ERB PERSPECTIVE BLOG

By Kristine Schantz

23055469194_a81cc16788_kWith the end-of-the year rush, graduation celebrations and goodbyes now behind us, we are setting forth on the exciting but uncertain next phase of our lives. We have been offered an incredible privilege to re-enter the workforce with brand new opportunities; one that also comes with tremendous responsibility as future business leaders.

We are beginning this next phase of our careers and lives in an incredibly complex world. Here in the U.S., political polarization has created a widening gap between conservative and liberal thinkers, limiting productive dialogue and shared purpose. Our sense of security is questioned as violent acts target people while doing everyday activities, like going to work or enjoying an evening out. Our natural environment – the resources we depend upon and the air we breathe – is at risk due to the strain we have placed on it through human activity.

We have discussed and even experienced many of these challenges here at UM through classes, action-based learning and leadership development opportunities. We have been guided by our talented peers, faculty, staff, alumni, visitors and the broader campus network. We have been pushed in classes that challenge us and by perspectives that question our outlook on the world. We are different people walking out UM’s doors than we were walking in.

Of course, this is only the beginning, though. What we have prepared for over the past two or three years we must now actually do! And the expectations of business have only expanded. Yesterday’s commitment to maximizing shareholder value is today’s commitment to the “triple bottom line:” not only profit, but also the people and planet impacted by our business choices. The hard reality is that we cannot continue on the path we are currently on, and also expect ongoing and unlimited growth along with a healthy and productive future.

In our lifetime, we have been fortunate to operate in a world with relatively minimal resource scarcity. If water is low here, we pipe it in from there. If a mineral stock is short, we simply dig deeper. When labor becomes expensive, we relocate to where it costs less. But this is not, or unfortunately cannot be, the reality of the future. In the future, there will not be a new place to shift production or a new natural resource stock to tap. So we have to act today, as business leaders, to make some changes to ensure our collective future.

But, isn’t this something we can task our “sustainability” or “CSR” departments with doing? After all, that’s what us Erbers are for, right? None of us is responsible for solving these issues alone, but each of us is responsible for doing something. Mahatma Gandhi once said, “Whatever you do will be insignificant, but it is very important that you do it.” So, what role do you see business playing in addressing these challenges, and how will you, and we, be a part of this?

The truth is that no one here can solve climate change or global human rights abuses alone, but together we represent an incredible potential, re-entering the work force with the belief that we can do things differently, and maybe even better. Together we will establish the expectations and norms around what business is and is not. So whether or not you have “sustainability” in your job title and whether you work for a small social enterprise or large corporation, we – as business leaders – will play a crucial role in defining how the business world handles the environmental and social challenges before us. In fact, I believe that we need responsible leadership in traditional business functions – Operations, Finance, Marketing – even more than we need another social enterprise.

What do I mean by responsible leadership? As a supply chain manager, you get to know the conditions and concerns of the workers who produce and transport your company’s products. As a strategy manager, you encourage diversity and creativity of thought so that employees with innovative solutions are heard and supported. As a financial analyst, you find new ways to consider non-financial impacts, like human rights and carbon emissions, when assessing a new project. Of course none of these actions alone will reverse the collective impact of our actions to date, but they will build awareness, interest and compassion, which together ultimately serve as the foundation for meaningful progress.

Our world is undoubtedly complex, and our challenges intimidating. Perhaps one place to start, then, is with what we care most about and hope most passionately for in the world around us. Do you hope for a more peaceful future? A more equitable distribution of opportunity? A healthier natural environment? Whatever your hope is for the world around you, how will you use business to make it a reality?

As we step forward into our new roles as global business leaders, let us think about the contributions we can each make to ensure that business is used as a force for good. Let us build upon the lessons we learned on and off this campus about positive leadership and impact, and show that UM really does develop leaders who make a positive difference in the world.

 

Kristine joined the Erb Institute after nine years of international development work in Africa, with a focus on stakeholder engagement and program management in the field of community economic development. While Director of Programming and Training for the Peace Corps in Guinea, Kristine earned a Meritorious Honor Award from the State Department for her role in safely evacuating and successfully rebuilding the Peace Corps program over two years amid ongoing political instability. Kristine’s experiences in developing contexts have shaped her passion for complementary and collaborative action to address human challenges. Her work with Nike in supply chain, Fiat Chrysler Automobiles in supplier engagement and Apple in conflict minerals have honed her experience in supply chain sustainability and responsible sourcing. Kristine graduated summa cum laude from Hope College with a B.A. in Management. At the University of Michigan, she held fellowships from the Center for Positive Organizations, Center for the Education of Women, Dow Sustainability program and Peace Corps; she was also a Graduate Student Instructor at the School of Natural Resources and Environment. Kristine enjoys running, cooking naturally and spending time with loved ones, including walks with her beloved Guinean dog Olive.

 

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Joe Arvai, University of Michigan

So-called “nudge units” are popping up in governments all around the world.

The best-known examples include the U.K.’s Behavioural Insights Team, created in 2010, and the White House-based Social and Behavioral Sciences Team, introduced by the Obama administration in 2014. Their mission is to leverage findings from behavioral science so that people’s decisions can be nudged in the direction of their best intentions without curtailing their ability to make choices that don’t align with their priorities.

Overall, these – and other – governments have made important strides when it comes to using behavioral science to nudge their constituents into better choices.

Yet, the same governments have done little to improve their own decision-making processes. Consider big missteps like the Flint water crisis. How could officials in Michigan decide to place an essential service – safe water – and almost 100,000 people at risk in order to save US$100 per day for three months? No defensible decision-making process should have allowed this call to be made.

When it comes to many of the big decisions faced by governments – and the private sector – behavioral science has more to offer than simple nudges.

How to decide how to help Syrian refugees? REUTERS/Marko Djurica

How to decide how to help Syrian refugees? REUTERS/Marko Djurica

Behavioral scientists who study decision-making processes could also help policy-makers understand why things went wrong in Flint, and how to get their arms around a wide array of society’s biggest problems – from energy transitions to how to best approach the refugee crisis in Syria.

When nudges are enough

The idea of nudging people in the direction of decisions that are in their own best interest has been around for a while. But it was popularized in 2008 with the publication of the bestseller “Nudge“ by Richard Thaler of the University of Chicago and Cass Sunstein of Harvard.

A common nudge goes something like this: if we want to eat better but are having a hard time doing it, choice architects can reengineer the environment in which we make our food choices so that healthier options are intuitively easier to select, without making it unrealistically difficult to eat junk food if that’s what we’d rather do. So, for example, we can shelve healthy foods at eye level in supermarkets, with less-healthy options relegated to the shelves nearer to the floor.

Likewise, if we want to encourage more people to be organ donors, choice architects can design the form we fill out at the DMV so that the choice we make without thinking is the one that may allow us to save someone’s life in the future.

In my own research group, we lump these kinds of interventions under the umbrella of passive decision support because they don’t require a lot of effort on the part of a decision-maker. Indeed, these approaches are about exploiting – not correcting – the judgmental biases that people bring with them to all manner of decisions, large and small.

Since the publication of “Nudge,” there has been a proliferation of interest in bringing choice architecture into the policy mainstream. Even institutions like the World Bank and the Organization of Economic Cooperation and Development are rolling out their own nudge units. And, you shouldn’t be surprised to learn that the private sector has jumped on the increasingly crowded bandwagon of for-profit nudging.

We’ve successfully tested nudges for water conservation and sustainable food choice. Others have applied nudges to an even broader range of contexts. There’s no denying that choice architecture can work like gangbusters, which explains the widespread interest.

Sometimes a nudge isn’t enough

Nudges work for a wide array of choices, from ones we face every day to those that we face infrequently. Likewise, nudges are particularly well-suited to decisions that are complex with lots of different alternatives to choose from. And, they are advocated in situations where the outcomes of our decisions are delayed far enough into the future that they feel uncertain or abstract. This describes many of the big decisions policy-makers face, so it makes sense to think the solution must be more nudge units.

But herein lies the rub. For every context where a nudge seems like a realistic option, there’s at least another context where the application of passive decision support would be either be impossible – or, worse, a mistake.

Climate change is an example of a 'wicked problem' facing society. REUTERS/Sean Gardner

Climate change is an example of a ‘wicked problem’ facing society. REUTERS/Sean Gardner

Take, for example, the question of energy transitions. These transitions are often characterized by the move from infrastructure based on fossil fuels to renewables to address all manner of risks, including those from climate change. These are decisions that society makes infrequently. They are complex. And, the outcomes – which are based on our ability to meet conflicting economic, social and environmental objectives – will be delayed.

But, absent regulation that would place severe restrictions on the kinds of options we could choose from – and which, incidentally, would violate the freedom-of-choice tenet of choice architecture – there’s no way to put renewable infrastructure options at proverbial eye level for state or federal decision-makers, or their stakeholders.

Simply put, a nudge for a decision like this would be impossible. In these cases, decisions have to be made the old-fashioned way: with a heavy lift instead of a nudge.

Often, decisions are more complex

Complex policy decisions like this require what we call active decision support.

In these cases, specialists trained in the science of decision-making must work with people both to help them to overcome predictable biases and to approach decisions in a way that is different from how they might otherwise make them instinctively. To inform and structure these kinds of decisions, we – like choice architects – also look to insights from the behavioral sciences.

For example, we have a rich understanding of the decision-making shortcuts that people apply, as well as of the predictable biases that accompany them. So, we know what to be on the lookout for when we help individuals and groups make better decisions.

When evaluating problems that unfold over long periods of time, we know that people tend not to look at cumulative effects, or consider how choices made today may restrict the choices that can be made in the future.

Likewise, we see that decision-makers struggle with questions about how to put boundaries around the problem before them. For example, who really counts as a legitimate stakeholder, and who doesn’t? Likewise, are there hard deadlines or financial ceilings that must be obeyed? Or are these really soft constraints that can be challenged if the right option can be identified?

We’ve also learned that decision-makers often fail to adequately account for the broad range of objectives that ought to guide their decisions, as well as the performance measures that let them know if they’ve achieved them. And, we know that the manner in which people search for alternatives is often incremental at best. People look to obvious and easy-to-find options, the tendency that nudges exploit, at the expense of the creativity that’s required to address the really complex challenges.

Perhaps worst of all, we observe that people avoid the necessary trade-offs when a choice can’t simultaneously achieve all of the objectives that they deem to be important. It’s often the case that the objectives that push emotional hot buttons, like fear, are the ones we pay the most attention to when trade-offs are difficult or uncomfortable, even if these objectives play a relatively small role in terms of advancing our overall well-being.

Active decision support helps decision-makers to overcome all of these obstacles, as well as others.

Unlike nudging, the intent of active decision support isn’t to direct people toward a specific course of action. It is to structure the decision-making process so that resulting choices are defensible – in other words, in line with our prioritized objectives. For big policies, this includes the deliberate balancing act between social, economic and environmental well-being.

The good news for policy-makers is that a wide range of tools and approaches are available which may help them make more defensible decisions.

Active decision support approaches work by breaking complex decisions into more cognitively manageable parts. And they are desperately needed. The wicked problems faced by society can’t be nudged away. Emergencies like the humanitarian crisis in Syria and the slow violence of climate change cry out for active decision support.

Yet, as governments amass nudge units, and as the private sector adopts a behavioral mindset in their marketing and public relations offices, the need for behavioral insights that support complex decisions goes unmet. Why? Perhaps because
active decision support is often seen as something smart, educated people in the pubic and private sectors should be able to do intuitively, on their own. But, the simple truth is, they can’t. And, without investing in building the internal capacity for active decision support, they won’t.

Joe Arvai, Max McGraw Professor of Sustainable Enterprise, and Director of the Erb Institute for Global Sustainable Enterprise, University of Michigan

This article was originally published on The Conversation. Read the original article.

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By Susan Kayser, Erb Institute Postdoctoral Fellow

My previous post – “How a Few Offenders Create Industry-Wide Reputational Issues: ‘The Reputation Commons Problem’” – focused on how the collapse of Rana Plaza created a reputation commons problem for the apparel industry. In review, a Reputation Commons Problem occurs when the careless actions of a one or a few companies have negative repercussions for other companies within that same industry by drawing attention to social or environmental issues common to that industry.

A reminder amidst the rubble of what over 1,000 people died for in the Rana Plaza garment factory collapse in Bangladesh.So, how have apparel brands responded since the collapse to fix the reputation commons problem? Some have taken sincere actions that have both improved the working conditions at their suppliers and the industry’s overall reputation. Others have been accused by NGOs of taking only symbolic actions in an attempt to appear as if they have made improvements, when none have actually been made. Others still have done nothing at all.

After a catastrophe industry members can reduce public and NGO pressure by joining corporate social responsibility (CSR) programs as a show of good faith that the industry can handle these issues on their own (e.g., King, Lenox, and Barnett, 2002). It’s not surprising then that industry specific CSR programs are often created (or gain tremendous popularity) after a catastrophe occurs. In the wake of the publicity surrounding the collapse of Rana Plaza, two groups were created: the Bangladesh Accord for Fire and Building Safety (the Accord) and the Alliance for Bangladesh Worker Safety (the Alliance).

Originally conceived in 2010, the Accord was designed to be a voluntary program, requiring member brands to make a 5-year binding commitment to improving fire and building safety at their Bangladeshi suppliers. However, despite additional tragedies including another garment factory collapse in 2005 and a series of fires at factories (supplying to major apparel brands like JC Penney, The Gap, and VF Corporation) the Accord failed to receive enough support from companies to be successful (Clean Clothes Campaign, 2013).

Sadly it took the collapse of Rana Plaza to create sufficient public attention to the appalling health and safety record of the Bangladesh garment industry to drive members to join the Accord. Just one month after the collapse more than 40 apparel companies had joined. Currently, there are more than 200 members.

The collapse also led to the creation of a second group, the Alliance, which was spearheaded by The Gap and Wal-Mart. The programs have similar goals of auditing Bangladesh garment factories and making needed improvements. They even have similar sounding names. However, the Alliance has received scathing criticism from NGOs as being a watered down and symbolic version of the Accord. This is largely because unlike the Accord, membership in the Alliance is not contingent upon a legally binding commitment to take actions that would improve factory safety conditions. It also lacks the same level of transparency regarding the results of the audits.

Consider the example of Joe Fresh, whose branded apparel was found at the site of the Bangladesh factory collapse. In the digital era a photo in the rubble can be immediately televised globally; the punishment of the brand swift, unmerciful and devastating. In this example, irate customers vowed to boycott Joe Fresh. But, because Joe Fresh responded quickly by committing to paying compensation to the victims and by joining the Accord, Joe Fresh managed to escape public backlash.

Companies are incentivized to appear as if they are taking action, without actually making any expensive improvements. This practice is known as “greenwashing” when referring specifically to environmental practices. However, it’s incredibly difficult to know the company’s intent. Are apparel companies trying to manipulate the public into thinking that they will take action, when they never really intend to do so? Or, will they actually pony up the cash and make improvements?

Further complicating matters for stakeholders, it is possible for apparel companies to join either program symbolically. Given the less transparent nature of the Alliance, it is impossible to tell which members have not contributed to making improvements to factories. Moreover, even the more stringent Accord, some brands are marked as having failed to pay the program’s dues.

So much of the debate surrounding the industry’s response to Rana Plaza has been about whether members of the Accord or Alliance are contributing as much or even at all to the overall improvements in Bangladesh. However, this debate ignores the set of apparel brands that really deserve criticism: those that source from Bangladesh but haven’t joined either group!

This post is based off of a working paper by Susan Kayser (Kayser, 2015).

 

Susan-KSusan Kayser is an Erb Institute Research Fellow with a concurrent appointment as a Dow Sustainability Fellow at the University of Michigan. Prior to her Post-doctoral Fellowship, she received by PhD from Indiana University in the Business Economics and Public Policy department with a minor in Strategic Management under the supervision of John Maxwell.

Her scholarly research uses econometric analyses to study non-market corporate strategies related to corporate environmental practices. Her dissertation work focuses on how strategic non-market actors, such as civil society organizations, can influence firm decisions to commit to Corporate Social Responsibility initiatives, follow through with those commitments, and their value to the firm. Susan’s dissertation was named the Organization and Natural Environment (ONE) division of the Academy of Management best dissertation award. Her most recent stream of research, which is under development with Thomas Lyon [University of Michigan], focuses on how the characteristics of manufacturing facilities’ and their parent organizations, along with their respective institutional environments, influence facilities’ decisions to reduce or increase their greenhouse gas (GHG) emissions.

 

References
Clean Clothes Campaign. 2013. The History behind the Bangladesh Fire and Safety Accord. July 8. Accessed December 2015, http://www.cleanclothes.org/resources/background/history-bangladesh-safety-accord.
Barnett, ML. 2006. Finding a working balance between competitive and communal strategy. Journal of Management Studies, 43: 1753–1773.
Barnett ML, Hoffman AJ. 2008. Beyond corporate reputation: Managing reputational interdependence. Corporate Reputation Review, 11(1), 1150-1170.
Barnett ML, King AA. 2008. Good fences make good neighbors: A longitudinal analysis of an industry self-regulatory institution. Academy of Management Journal, 51(6), 1150-1170.
Kayser, SA. The Cost of Corporate Social Responsibility after a Catastrophe. Ross School of Business Paper No. 1261. Available at SSRN: http://ssrn.com/abstract=2543011 or http://dx.doi.org/10.2139/ssrn.254301

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1  Source: http://bangladeshaccord.org/signatories/. Last accessed December, 2015.

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This blog was originally posted on the Cultivating Change: Agriculture and Food Security Blog.

By Ian Robinson

Women participating in the workshop

Women participating in the workshop

Ian Robinson recently returned from a Farmer-to-Farmer (F2F) assignment in Panama working with another Partners’ project called EducaFuturo. Below he shares his experience:

“Located in eastern Panama along the country’s border with Colombia, the Darien region is known for being a difficult-to-access swath of jungle. The northern stretch of the Pan-American highway ends in the town of Yaviza, and reaching most of the surrounding indigenous communities requires a pick-up ride along dirt roads to nearest port and navigating the rivers in boats with an outboard motor. The challenges are the same if residents need to leave their community.

There are no formal banks in the indigenous communities, and the common strategies for residents if they need a quick influx of cash are to get a loan with usurious interest from a loan shark or to sell off some of their chickens. Furthermore, most community members would not be able to qualify for loans in traditional banks in the cities because they do not have the necessary paperwork or enough assets to apply for them.

In December 2015 and January 2016, Farmer-to-Farmer partnered with EducaFuturo, to empower women in the community of Lajas Blancas to start and maintain their own community bank. EducaFuturo works with communities throughout the region to eradicate child labor through after-school programs. Parents will often take their children out of school in order to have them work in agricultural fields, depriving them of the opportunity to receive an education. EducaFuturo’s work in Darien strives to keep children in school while training their parents with skills to improve their livelihoods.

The community bank that the women started is structurally similar to a village savings and loans association where members make weekly deposits to a common pool of money. After a few weeks, they begin to loan money to each other using that pot of money with a one-month payback at a lower level of interest than they would find in their community. At the end of the year, all of the money in the bank gets divided among the members, allowing them to enjoy the benefits of savings, in addition to credit.

F2F volunteer Ian Robinson and workshop participants with their new savings box

F2F volunteer Ian Robinson and workshop participants with their new savings box

In Lajas Blancas, the women were starting from scratch. So over the course of the two-week workshop, each member of the women’s group had learned how microcredit works, followed all of the necessary steps in starting a community bank, and made their first $1 deposit into the organization. By the end of January, they will begin to take out loans. In addition to the bank workshops, the Farmer-to-Farmer volunteer also trained the women on how to perform a feasibility analysis and what key questions to consider when starting a small business.

In addition to being an opportunity for savings and credit, the bank represents a chance for women to assume leadership roles. As a self-managing organization, each participant plays an integral role in ensuring that the bank functions as they intend. Furthermore, six women have leadership positions with greater responsibilities to allow the bank to achieve its goals. In a society where women rarely hold formal positions of power, the community bank represents a new opportunity for empowerment.

The members understand that this institution will not be a vehicle to get them out of poverty. But they understand that it can be a valuable tool to support their family’s livelihoods.”

 

Ian‘s main interest is finding ways that business can can do good for the environment and society. In addition to his studies, Ian works as a research assistant for the Great Lakes Integrated Sciences Assessment, where he looks into how GLISA shares climate data to inform decision-making. Before joining Erb, he worked on economic development projects in southern Brazil that connected at-risk, rural communities with university students doing extension work. After graduating from the Ross BBA program, he served in Peace Corps Ecuador for three years in natural resource conservation projects: two as a volunteer and one as a volunteer leader. At Erb, he is interested in learning more about systems and policies that will lead to more prosperous, sustainable, and just society. During his first internship, he conducted research about sustainability trends in the Brazilian beef industry, particularly in the Amazon region. He is from Detroit. Despite spending four years in South America, he is deeply passionate about his hometown. In his spare time, he enjoys running, traveling, languages, sports, and produce.

 

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By Monica Wyant

LF Store FrontThanks to support from the Erb Institute, I was able to spend my summer as an intern with Local Foods in Chicago. Local Foods is Chicago’s first wholesale distributor and retailer of strictly local foods from the Midwest’s best farmers. They source and deliver the finest farm foods to consumers, restaurants, grocers, and institutions.

I specifically wanted to gain a better understanding of how a locally sourced food hub operates and Local Foods was a perfect fit. Local Foods has built a reputation for successfully sourcing and distributing strictly local products from the Midwest’s best farmers.

I worked on a variety of projects with the goal of strengthening the connection between Local Foods and its producers. I worked with stakeholders across the food system from farmers and processors to chefs and retail consumers. I visited farms, received product at the warehouse, delivered product to restaurants across the city, and analyzed the current performance of Local Foods’ suppliers in order to identify opportunities to make the business more effective and efficient.

Local food sales have grown rapidly in recent years. In 2014, local food sales in the United States reached $11.7 billion compared to $5 billion in 2008.1

People support local and regional food systems for a variety of reasons including a desire to support local economies, better understand how their food is produced, eat healthier, and improve the environment.

I was continually impressed by the commitment of the Local Foods team to not only make the food system more transparent but to also make it easier for Chicago residents to eat locally sourced products. I want to highlight two important ways Local Foods makes this happen:

  1. LF TomatoesLocal Foods plays an important role in connecting farmers and chefs so that they each can concentrate on what they do best — farming and preparing delicious local foods. On several visits, farmers expressed their gratitude to the Local Foods team for their role as facilitators. Farmers no longer need to invest their time and energy making connections and coordinating deliveries to individual chefs and grocers. Local Foods is connected to over 150 farmers producing a variety of products from over 150 farmers, allowing it to provide its customers a reliable supply of local products.
  2. Local Foods takes its role in educating consumers about food origins and production practices seriously. During my internship, I accompanied a group of chefs on a visit to Local Farms Harvest in Lebanon, Indiana and saw first hand how the chicken and pork they prepare is raised. For customers unable to make regular trips to the farm, Local Foods provides detailed information on the production practices of its producers, and every product sold at the wholesale and retail level can easily be tied back to the original farm.

The team at Local Foods is also committed to supporting small and medium-sized producers, providing important information and feedback on the quality, assortment, and production practices demanded by Chicago consumers. It recognizes that its ability to differentiate itself and continue to grow in the food distribution marketplace is contingent upon the ability of its suppliers to provide consistent, high quality and competitively priced foods.

Over the course of my internship, I had the opportunity to contribute to the development of Local Foods’ supplies by formalizing requirements related to quality, production practices, and pack sizes. I also led a project to develop a supplier scorecard that would easily communicate supplier information to the entire Local Foods team and allow them to strengthen the performance of the company’s supplier network.

I am incredibly grateful for the experience to intern with Chicago Local Foods, and I am excited to watch the organization’s continued success.LF logo

MWyant_PhotoMonica Wyant comes to the Erb Institute after four years working at the U.S. Department of Agriculture’s Office of External and Intergovernmental Affairs. Her experience working with state and local officials across the country on agriculture and natural resource issues inspired her decision to pursue a career in agriculture sustainability. She is particularly interested in working to find innovative solutions to increase access to healthy and affordable food for communities across the country. She is thrilled to be returning to her home state to further her career.

 

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1http://blogs.usda.gov/2015/07/01/tapping-into-the-economic-potential-of-local-food-through-local-foods-local-places/

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By: Joe Kraut

Evaluating Solar Deals

In my previous blog, I discussed the basic structure of tax equity financing for solar projects. You may recall that a tax equity deal is a partnership between two stakeholders: a tax equity investor and a developer. The investor provides a large portion of the upfront capital needed to build the project for which it receives the majority of the tax credits from the project plus depreciation benefits and some cash. The developer usually installs and maintains all aspects of the solar project for which it receives the balance of tax credits, depreciation benefits, and a majority of the cash. This blog will focus on the management and evaluation of tax equity investments as part of a portfolio.

How does a tax equity investor evaluate an investment?

The goal of managing a traditional investment portfolio seems pretty straight forward. In most cases, the investor is trying to maximize his total portfolio after-tax returns. The problem with that statement is that the word “returns” can have many different meanings and can be measured in many different ways. If the real goal of the investor is to create as much value as possible for himself, then which of the many traditional financial metrics should he use to guide his decision making? Should he seek to maximize Total Returns? Return on Investment (ROI)? Internal Rate of Return (IRR)? Continue reading

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By: Joe Kraut

The Basics of Solar Financing

Background

You might say the solar industry is doing well. There’s a plethora of statistics that can be used to back up this assertion, but the graph below may sum up the picture best. Installation prices are falling, adoption is growing, and public opinion is changing.

As indutry scales, prices fallAnd for good reason. Climate change, rising world population, increased energy consumption, and pollution have created a greater need for clean, renewable energy than ever before. Solar power, while not currently as highly proliferated as other types of renewables such as hydro or wind power, promises to be the technology of the future.

The earth receives more energy from the sun in two hours than all human energy consumption in an entire year. This makes the potential electricity generation from solar literally hundreds of times greater than the potential for all other renewable resources combined. Continue reading

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By Susan Kayser, Erb Institute Postdoctoral Fellow

By rijans (Flickr: Dhaka Savar Building Collapse) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

By rijans (Flickr: Dhaka Savar Building Collapse) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

Two and a half years ago on April 24th, 2013 an eight-story building housing five garment manufacturers collapsed in Dhaka, Bangladesh killing 1,129 people and injuring 2,515 more. The building’s top floors had been constructed without permits and to cut costs it was built using too little rebar (reinforcing steel) to ensure the structural integrity of the building. Building collapses like this one are not new to Bangladesh. For example, in 2005 a building housing two garment manufacturers collapsed due to being built illegally on marshland (Clean Clothes Campaign, 2005). This collapse killed only 64 people because it occurred during a night shift after most employees had gone home.

These collapses were a result of a combination of political and economic factors. First, Bangladesh is a highly corrupt country – it was ranked by Transparency International as the 39th most corrupt country in 2013 (out of the 177 countries surveyed). Corrupt practices such as bribery encourage speedy, cheap, and illegal construction practices. Second, the rapid growth of the Bangladeshi garment industry led to pressure for managers to expand their factories quickly. Finally, Dhaka is one of the most densely populated cities in the world with over 115,000 people per square mile. For reference, the densest borough in New York City, Manhattan, has approximately 69,000 people per square mile.1 Thus, garment manufacturers are financially incentivized to construct taller buildings, instead of shorter buildings that are safer.

The Reputation Commons Problem
Twenty three global apparel brands were eventually linked to one of the five garment factories in the Rana Plaza building, either because they were sourcing from those factories directly or because their suppliers were sub-contracting to them (Clean Clothes Campaign, 2014). However, this particular catastrophe created sustained attention from the public and the media to a wider set of problems associated with labor conditions in the readymade garment industry. This led to a back lash against many companies in the apparel industry – not just those associated with the Rana Plaza complex. Continue reading

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Written by: Brian Rassel, Joanna Herrmann and Loretta So
Coordinated by: Kelsea Ballantyne

This blog was written in response to Doug Freeman’s visit at the University of Michigan’s Ross School of Business on December 8, 2015.  The university-wide event was sponsored by the President’s Advisory Committee on Labor Standards and Human Rights, the University of Michigan, and the Net Impact at Ross Club.  His visit was hosted by Professor Ravi Anupindi, Professor of Technology & Operations.

Patagonia-PresentationThis past Tuesday, the Ross community had the privilege of hosting Doug Freeman, Chief Operating Officer (COO) of the outdoor apparel company Patagonia. Doug has 25+ years of experience in the apparel industry, formerly working for Polo Ralph Lauren, The North Face, and Obermeyer. Doug presented at a university-wide presentation and held smaller-group sessions with students from the Erb Institute for Global Sustainable Enterprise, Net Impact, Tauber Institute’s Topics in Global Operations Class, and the Master of Supply Chain Management program.

The popularity of Patagonia’s products and corporate values continues to grow, resulting in topline sales exceeding $700M in FY15.  That said, Doug made sure to convey that despite their best efforts, Patagonia is fully aware that every time an order is inputted into its supply chain, it  creates additional social and environmental footprints. To address this and other supply chain issues, Patagonia has expanded it’s Environmental and Social Responsibility team from two to fifteen employees in 5 years, as they continually seek ways to make their supply chain more responsible through additional  transparency, oversight, and innovation.

Doug described Patagonia’s emphasis on creating an “examined existence,” whereby the company is fully aware of the impacts involved in their business operations and is continually trying to figure out how to produce products with the smallest amount of negative externalities. And yet, not only do expected impacts persist, but many unexpected impacts continue to emerge on various fronts including concerns of fair labor practices in Taiwan and inhumane methods of wool cultivation in Argentina. Despite being, perhaps, the apparel industry’s most progressive and dedicated company for environmental and social responsibility, Patagonia still faces many challenges. Doug admitted that Patagonia “hopes and expects for the best, but plans for the worst.”

Patagonia’s method of mitigating these risks is through its relationship with its suppliers. He stressed that Patagonia doesn’t easily abandon suppliers nor do they often welcome in new ones – they seek long-term, value-added relationships with vendors.  The “exclusive club” that is Patagonia’s supply chain is completely transparent about their business operations and meets Patagonia’s requirement for fair margins, which enables factories to provide fair wages and healthy working conditions. When considering the trade-offs inherent in product development, Patagonia assembles a cross-functional team to provide a score of 1 through 10; any product scoring below an 8 is dropped from the assortment. Continue reading

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By Micaela Battiste
wri13_wrr_balancing_act_081314_webAccording to the World Resources Institute, agriculture and land use change already account for 24 percent of all global greenhouse gas emissions, but we still require a global increase of 69 percent in food calories to meet growing demand. However, the bigger issue at hand may be access over quantity. In a world that currently produces enough food albeit distributed unequally, reducing post-harvest losses (PHL) in food insecure regions could prove to be a successful nexus approach addressing the relationship between climate change and food security. Post-harvest refers to any crop management activity immediately following its harvest such as storage and transportation. Consequently, there is growing international interest in the environmental impacts of PHL when considering its potential to offset food insecurity when reduced.

On September 25, 2015, the United Nations formally adopted the 2030 Agenda for Sustainable Development. One specific goal aims to halve per capita global food waste throughout the value chain, including post-harvest losses, by 2030. This is not surprising given that reducing PHL has the potential to meet the long-term needs of local communities to adapt to variable yields and global shifts in land suitability due to climate change.

As seen in the Global Food Wastage infographic, the United Nations Food and FoodWaste-Infographic-009-LoRes01Agriculture Organization (FAO) estimates absolute GHG emissions from food produced globally and not eaten to have reached 3.3 Gt of CO2 equivalents in 2007.[1] This figure is equivalent to nearly 1.5 quadrillion kcal lost per year.[2] However, through the strategic combination of yield intensification on the farm and supply chain management, crops could meet 2050 demand with much lower anticipated environmental impact. “The major [global] contributors to the carbon footprint of food wastage are cereals (34 percent of total), followed by meat (21 percent) and vegetables (21 percent). Products of animal origin account altogether for about 33 percent of total carbon footprint, whereas their contribution to food wastage volumes is only 15 percent.”[3] Continue reading

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