out to make sure it stays relevant as the world evolves around it.
  • Is design led, constantly asking, ‘is it useful and is it beautiful?’
  • Values intuition. Hand, heart and mind.
  • Is lovingly disruptive.
  • Understands great work can take time – the time it takes to make it inevitable.

Everything we make in this world follows the same process. We must think it, imagine it, dream it, then we make it. Everything is designed. And if everything is designed then we have the opportunity to make it beautiful, restorative, engaging, valuable and meaningful. We all need something to believe in so why not make it with beauty and grace.

What would your business look like if it were more beautiful? You can find out more in my book Do Design!