Real Engineering vs Financial Engineering

Working with private businesses in Scotland on how they can respond to and benefit from sustainability, has really brought into focus the distinction between their world of making, buying and selling and the associated world of financial support.


What has struck me about all of these companies, working across many sectors, is their honesty, commitment, ingenuity and general all round positive approach to life. Despite the fact that they are all operating in a challenging economic environment and some have seen changes as a result, they retain a complete passion and commitment what they are doing and a desire to do it better. They are also characterised by a willingness to adopt new ideas and new approaches, particularly given the resource constraints under which they are working.

The small business sector in the UK has, through force of circumstance, had to consider alternative sources of funding such as traditional private equity investment, public markets or even crowd-sourced loans and investments. The traditional bank loan has become a rare thing because the application process involves endless spreadsheets, management accounts, assignation of all future life earnings and multiple internal examinations, after which the risk manager says ‘No’. Even if the risk matrix is successfully negotiated, the nature of the offer on the table, may make it deeply unattractive. Personal guarantees are sought for loans underwritten by the Government and even widely touted support packages for renewable energy and environmental projects may not be what they seem. In particular, funding for wind turbines may require a charge over the land on which the turbine is built – a very traditional funding model, driven by the pervading culture of balance sheet protection and risk aversion.

While the Greek tragedy unfolds, does this mean that the banks cannot start to unfurl their innovation wings again, to re-assess long term risk models, find new business and meet their own sustainability goals? Even given the macro-economic turmoil, the banks are placing sustainability towards the top of their corporate agendas. This encompasses support for worthy causes, efficient use of resources or control of carbon emissions from office buildings and transport. However, like the supermarkets or public services, the banks are also starting to look at the supply chain, in the form of that which they buy and the products and services that they sell to their varied customer base. The next step is to embrace financial innovation for sustainability, or sustainovation, through which they can enhance their levels of data capture and knowledge about company and sector performance. Further to this, they can develop and nurture demand for standard products and new transactional services that generate revenues while helping customers meet targets around carbon, climate change, water, waste and other environmental impacts.

While the current nervousness about innovation is understandable, surely sliced and diced risk products based on dodgy US mortgages is not the same as tackling the rise of carbon as a valuable and tradeable commodity. An agenda driven by climate change, or the ever rising cost of throwing valuable material into holes in the ground, or the growing costs of fuel and associated materials in the peak oil era, or the rising price of food as land pressures and demand increase, is more pertinent to long term prospects. Perhaps it is more to do with an ability to only deal with the narrow here and now, allied to the view that these are all problems for future generations.

Fortunately there are individuals that understand the potential risks and associated business opportunities – they are just not in the decision making seats at the moment. These individuals working within the banks can draw inspiration from the many honest, toiling private businesses out there in Scotland. They are holders of the innovation flame and need support to deal with rising energy, waste and resource costs – that is when financial engineering will once again benefit real engineering.

Politics....its a clean business

Imagine my surprise at a recent business hustings for the Scottish elections when a significant proportion of the debate focussed on matters ‘environmental’. First there was discussion about high speed rail links, initially about infrastructure, but rapidly focussing on the potential for carbon emission reductions. Inevitably we moved onto the question of the renewable energy dividend in Scotland – onshore and offshore, wind, wave, tidal and associated research, technology and service jobs. It was fascinating to sense that the politicians and businesses were as one on this. It would seem that clean energy and clean technologies are increasingly viewed as the great commercial hope. Quite right – we should not shy away from the fact that Scotland is well placed geographically, with a skills-base forged in the wilds of the North Sea and research labs up and down the country.


As this aspect of the discussion developed, it was also interesting to note the reaction from the audience when discussing the need for nuclear or gas baseload electricity in a country increasingly reliant on renewable sources. It was intimated that renewable energy was alright if the wind was blowing in the right direction, at the right speed for an adequate amount of time. The argument was delivered in a slightly jaded and cynical way, but received by the audience in a fairly hostile manner. How times have changed! Renewables would not have been on the agenda five years ago, let alone received such positive backing from Scottish businesses. The only thing this part of the debate lacked was reference to microgeneration, energy efficieny, energy storage, smart grids, pollution control, recycling and water treatment and we could have been at any number of environmental technology conferences.

Inevitably, in relation to the above, there was much reference to ‘where the growth is coming from’ and the ‘green jobs dividend’. This also brought in a question about the Green Investment Bank and the intensive lobbying effort to locate this in Edinburgh. All parties were in agreement of course, with a slight jarring note about the fact that the bank cannot borrow (initially at least) and that its balance sheet is tiny in comparison to the spending power of the financial behemoths that we already own!

Regardless of the caveats, in my view the Green Investment Bank in Edinburgh is a good idea because:

It focuses minds and attention on the task of decarbonisation, climate change adaptation, waste reduction and the need for new commercial and investment models to support this.

It will be a major boost to Edinburgh if the lobbying works and will act as a focus for other related financial services businesses – creating a financial and investment centre built on new, innovative models of insurance, asset finance and bonds, for example.

It will inevitably form alliances with other established institutions, perhaps acting as a white label route for their own lending resources. Whatever the form of these alliances, it will serve to encourage the big banks to up their game in terms of environmental products and treating the clean technology and clean energy sectors as worth doing business with. This recognises of course that it is not just about renewables, there are a host of technology and services businesses that will grow up around the broader environmental sector.

It will act as a cradle of innovation and represents a great opportunity for Scottish universities and researchers to work with a UK institution that is on their doorstep. Scotland retains an excellent pool of financial talent which can build careers and reputations around the environmental agenda.

Finally, being in Scotland, means that it is slap bang in the centre of one of the most dynamic and potentially fruitful renewable energy technology hubs in the world. Not to mention a centre for financial innovation and one that has a dynamic research base....and a country for which the environment is one of its main selling points, but as we all know, it is a complicated environment, shaped by the hand of man over many centuries.

The coming Scottish elections are fascinating for many reasons. However, where we have a significant amount of political debate about matters environmental, the business sector acknowledges the role of clean technology and clean energy as growth engines and the financial sector is starting to see the commercial upside, Scotland could actually be looking at economic nirvana in a peak oil world.

Moving Conversations launches at world's biggest television market

Moving Conversations launched to the world's broadcast media at MIPTV in Cannes.  Thanks to Scottish Development International and PACT for their help!

"This could be really big", "This is really clever", "There is definitely something here" - just some of the epithets applied once the producers and broadcasters had seen the showreel.  Next step - turn this enthusiasm into an online or broadcast property.

Interesting to see that in addition to the traditional broadcast scene, there was a big emphasis on 'branded' content and entertainment.  That's exactly what Moving Conversations is, so some great contacts made there.

As with all trade shows.....its all in the follow up.  As Steve Jobs has supposedly said, "its all about perseverence".

Yours truly does the Edinburgh International Festival

Having produced a series of Moving Conversations at the Edinburgh Fringe a few years back, I am bringing my 'intelligent entertainment' format to the 2011 Edinburgh International Festival.  www.eif.co.uk/trading From popular culture to the altar of high art - Moving Conversations knows no bounds!

In line with the theme of EIF 2011 - To the Far West - we are bringing together business gurus to discuss the rich tradition of trading links between Scotland and Asia.  As well as a Director of HSBC [yet to be confirmed], the line-up for Trading with the Far West includes:

Ian Ritchie CBE - technology entrepreneur and mentor to many Scottish start-ups.
Michael Ward - a Scottish expat Bollywood film producer! Planning a full length feature of The Far Pavilions.
Professor Catherine Schenk - expert on the history of Chinese financial services and chronicler of the rise of HSBC.
John Callaghan - CEO of pt Hero, Indonesia's biggest supermarket chain and part of the Jardine Matheson trading empire.

As it is a Moving Conversation, each panellist will come armed with an entertaining clip from the Scottish Screen Archive http://ssa.nls.uk/ around which they will build a compelling argument.  It promises to be entertaining and enlightening - worth seeing for its unique historical value, let alone the views of a diverse and engaging panel.

Trading with the Far West is a one off show at The Filmhouse, Edinburgh, 2.30pm on Friday 19th August.  We are in Screen 2, which seats 100 - so book early!  Tickets are available at £6 through http://www.eif.co.uk/, the Hub or Filmhouse box offices, from 2nd April.

Moving Conversations

Here is a short film about Moving Conversations, my 'intelligent entertainment' format, which has been on the road in Ullapool, Glasgow, London, Dublin, Aberdeen, Edinburgh and Liverpool over the past few years.  We work with ITN Source and the Scottish Screen Archive and have covered a huge range of topics - climate change, energy, fast food, urban regeneration, selling, cities of the future, digital media, video games....the list goes on.  Sponsors have included Bank of Scotland, Renewable UK, Ernst & Young, McGrigors, SURF, Scottish Wave of Change, Zero Waste Scotland and EPSRC.

Its a great way to entertain an audience and get under the skin of a topic.  Michael Grade, former Chairman of ITV, says its a 'terrific format' and Stuart Cosgrove, Head of Creative Diversity at Channel 4, thinks its a 'clever concept'.  Audiences love it!

Contact me if you are a corporate looking for a fantastic way to communicate with target audiences [the ROI is excellent] or a broadcaster/online content provider looking for a proven and successful format that attracts an enthusiastic audience and corporate sponsorship.

Look our next week for a further Moving Conversations announcement.

If Anyone Can, Cancun Can

The United Nation’s Cancun Accords, once again shed light on the topsy-turvy world of international climate change policy. Significantly, the Accords move a step closer to binding emissions targets and recognise the need for monitoring and verification, stating that “internationally supported mitigation actions will be measured, reported and verified domestically and will be subject to international measurement, reporting and verification.” Having done my time auditing forest management in Indonesia, I am heartened to see the progress made to address the crucial issue of forest conservation. Reducing Emissions from Deforestation and Degradation, or REDD, establishes protocols for national forest protection plans and associated monitoring through satellite imagery. Crucially it invites developed nation governments and the private sector to invest in standing forest as a carbon sink, rather than source of timber.


At the same time Cancun also recognised the urgent need to start adapting to the consequences of climate change. The insurance industry has been engaged in order to get under the skin of the risks associated with extreme weather events. This is an area into which these companies are making significant investments. The main players in the insurance industry have clubbed together into ‘ClimateWise’ to share experiences in order to gain greater insights and respond to climate change. The 2010 independent review of ClimateWise describes the actions taken by different companies in relation to the schemes ‘principles’. These refer to risk analysis methods, informing public policy, supporting customer awareness, reducing the environmental impact of the businesses, reporting and incorporating climate change into investment strategies.

The latter is interesting, as it conjoins the wider debate about the relevance or otherwise of ‘sustainability’ within the context of a company’s performance. The impact on shareholder sentiment of major environmental incidents is self evident, however, the eco-sceptics, still see it as secondary to financial performance. What happens however, when extreme weather events create havoc with retail sales or productivity, the cost of extra heating takes a percentage point off the bottom line or illegal dumping of waste leads to a legal battle, hitting reputation and adding to the professional services cost line? The insurance companies have got it right, because they see climate change and sustainability as a ‘risk’ factor, not some woolly jumpered, yoghurt knitting concept.

The move to embrace adaptation is mirrored elsewhere. While the insurance companies have a clear stake in the implications of climate change – more intense rainfall, flooding, freezing and stifling hot temperature extremes. Other financial companies are also taking it seriously. The banks, over and above their own insurance businesses, are looking at the effects on the productivity of their business clients, mortgage deals on certain properties, asset finance for snow ploughs, corporate finance for novel irrigation systems and of course the ongoing flight to renewable energy.

The venture capitalists are not immune. They are seeing a rash of clean energy, environmental services and smart grid business plans, in other words, technologies that are designed to reduce carbon emissions or help people and companies adapt to changing weather patterns. These may be rapidly mobilised flood defences, under-floor heating for roads, cloud based energy monitoring systems, smart electricity distribution and runways and drainage systems for new houses. These plans and concepts are designed to reap commercial reward from climate change and environmental regulations and associated pressure from the supply chain.

The investment banks and fund managers will be monitoring regional and national climate trends in order to assess the operating context for their portfolio companies. They will also be putting money into REDD projects and fundraising for established clean technology and clean energy companies, not to mention taking some of them into the public markets.

All this of course provides such Scottish based financial companies with a huge opportunity to grow their businesses – with a slight change in attitude towards the sustainability agenda. While their oil and gas clients will continue to flex their muscles, the value of this business is in long term decline. The value of climate adaptation and sustainability based business is on a long term growth trajectory. For those institutions that are willing to look beyond tomorrow’s bonus and whom have the guts to sell this to their shareholders [many of whom will provide a sympathetic ear], the opportunities abound. Sustainability is one foundation stone on which Scotland’s re-shaped financial future can be built.

Thinking - the next great business idea

According to Ove Arup, engineer, designer and philosopher and founder of the eponymous company, “the ultimate immoral act is choosing not to think.” This was quoted by Professor Emeritus Peter Jones as part of his 2010 Ove Arup Foundation Lecture, “Why are three heads better than one? Or: How to prepare for a new Enlightenment.” Professor Jones holds that the “cement of society is conversation and that when we ignore or lose our capacities for conversation we are in peril.”

While views vary on what constitutes a conversation, indeed, some hold that there is no such thing, the definition given at the lecture reads thus: “Conversation is a sacred and improvisatory practice in which the duty to listen precedes the right to speak.” It is essentially a practice because the skills required to be a good conversationalist have to be learned. A duty to listen reinforces the need for participants to understand the context and display appropriate manners. Consequently, the practicing conversationalist welcomes the opportunity to approach a topic from many directions and be open to the views of others while being happy to formulate and present their own arguments.

Ove Arup brought an array of experiences and an open, enquiring mind into the world of architecture and engineering. He noted that practitioners of both were not conversing and therefore, in his view, these disciplines needed reform, with a greater emphasis on learning from each other and opening their minds to other influences. This became the signature approach of his firm, one that applies today.

While the current economic situation has further reinforced the need for architects, engineers and designers to innovate and find new business models, the need to break out of disciplinary silos and actually think and converse is crucial for all companies and indeed governments and other institutions. By this way, can organisations find a way through the economic crisis and indeed plot a route to future success.

At the micro-level, this could begin by turning business meetings into conversations. Rather than mechanistic encounters where agenda items are ticked and the senior manager pontificates, all present have been schooled as conversationalists and all enter the meeting with an open mind and desire to tackle the agenda from many quarters, to learn, to assess, to think. While retrofitting a conversational ethos onto a company can be beneficial, the ultimate gift to society will be through structural changes to the way we educate young people – from nursery to university. Only the most ardent educational ideologue would disagree that we could be doing more to empower our school and university graduates with an ability to critically appraise, to question conventional methods and to posit their own views. While there will always be exceptions, the UK educational system needs to work harder, if its aim is to nurture thinking individuals.

Business too, is not a hotbed of thought and conversation, as the pressure to deliver on ‘key performance indicators’ takes precedence. The bigger the company, the less thought takes place as the job is driven by process and procedure. The smaller, dynamic entrepreneurial company though, is more of a cradle for silo breaking and thoughtfulness, but even then speed is more the order of the day.

For the businessman hungry for debate and conversation, there are opportunities out there, beyond the normal run of conferences and award ceremonies. For example, a desire to look beyond the here and now has been taken to heart by the Scottish urban regeneration community. An upcoming conference aims to take a creative and positive view of regeneration in the light of the economic crisis. Called Creative Approaches, the whole conference is built around ‘Moving Conversations’ which combines lively debate with film and television archive clips. The normal flood of bullet pointed slides has been replaced by rare footage and discussion, with the express aim of exploring ideas and stimulating new thinking amongst the public, private and voluntary sectors.

As Professor Jones concludes:

“Let us not further deceive ourselves into believing that, over the centuries, Governments or Instituitions or Professions have always, or even very often, put into place people and resources to promote relentless, self-critical and exploratory thinking.”

Far from being a luxury that a business cannot afford, finding the time to think might be just what all Chief Executives need right now.