Episode 166 – Investing in Sustainability with Paul Herman

Macro N Cheese – Episode 166
Investing in Sustainability with Paul Herman
April 2, 2022

 

[00:00:04.410] – Paul Herman [intro/music]

It’s really just picking a problem that’s sticking in the craw of the community you’re working with, finding the people across sectors who will do something and then just launching a pilot and starting to to dig into that.

[00:00:22.630] – Paul Herman [intro/music]

We have to figure out what the solutions are for today to break down this tribal approach. It’s not a bad idea because it comes from somebody who has a philosophy that you don’t agree with that hopefully has a kernel of innovation in some way if designed for the true goal of making our individual and collective well being better.

[00:01:42.110] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.090] – Steve Grumbine

Alright everybody, it is Steve with Macro N Cheese. Today’s guest is R. Paul Herman, who is the CEO and founder of HIP Investor ratings and portfolios for investors, advisors, funds, and co-editor of The Global Handbook of Impact Investing from Wiley, which was published in 2020. And with that, let me bring on my guest. How are you today, sir?

[00:02:08.770] – Paul Herman

I am great. Thanks for having me here on Macro N Cheese.

[00:02:12.070] – Grumbine

It’s a pleasure. This podcast, I had an idea of what I wanted to do and I listened to your stuff and I was very excited about the potential. What we’re talking about is – MMT really comes at understanding what is affordable very differently than the rest of the economics world. We know as a currency-issuing nation, the federal government can issue whatever it needs to pay for whatever it needs to pay for that is purchased in US dollars.

The issue is do we have the votes and do we have the real resources? And so, that’s the approach that we’re going to be talking about today. You’ve got to be able to plan out how you get the real resources. And Paul, thank you so much. This is such an important topic.

[00:02:57.610] – Herman

Well, it’s super important because we have five crises of our time and those crises are going to require a multisector approach. So, the five crises include a health crisis; COVID and its lingering effects, including long COVID and the impacts on our existing health care system and healthcare workers. We have wealth crisis with inequality among many different geographies and income levels.

We have an Earth crisis requiring climate action as fast as possible. That also requires equitable climate action because we have gaps in equality and inequality by race, by gender, by age. And then we have a trust crisis. We believe less and less in institutions that have helped us become a civilized society in a way to help boost our health and wellness and have a quality of life and to have an education and put in roads and support hospitals, many of which are nonprofits.

So, we have these five crises facing us. And there is the 17 UN Sustainable Development Goals that have morphed from the Millennial Development Goals and those frameworks, the five crises of our time, the 17 SDGs, that’s a way for all of us to take action. And that action is obviously government. Government’s job is to ensure a better quality of life, a higher well being, access to health, wealth, earth, equality and trust.

So, governments have the ability to tax or derive fees or create incentive systems or set the rules of the game or be regulators. We have the nonprofit sector, the civil society sector, the nongovernmental organization, however you want to call it. Those fill in the gaps between what happens in everyday life in business and what governments aren’t agile or flexible enough to do.

I used to work for one of them called Ashoka, which funds social entrepreneurs around the world. We also, in my day to day work, work with NGOs like the Carbon Disclosure Project, CDP, or the Science Based Targets Initiative, NGOs like the Brennan Center and the Southern Poverty Law Center to ensure that people have human rights and free and fair elections.

And then we have a very large capitalist-driven, for-profit sector that is extremely effective and efficient – for good and for bad sometimes – that has capital markets underlying all three of these large sectors. And, so, resourcing needs to be thought of in a large umbrella like we’re talking about here on Macro N Cheese. Resourcing needs to think about what is a multi-sector finance approach.

That’s a class that I created and developed with some partners like Megan Morrice, and we have focused on how do we bring new multi-sector thinking to our multi-sector world to solve multi-sector problems. And as you introduced, we have co-edited a book about it which has 50 co-authors from all around the world on how to solve these everyday problems staring us in the face with a multi-sector approach. So happy to dig in more.

[00:06:16.340] – Grumbine

That’s fantastic. I tend to come from the scourge of many capitalist view which is the central planning mindset. I think that it requires at least a central concept. You can distribute the implementation, but I believe you have to have a coherent strategy for it to work. And even though it’s not necessarily drilling down at every state and municipal level, it has to have at least an understanding of what it’s trying to achieve.

And that’s going to take into account stakeholders, both internal and people, maybe, a couple of layers removed that may have a negative impact politically. And so managing all these interests to develop a resource strategy. There’s so many factors. I would be interested in hearing your approach. How would you begin to facilitate any project? If I come to you, and I have this really big initiative that I want to do. How do I plan for this to achieving my ends?

[00:07:19.690] – Herman

Yeah, great. The project management process that you describe and that you live every day, and that, as part of your project management process, I’m sure, because it deals with people and not everything goes according to plan, has to evolve over time, has to adapt to people’s skills. Making sure you have the right skills for the right job.

When I first got promoted to being a project manager and consulting, my mentor, at the time, Leo Redmond, said, you don’t know how hard this job is. And of course, I was young and in my 20s and thought it would be easy. And he was right. I called him six weeks later and I said, oh, you are so right. And one of the things he coached on was to say as a project manager, as a systems designer, as an enterprise architect, your job is to figure out who has what skills and to put them in the right places.

And, so, you can’t expect people to do things that, maybe, they’re not skilled or talented or have expertise for. People can always grow, but you operate from their strengths. So, similarly, you can apply that, not just to people, but to sectors. And, so, I usually talk about three sectors because those are the biggest; government, nonprofit, for-profit business. But there’s other sectors, too.

You have academia, you have the military, you have the science community, you have athletes, you have arts and theater. Those are all smaller sectors relative to these bigger sectors, and they each have something to add or a role to play. So, part of the systems design of solutions is not only to figure out what the problem is or what the problems are and how they interact, but, also, who has the capabilities and how do you bring those capabilities to do that.

And, in some cases, you can create a version of a solution with one view and your view of them. But if you can create a multi sector, multi organization process that brings that out. I did this actually, with what ended up being a group of 300 people at Walmart for a couple of days. We were consulting to Walmart on how to bring environmental action and fair pay and other social and governance factors.

And there was a cross-organizational group of suppliers and staff and NGOs from Environmental Defense Fund and technical experts and the like. So, drawing from a wide pool is essential, also drawing from a pool of different capital structures. So, nonprofits typically operate on grant funding. So, our schools might be government entities or independent entities or nonprofit entities.

There’s a handful of for-profit school, but they operate not only on tuition, but sometimes grants of tuition for low income students. And, so, either the federal government via the states or the states themselves or your property taxes where you live, they fund the ability to deliver those services. Similar for hospitals. Hospitals depend not only on what you collect from patients, but also what you collect from governments or possibly even health oriented foundations like Robert Wood Johnson has a lot of initiatives around healthcare.

So, having an open mind of who can contribute, understanding what their pros and cons and natural skills are, and then starting to map those two, what could they deliver as solutions that they already do, that’s the easy part. Or what could they deliver as solutions that they haven’t yet done, that’s the innovation part.

And, so, that’s where in a multisector solution, multisector partnership, we can, let’s say for climate action in the city of San Jose, California, where there’s headquarters for Adobe and Cisco, and where there are low income areas in one of the cities with the highest population in the state, how do we deliver equitable climate action?

And, so, there have been plans for equitable climate action in the city of Oakland. Daniel Hamilton’s helped to lead that and Shannon has helped to lead that. And, so, it’s not only how to achieve climate action through what the city can do, it’s how to do it with partners and how to do it in the community. And, so, part of that process was both community ideas from the bottom up and a sharing of the decision making criteria about how to do things.

So, that would be part one of the answer. And we can start getting into more tangible actions and strategies and capital structures to do that. But bringing as many people to the goal as possible from a diverse group of backgrounds, expertise, talent and sectors is a way to solve crises that are bigger than any one sector.

[00:12:23.370] – Grumbine

It’s a great start to this because one of the next pieces and I talked a little bit about the different stakeholders. You got champions. You got people that are going to be anchors keeping you from your goals if you don’t solve them. And then your neutrals. And you have change management as a part of selling your idea, getting this idea out there. It’s not just random voters through a computer screen that are watching or listening or reading.

These are people that you have to win over to your concept and then getting them to pitch in. And when you allow people to participate in the design where they feel like they have a stake in the process or the outcomes, they’re going to be more apt to lean in. And a lot of these things are great ideas that have no steam behind them.

How would you get a concept like this across sectors? Would you have to have a different business case for each sector? It seems like you got a different story to pitch to a capitalist business leader. How would you go about pitching this? How would that work?

[00:13:34.690] – Herman

Yeah, great question. My whole career stretching from a political science and finance degree from the University of Pennsylvania and Wharton School, to working at McKinsey with large corporations, mainly, but also large organizations, to working at Ashoka with nonprofits, to even doing some government work like on the Hanford Nuclear site.

That was the one where I think I had the most number of stakeholders that I worked with. There were 40 stakeholders about what would happen to the former nuclear weapons, nuclear waste site in southeastern Washington that included federal EPA, state EPA. You also had Native American tribes who grew up there and up until the 1940s participated on the land that wanted to know for this half life of chemical materials that now is in the Columbia River in Washington state.

How are you going to restore the land to what it was before you got here, which is impossible where Tritium has a half life of about 20 years and Plutonium has a half life of about 18,000 years. So, the incentive design is what is a common incentive each of those parties can get excited about and work towards?

And it most likely won’t be 100% excitement from 100% of the people but what are the Venn diagrams and overlapping and common goals? So, one around climate which, one of my favorite people who’s not with us anymore, Ray Anderson, who founded a company called Interface and he was an engineer and lived in Georgia and he was being affiliated with Georgia Tech.

He was one of the first in business and finance and capital markets to talk about how to build environmental efficiency into the business. How to not just sell flooring to a buyer, but how to lease flooring that then you would replenish over time. Kind of like what happened in technology with the recall policies, the exchange policies when you would sell printers, fleets of Hewlett Packard or other printers in Europe.

Your mandate was from the regulators, if you’re going to sell this tech equipment, you got to take it back when it’s done or you need to help extend the life of it over time and to fight against the goal. Some goals in some businesses are how fast can we sell the next product instead of how long do we extend the life of this product to make it useful?

[00:16:01.630] – Grumbine

One of the things that I think your average voter sees today is the stripping down of solid quality programs to get through Congress. And what starts out this thing that can actually do something turns into this feckless approach that doesn’t actually satisfy the need. And, so, a primary example, Build Back Better, started out big, bold, turns out to be not even able to get inner party support.

How do you measure the effectiveness of what the actual goal is of what you’re fighting for versus when they start watering it down? It seems like most people are not equipped to push back and say, well, hey, wait a minute, once you take that away, the rest of it falls apart.

[00:16:52.630] – Herman

Yeah, so, we could talk concepts and that can make us feel a little bit better or we can talk specifics. So, here’s one specific that has made progress. I mentioned Ray Anderson and what I thought what one of those questions would be, Ray Anderson would sometimes say, what’s the business case for life on Earth?

Is there a business case for not having life on Earth? Is it our current path in many different ways? And, so, one of those contributors to an environment that we all want to live in and that also hits sustainable development goals of life on land and life on water is zero waste to landfill. So, zero waste to landfill is a need, a specific need. I’m going to take this down from federal to state to local.

Many cities are out of landfill space. A solution emerged where we just shipped it to China or to Peru or to Nigeria because poor people there would sort through the landfill to find things of value. And that wasn’t a solution for the US. Then China said we’re not taking any more of that crap. And, so, there is an organization called Closed Loop Partners.

And Closed Loop Partners, essentially, has a couple of different types of multi sector funding programs. Some are private equity, some are private debt, there are some now that are loans, some of it’s funded by grants. It’s a mult-sector approach. And that is the companies who are producing a lot of plastics need to solve that problem in the places where they sell it because they’re incurring a future liability of, most likely, being sued in the future just like cigarette companies were sued for impacting the health in the 1980s by the state attorneys general.

There’s an increasing plastics burden in the world. There’s also things like compostable food. And companies like Safeway figured out that that didn’t have to be a cost center, it could actually be a profit center. And so all the compostable food in the Safeways could be turned around and sold for revenue to help enhance farming and soil and reduce the amount of nitrogen that might need to go into that soil to help improve it.

So, what Closed Loop Partners does is get investable money from the treasuries where all the cash is held of companies like consumer products companies, Procter and Gamble, Coke, Pepsi and the like. And then they invest them in actual zero waste to landfill solutions, biodigesters, recycling, waste reduction.

And then that’s a solution for cities who don’t, then, have to buy more landfill space or add to more landfill space or collect trash. And one of the interesting things when you study capital markets, which we do at HIP Investor is some Muni bonds actually pay for companies like Waste Management Inc., WMI, to collect the trash.

And so you’re buying a Muni bond of a locality that then goes and pays the for-profit company to collect trash and hopefully recycle trash or the like. So that’s what Closed Loop Partners is addressing. How do we eliminate the root cause? How do we shift the root cause to bring new technologies, new processes, do this across cities, nonprofits and for profits, and to then make life on land, life on water, two of the SDGs better.

There’s other multi-sector partnerships as well. So Apple has built this new humongous headquarters in Sunnyvale in California. And there’s going to be a big water drain – literally – to do that. And so Apple’s worked proactively with the cities of Northern California to figure out a how to put in the most water-efficient appliances so that when everybody flushes the toilet at once in the Apple headquarters, what happens?

Can they do that with no water, low flow toilets? But also where is that water source from? Is there gray water that gets blended in? What’s the waste treatment for that on the way out? So it just takes going one or two levels up above the organization for how you participate in the system. And the system is inherent that it has multiple participants. So another example is Bloomberg.

The Bloomberg Foundation. Michael Bloomberg and the Bloomberg Foundation consults to cities on their climate and greenhouse gas solutions. And in general, for large cities at least, there’s two big contributors to greenhouse gases: buildings and transportation. So 40% of greenhouse gases are from buildings that could be made more efficient, and 40% are from transportation.

Hopefully, an increasing number of us carpool or bike or scooter or walk or even just work at home to address to help contribute to climate action. But there’s also infrastructure that’s needed, like electrical vehicle charging or fleet replacement and micro mobility and parking lots that cities operate where you can have transportation solutions built in.

So that modeling of those goals then can turn into financing from governments or nonprofits or capital markets. And this is where the design comes in, of having the right design of what’s our goal. There are many, many climate action strategies that not only reduce greenhouse gases, energy sensors, energy efficiency management, heating, ventilation, air conditioning solutions, stronger windows and insulation.

There’s a long list. That payback is the thing in dealing with corporates, as you think about multi sector solutions, like what’s the payback? And a lot of these pay back in nine months, 18 months, 36 months. And for most large, allocators that’s good business, the shorter the better. And so that reduces greenhouse gases and creates a financial return on investment at the same time.

So this, of course, is happening in the military. And so Richard Kidd is one of the high ranking leaders in the military, and he is essentially working on climate action initiatives and energy efficiency initiatives because one of the largest users of oil is the Department of Defense. Both for safety of soldiers on deployment and self dependence, of being able to move and eat what everybody needs to eat and power the vehicles is that transition to renewable energy is happening with one of the largest purchasers both of energy and equipment.

So government can use its purchasing power. So this may be one of the things that is a big lever. How does the government use its purchasing power in a productive way that benefits society? How does it work with nonprofits to engage citizens to get them educated, informed, and shift their behavior? How does it create incentives for capital markets, not just around short-term or long-term holdings, but maybe there’s a soon to be incentive that you’ll get tax breaks or other financial incentives to reduce greenhouse gasses, which are measurable at the scope one, scope two, scope three.

So there’s no lack of potential solutions. And you said what’s the metric with the incentive? The incentive is who’s going to do it, has it been done at least once? One of the things we’ve listed on the HipInvestor.com website, if you click on who you are and you click on municipalities, there’s a list of all these financial mechanisms, taxes, fees, leases, and loans that have been done at least once by a city, by Milwaukee, Wisconsin, or Philadelphia, Pennsylvania, in Montana or in Vancouver, British Columbia.

So that’s I think bringing things that have been done before to real problems that people have that solve constrained budgets in cities and counties and states is a way to make positive progress. And at the federal level, it’s turned into a tribal system that literally is against it if the other side proposes it. And so a lot of our action is going to need to be at the local and state level until the federal system can catch up to solve major problems.

[00:25:19.330] – Grumbine

I think it’s a very powerful case you just made. And one of the challenges is the role of the currency issuer versus the currency user. You may not like capitalism, I can assure you I’m with you. I’m not a big fan. But the climate crisis has even anarchists like Michael Albert saying, I may want to have no bosses and no hierarchies and all these other things, but the crisis of climate disaster requires immediate action.

Steve Keen has said, I think that we won’t do what we have to do until we absolutely have to do it. I’ve read a lot of Michael Hudson and Jason Hickel who have basically said that incentive for capital to do what it’s supposed to do just really isn’t there. We have an existential crisis today. And so what you’re talking about is by any means necessary approach to addressing real problems.

And we’ve been pretty harsh on some of the local and state initiatives simply because the race to the bottom in the United States is very real. Fadhel  Kaboub and Bill Black have talked extensively about the business model of states looking at their comprehensive annual finance reports. Most states do not have enough funding, period.

There’s only a few states out there that really have the fat to absorb a large initiative. MMT, we could finance this from the federal government, we could make it all go away. That isn’t what’s going to probably happen right now. Help me understand better how we might finance state and local initiatives that we don’t have an appetite for at the federal and we don’t have the resources at the municipal level.

[00:27:05.590] – Herman

Yeah, well, some of this tribal thinking does cascade down to States like in Florida and Texas that shows up in these ratings of sustainability and wellness that we do at HIP. So we rate more than 120,000 Muni bond entities of cities, counties and states, water districts, hospitals, schools and the like. And one of the consistent things we see is in the less progressive minded States, it’s basically you’re on your own.

There might be city resources like maybe Atlanta, Georgia, or Austin, Texas, that seek to do something that’s beneficial for people, planet and trust. But in Texas, it’s a recurring thing where the city of Austin will pass something and the state of Texas will immediately pass the opposite thing because it’s progressive. Not that it doesn’t solve a problem, but because it doesn’t fit a tribal talking point.

So, yeah, we’re living in an extreme version of that, which is totally frustrating as a problem solver or project manager or solution wanter. So ways to get that done today are, there’s more than a thousand green bonds in the market today. So those are funding for projects in governments, states of California, New York, cities like City of Buffalo has a new environmental impact bond that was very successful, supported by a group called RISC coalition for Sustainability, and the for profit companies are floating green bonds as well for the use of proceeds for anywhere from fossil free energy to resource efficient buildings to lower carbon transportation.

We mentioned zero waste to landfill, so there are some financing mechanisms that are working. There’s also a desire and a demand for traditional financial capital to fund some of those solutions as sustainable investing grows. What is needed and what would be great, I thought more of this might happen after the 2008 financial crisis, where MMT began to get more and more recognized as a useful solution that banks could give lower interest rates to job creators.

And JP Morgan Chase actually did this for a short period of time, and then it stopped. It didn’t continue. And I’m not really clear why. One of the other programs that happened at that time was the state of Georgia, this is sort of in the MMT frame, signed up in the regular budget process for a year to do the retraining of employees, citizens of Georgia, to learn new skills so that they could be put in 21st century jobs, out of 20th century jobs.

And the state would reimburse that for up to six months. It was a super successful program. Lots of companies signed up. Who wouldn’t sign up for free training for employees? And then it was never renewed. And these tribal governing factions were some of the reasons behind that. So here you had a government program that worked but couldn’t get renewed because it actually worked too well, maybe, for some people who had a different philosophy of how life should work.

So at the local level, there’s usually a limit. Part of the reason why we pulled together this toolkit of financing mechanisms and examples in cities where it’s worked at least once and usually multiple times, is cities and counties and States are up against a budget limit because they don’t control their own currency. Some are dabbling in currency.

Ithaca is like one of the places. Ithaca, New York, has dabbled in having its own currency, at least for commerce. So you have green bonds, you have developer fees. If you’re going to build something, you need to create a climate or environmental solution. You have a carbon tax. In Boulder, Colorado, there’s a carbon tax. In Montgomery County, Maryland, there’s a big polluter tax.

It’s similar to what you may have read about where there’s some cities having a CEO pay tax. That happened up in Oregon for Intel and other companies that have paid their CEOs. You have renewable energy credits for low and zero emissions. So in the state of Connecticut has energy fees related to that. There’s density bonuses.

So unfortunately, real estate investing has tended to be pretty slow on the environmental solutions front. Many cases because of what’s called triple net leases, where the benefits go to the renter, but the landlord has to put up the money. There’s now a willingness for more and more real estate investors to see that those make for better experiences of tenants who will pay higher rents, turn over less, and be empty for less time.

And so there’s this massive education that happened to let people see that positive return on investment can come from solving these five crises of our time. There’s traffic congestion charges that exist internationally in Stockholm and Singapore that are coming to the US, for example. So there’s policy levers, there’s tax levers, there’s fee levers, and then there’s third party financing is another big bucket.

And then multisector partnerships, some of which we’ve talked about already. So it’s really just picking a problem that’s sticking in the craw of the community you’re working with finding the people across sectors who will do something, and then just launching a pilot and starting to dig into that. And in the best case, that pilot is designed to be scalable statewide, regionally, nationally.

There are carbon emissions trading systems that work today in the Northeast United States among utilities and manufacturers and the like. That survives the Chicago Climate Exchange, which did not survive from a decade and a half ago. So when there’s a pressing problem and you have problem solvers, people can do something.

The bigger you do it, though, the more potential negative pressure you have. So it will come down to these local solutions that’s where we can make the most progress right now. And maybe there’s baby MMT. Maybe there’s baby MMT for cities or states. Some of them are actually exploring.

[00:33:32.210] – Intermission

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[00:34:23.230] – Grumbine

When we look at state and local initiatives. Not all states are created the same. Florida and some of these tribal mindsets where they’re ideologically driven doesn’t really allow for a universal approach to problem solving. For example, with a Green New Deal, the Green New Deal has to be beyond the borders of the United States.

It must be global because even though we have these artificial borders we defend ruthlessly, the planet that we inhabit has systems that don’t respect those artificial divides and are absolutely critical to making things happen. So I guess my question to you is that doesn’t really solve a problem. Climate is bigger than the local city or state.

You implement something locally, and how does that really impact the larger problem? We’ve instituted these great things in Boulder, Colorado, but in reality, we’re all going to still die from things that come about as a result of climate crisis because that local solution didn’t really fundamentally change anything.

[00:35:36.610] – Herman

Yeah, it’s definitely a deep concern. And the younger you are, the deeper the concern it is. And it’s starting to affect the birth rate because younger people don’t want to have babies to bring into that type of world. There’s no lack of solutions. It’s like the $6 million man. We have the technology, we just don’t have the implementation.

And so in my first book, The HIP Investor, we covered some examples of this – it’s published by Wiley, just like the Global Handbook of Impact Investing, you mentioned. And there was a quote from an annual report by the CEO of Johnson Controls. And this is now going on more than a decade ago. If every one of their customers would just use all the products from Johnson Controls, commercial energy demand would be reduced 25% in the US.

That’s an amazing thing. And that’s a great talking point as a CEO, like, use our products, save energy, save money, but you can also save the environment. And so there’s that gap. To do anything environmental is hugging a tree. And to some people, that’s offensive for some reason, like the tree will hug you back [laughs] or you’ve never been loved?

So the solutions come down to what is implementable today for greenhouse gas reduction. In cities, there are six things. First of all, fossil free energy that will help a lot. Solar, wind, Hydro, energy storage. One of the things in the municipal markets, in utilities, there’s 120 or so publicly owned shareholder energy utilities like Tennessee Valley Authority in Appalachia operates a lot of Hydro.

There’s a lot of utilities in the west, but there’s also government and nonprofit utilities supported by Muni bonds in coal country in Kentucky, Ohio, Pennsylvania, Illinois, Utah. And so, they need funding. Today, capital markets are starting to help orchestrate that shift, along with state regulators and state public utility commissions. So that’s one positive thing that’s starting to happen.

Resource efficient buildings. So new construction, including homes, there’s an increasing number of – still a low number, but increasing number – to put in electric, not gas, because gas has methane that off-gases and that it’s much more dangerous in harvesting natural gas and moving natural gas. So resource efficient buildings that are more electric, that have what they call passive systems from wind and solar built into the building, that have solar panels built into the windows.

This is exciting development. These are all solutions that exist today. Low carbon transport. What was interesting about the Pandemic is global greenhouse gases only went down 8% during the Pandemic. So we have the entire world locked down, not commuting. And yet the greenhouse gasses were still circulating. So you talk about systems design at the civilization level.

We need a different system design because those greenhouse gasses should have been down 50% to 70%, not 8%. So that’s still to be solved. Zero waste to landfill. There are solutions coming around of both biology that eats oil spills, including in West Africa, there are big oil spills from large oil companies. There are technologies where an individual in Nigeria can walk out to an oil spill with their mobile phone, get paid via – whether it be blockchain or crypto or a traditional currency – drop a natural biological element that eats the oil.

And within days, a drone can fly over to see if what they did resulted in action. This seems like a totally amazing 2021 solution where individuals can get paid to do a job, to clean the environment with existing technology that can be transparent, performance-based and accountable. So those three principles, I think, are what we need to bring to all solutions that we’re talking about today and in your podcast is how do we make it transparent?

How do we make people who do something visible and who don’t do something visible? How do we create incentives, whether metrics or system solutions or just pilots at work, performance based? How do we compare leaders and laggards? And then how do we make that accountable? How do we build that in?

And one of the things happening in capital markets is there’s now something called the sustainability linked bond. And so you will only get rewarded the more sustainability outcomes you provide. That’s super helpful. And so we’re humans, we’re driven not only by greed and fear. We need scorecards and even to gamify, making our world a better place to live so that can be built into capital markets.

And that accountability can help. So those are, I think, icons of hope that if aggregated together, we can still have some sweeping behavior in some parts of society. But it’s a race, and it’s not clear we’re going to win the race or survive the race, but we’re human, so we’re resilient and net hopeful.

[00:41:11.110] – Grumbine

Starting at the local level and building our way up to the global level. You talk about building sustainable cities, and during the Pandemic, very little carbon reduction was done, ironically. The systems that we’re living on, even without traveling around, are very inefficient and very bad for the environment. What does building sustainability into our future look like?

[00:41:36.310] – Herman

One place where that’s happening today is the city of San Luis Obispo in California. And the Mayor there wants to be 100% net zero by 2030. And the sustainability team is on board. The City Council is on board. The citizens are on board. One of the people not on board is the local gas utility who is storming into City Council meetings without masks during the pandemic.

So what city of San Luis Obispo is doing anyway is electrifying buildings, developing electrical infrastructure so that the capture of energy via solar and wind and hydro, and possibly fossil efficient means, can be delivered via power lines, via automobiles. And that’s one medium-to-small city that’s moving forward.

New York City is moving forward to again change, adapt, evolve the building codes and to prepare for sea level rise and to strengthen and make resilient Battery Park City in Southern Manhattan. And there’s dozens of cities that are doing this. There’s a group called the Urban Sustainability Directors Network, USDN.org, and there are several hundred cities that are working with the Carbon Disclosure Project, CDP to report their greenhouse gas emissions and share what’s working.

And so among USDN.org, CDP and another group called RISC, helping bring new capital market mechanisms to fund this everywhere from Ithaca, New York, to Fort Lauderdale, Florida, to Oakland, California, to Bend, Oregon, to Columbia, Missouri, Anchorage, Alaska. There are individuals working on sustainability inside the city, but for the most part, those people are under-resourced.

So they need partners from business and nonprofit and other government. Moral support is helpful. They’re optimists, so they’re solving problems, but they need to show that these solutions work. So biodigesters is one technical solution. You can feed a biodigester and you can output energy and you can eliminate waste. And so propagating biodigesters is something tangible at the city level.

Some of the former sustainability directors, a woman named Barbara Buffalo, is running for Mayor now in her community in Missouri. And so, the next step, we always have finance people or lawyers who run for office. Sustainability leaders and innovators are running for office. The city of San Francisco is very active in issuing bonds that have a sustainability component.

There are cities that work with the outreach in the Business Development Coalition of cities that talk to corporations about what their sustainability goals are what their SDGs are, the UN SDGs, and then also work with coalitions like Coalition for Green Capital or the California Infrastructure Bank. Or Connecticut has an infrastructure bank. There are tangible institutions and solutions.

And again, we mentioning a lot of names here to make it real and to show that it’s happening in real life. But we have these on our website at HIP Investor, if you click on the municipality tab. And so a sustainable city has a climate action plan. The good news is a couple of hundred cities in the US have climate action plans. The bad news is they are not fully funded.

And so the next step here is how can we get these funded? In what cases taxes are appropriate and fees are appropriate. Third party funding, multi sector partnerships. So a sustainable city needs to be resourced. The sustainable community needs to be resourced. We have a co-branding ETF exchange traded fund with BANAC called the Sustainable ETF that focuses on SDGs, 9, 11 and 12.

But it also brings in criteria of opportunity zones. So cities have low income areas of citizens who need income and jobs. And so they can tap into opportunity zone funding. And so there’s financial firms like Cantor Fitzgerald that have set up opportunity zone funds, which is an example of a government policy multi-sector to bring resources and capital into an underinvested area that if you hold it for 5 – 10 years, you can defer your capital gains and even have some of them forgiven.

So these are the solutions. And that was a bipartisan addition to the Tax Cut Act in 2017. So one of the few gems out of the Tax Cut Act of 2017 was bipartisan. Tim Smith of South Carolina, Senator and Cory Booker, Senator from New Jersey, added this opportunity zone component policy component to help investors put money in the right places.

And some of those have environmental benefits as well. And then a key aspect to be a sustainable city is to proactively address climate action. So with Barron’s, Morningstar, we did a deep dive analysis based on what Muni counties, of the 3000 counties in the US, who’s most at risk of climate and who’s doing the least. And so we came up with a ranking of all 3000 counties.

Using our HIP ratings, we identified the worst ten at risk, not doing anything. And Leslie Norton called them up as a reporter to ask for comment. And they put their head in the sand. They said, no comment. This isn’t a factor. It’s not affecting our credit rating. Oh, it’s no problem that our city floods three times a year when the four rivers that come through it in the Southeast.

So this is continual pressure for all of us, with social media, with podcasts, with speaking up, with going to City Council meetings, with bringing solutions and funding solutions to make things more transparent, make people aware of the risks. What are the crises facing it.

What are the goals, the sustainable development goals, translated to the local level, and then just start doing stuff and prove that it works or that it doesn’t work. But when it works, it catches. And so those are essential components of living in or leading or helping accelerate a city to be even more sustainable.

[00:48:24.010] – Grumbine

You worked with Walmart, but in fairness, Walmart is one of the chief antagonists to employees. They have some of the worst practices, as huge and as profitable as they are. Walmart business model coming in the local area, knocking out family businesses and taking over. You’ve got tent cities all over the place in San Francisco.

Gentrification one of the most tragic outcomes of improving cities. As you’re making a city more green, a lot of people are going to want to move there. It’s going to boost up property values. The people that live there can no longer live there because of the cost of the new improvements. So there’s a lot of factors that sound good on one front, and this is the danger of working with capital, making it exciting and enticing.

There’s a profit motive, and that may or may not benefit all of society. I’m curious how you balance that, because I would like to do away with the concept of private property. But that’s another story for another day. That gentrification is very dangerous to the extreme inequality we already have in this nation, much less around the world. What are your thoughts on how to address some of that?

[00:49:42.220] – Herman

Yeah. There’s problems in every city.

[00:49:44.690] – Grumbine

Sure.

[00:49:45.340] – Herman

For some, it’s health problems. For some, it’s wealth gaps. For others, it’s racial and gender gaps. For others, it’s environmental risk. So the challenge is what will get people to bring solutions, solutions of any type. Some of them might be capitalist solutions, some of them might be socialist solutions, some of them might be communal solutions.

So my wife is a travel writer and food writer and archaeology writer. And we were taking a bus across Alaska, and the windows were open and mosquitoes invaded the bus. There were people from eight different countries on the bus, 16 of us. And so each person spoke a different language. And then my wife, being the collaborative person she is, she said, this is a mosquito in English.

What is this in your language pointing at the mosquito. And so we had a common enemy, which was the mosquito on the bus. And there’s swarms of them in the summer in Alaska. And so we need to identify what the mosquitoes are in our local communities, what are things we are mutually aligned about that we want to solve?

And I think the challenge of living in today’s world, I thought mobs were not going to survive the 1900’s or that some of the views that we have today would have evolved out of or grown out of 50, 100 or 150 years ago after Civil War reconstruction. But they persist. So I’d say it’s our challenge. I’m a long term optimist and a short term warrior.

How do we get people to agree on mutual problems we want to solve? That’s a big challenge. I think the sustainable development goals gives us a framework. It doesn’t mandate that it’s any type of economic system or social system. It mandates that we want higher wellbeing. We want no poverty, we want gender equality.

We want the ability to have a sustainable city and that there’s many ways to get there. I think we can have a productive conversation on this podcast, separate from views on private property or whatever is there are multi sector solutions that all of us can bring to have shared philosophy that would make the overall answer stronger. And there are people who have problems with capitalism.

Appropriately, capitalism has focused on the economic value instead of the stakeholder value or originally corporations were chartered by the government to solve a problem. One of the problems in early capitalism was cross border commerce. This is another key to great design. Great design isn’t a one time event.

Great design has to evolve over time and help us as we find out what we think the problem is and then discover what the problem really is. To evolve that design, evolve those metrics, evolve how we collaborate to solve them. So what I’m optimistic about is something like Maslow’s Hierarchy of needs, which is how we built the HIP framework when we started it 16 years ago.

Everybody wants and needs to be healthy. Nobody wants to die early. We all need a hug and to have a community that’s caring. We want to send our kids to school. We want great schools. We want a better generation for our kids beyond ourselves. We want to breathe clean air and drink clean water. We want opportunities for everybody in the community.

And we have to overcome some of our biological or genetic or cultural biases that emerge over time. So if we can focus on problem solving, what are common problems that we all have? Let’s test a variety of solutions. Let’s try not to define them by a name. Let’s test and experiment and bring a way to solve it. And then if it works, let’s do more of it.

And if it doesn’t work, let’s change it. And we have to figure out what the solutions are for today to break down this tribal approach. It’s not a bad idea because it comes from somebody who has a philosophy that you don’t agree with that hopefully has a kernel of innovation in some way if designed for the true goal of making our individual and collective well being better.

I say often it’s difficult to partner because people aren’t built for group interest. Many people are built for self interest as a priority first and group interest second. So the challenge for our humanity and our biology and our way of being and acting is where can self interest and group interest happen at the same time, and those will yield solutions that have higher chances of success versus one that has no self interest in it is going to be really difficult to get most people to agree to.

And one that has no group interest into it isn’t going to allow us to last very long as a society. So, it’s creative, this creativity that right now you can reduce greenhouse gasses and increase return on investment at the same time. That seems to intersect self interest and group interest. Health care for all should be something that intersects self interest and group interest.

It’s just that some of those people in the self interest category believe that some groups of society shouldn’t have health care at all. And so it’s difficult to figure that out. And government, luckily, has stepped in. Obamacare has worked for most people, except for some people’s psyche.

They put some people in a different category by color of skin or religion or income category. And we have to figure out how to solve for that, solve for empathy. Some people say we need to have empathy for others if we’re going to solve our own problems.

[00:55:25.150] – Grumbine

I really appreciate the conversation, Paul. This was amazing for me. We come from different angles at this, and that’s why I wanted to have you on, because my goals largely are aspirational, the things that I desire are things that are not in place today.

And there’s no meaningful way at this moment of transitioning to what I would prefer. So we have to deal with what is this is kind of that realist perspective. So your talk today was incredibly important to me, and I really appreciate you taking the time to do it.

[00:55:57.930] – Herman

Yeah, I appreciate this opportunity. And it’s up to us to solve problems. It’s easy to critique how things are done. It’s harder to actually do them, try them and see what works and scale up what works. So the more of us in this audience who can focus on solutions, engage lots of people, focus on the five crises of our time, health, wealth earth, equality and trust.

Use the sustainable development goals as an organizing mechanism across multiple sectors government, nonprofit, business, and then just test what works. And most people have tested something once somewhere. So I appreciate our conversation today. Our constructive conversation.

[00:56:36.440] – Grumbine

Amen.

[00:56:37.000] – Herman

This will be a rarity. And yes, I hope we’ll all have a chance to solve problems together going forward.

[00:56:42.470] – Grumbine

Absolutely. So where can we find more of your work?

[00:56:45.210] – Herman

Most of our work is at the hipinvestor.com website. HIP stands for Human Impact and Profit. So there’s research papers, academic analysis. We show how sustainability and profitability can be the same thing and that it’s good for your portfolio as well as good for society. We’ve written two books that Wiley has published, The HIP Investor and also The Global Handbook of Impact Investing.

And then we’re on Twitter and LinkedIn, and Facebook and we’re active and then you may have mentioned before we have a webinar series called Esgx.org where we have constructive solution oriented conversations.

[00:57:27.700] – Grumbine

And I’ve watched many of them and they’ve been very good. Thank you so much, Paul. We will talk to you soon. It’s Steve Grumbine and Paul Herman with Macro N Cheese. We’re out of here.

[00:58:22.470] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.