The big issue facing the US economy and its government is lack of financial competence. An over levered, bloated government, cannot seem to face the reality of its own solvency?

How does a government run without a budget for the past four years, a budget which is required by law? The solution that our political leadership is pursuing is to inflate and grow our way out of this economic mess, while simultaneously taxing those who already pay the majority of the taxes. One has to ask, “Can a very mature, leveraged society grow without a fundamental engine (reason) to grow?” We can’t possibly consume more at this point; we have everything in the world that anyone would desire. So where and how do we go from here?

Economic growth comes from two sources: Employment gains and productivity. The riddle of productivity versus employment is still debated in academic circles (see the paper on the negative correlation between productivity and employment) and is not very well understood in the political ranks. A productivity gain is another way of saying innovating a process or function to create more with less. But if you add a twist in our resource-constrained society and focus on quality over quantity, you can build a much more robust solution.

Quality over Quantity
As my mother used to say, “When you buy something you want or need, first ask yourself if you really need it and then buy the highest quality, it will preform better and last longer.” That is the voice of someone who lived in Europe for part of its depression and World War II. She always had the most beautiful clothes — very few but beautiful. She had great classic furniture and art, again not many but always the best. We ate only good food, never junk. We went out to eat sparingly, but when we did it was the finest we could afford, not junk fast food. It is how we live, not what we have, that makes life worthwhile. These are the values that are long-term and sustainable.

Unilever, like the good Dutch company they are, has embarked on a big sustainability campaign. It is thoughtful and admirable. It is worth noting that in the conflict of growth versus sustainability, building a better consumer products company with the right objects and environmental impact should enable it to take market share and win business because it is doing it right. The more value and impact you can produce, the more successful you will be if the consumer (i.e. all of us) cares and buys the quality product.

Patagonia also has a program that carries a mantra of Reduce, Reuse, Repair, Recycle, something we all should consider.

These companies demonstrate the essence of a sustainable society, and yet, this seems in conflict with our government ideas about growth of the consumer to carry us out of recession or under-employment. But these values will be the ones that will not only sustain us but will force innovation and productivity around reuse and will influence manufacturers to build lasting high quality products. We may pay a slight premium at the cash register, but the long-term value for ourselves and for a sustainable society will far out weigh the short-term discomfort.

As you drive around town, you notice that the suburbs are covered in parking lots. In every mall, city or town, you will see black top lots, mandated and designed for the drivers’ convenience — you do not have to walk more that a couple hundred feet from your car to your destination. The malls have gotten so huge, however, you end up getting back in your car, driving a couple hundred yards and re-parking to walk into the next store. This is life in America.

Can we find a better way? What can we do about these giant environmentally destructive heat sinks? How can we make this blight on our malls and towns become a welcome and beneficial place? Yes, a “place”.

In the New York Times article, “Paved but still alive,” Micheal Kimmelman discusses how the dead mall is becoming a new center for activity. He also touches on many new design ideas, which begin to open up the possibilities.

But lets start at the beginning. Do mall parking lots have to be black? We know asphalt is cheap, but what about a better material, one that reflects light and is cool in the heat, that is porous and can absorb water? Just these two things would go a long way to minimizing environmental damage. Then in the dryer areas we could use the parking structure as a water catch all, a storage solution where needed.

Open parking lots are an awful eyesore. Why not provide shading for the cars and people with solar panels above? That could create power for the tenants of the buildings or the charge stations for our future electric cars. As the price of solar panels comes down, especially in the south and south west, this solution is really becoming a no-brainer.

What about design and layout? We can get much more creative here. The parking lot doesn’t have to be a square grid, especially when you consider options for greening up the parking lot. Why not make parking structures parks with beautiful trees and grass and plants? You could add small pads of grass with play structures for kids to play on. Why not create a small community open theater in a parking lot? Most developers would argue those options are, “not efficient, not cost effective.” Really? Wouldn’t a nicer environment drive more people to the mall and make the shopping experience that much better?

Why not create small urban gardens in the median or the perimeter of these parking lots? Then you could create the ultimate local farmers market growing foods people want to buy and eat! The possibilities are endless.

And for those mega lots, why not create a transport system so people can get to their destination and not think about re-parking their cars.

There are many possibilities here. It takes thoughtful design and thinking beyond what is normal and expected. We know that creating value for people will ultimately create more value for the community and the developer. So, lets get our town design review boards to open up and reconsider what a parking lot can be.

If I told you that the health of you and your children is directly related to the food you eat would it make a difference? Maybe not. But if you saw that your family was degrading in health would you change your position? The answer is really interesting: Most people would change their eating behavior if their own life or their child’s life was on the line. But, because poor health causes a slow, almost invisible, decaying it is hard to see or realize the damage in order to motivate change (think cigarette smoking). Think it’s too late to change? Here is an amazing example of an 11 year old who became passionate about the food system, and who can talk the talk and probably walks it as well.

If more kids were taught how food is really made, where it comes from and what goes in the food, they might think twice about what they eat. The media is a very powerful educator. The issue is that the food industry has the power and the dollars to spend to make their point and cloud the message. While the Internet is powerful, it is still not the answer because the solutions lie on the fringe of the acceptable.

We are working on using more organic (no pun intended) solutions to getting the message across as “Farm to Fork” food delivery solutions become much more popular in the coming years. We expect that around major cities the local food movement will become more mainstream. As this occurs, we can expect an acceleration of acceptance, and creation of jobs and a general sense of improved health. The more people engage with the land and the food, the more we will develop a sense of responsibility and accountability for the impact we are having.

The messages that we hear from media about most food products are a far cry from the truth. Chipotle has done a good job showing how industrial our food has gotten in their amazing animated video on the food system. It is sad to say that this is all true, and we have a lot of work to do.

There is good news out there, too. The organic food movement is growing over 20% per year. The closer the farmer gets to the end customer the better the economics for both. Retailers are actually part of the problem as they mark up organic much higher than commercially-produced food. They say it is the extra handling costs when really it is what they think the market can bear. The farmer is not benefiting from any of this mark up. We need to find better ways to include the farmer so they can participate in (and benefit from) the growing demand for good and great food.

Nature is the ultimate sustainable system because at its very essence, it is dynamic.  Every species of plant or animal finds its way to survive in cooperation with or in competition with everything else. Every species must adapt to survive continuously.  This is how the world works.

Our economy is the same whether we realize it or not.  Every company is in this system.  The laws of the marketplace are completely dynamic and Darwinistic.  Just as people crave stability and consistency to understand the world, companies do as well. A business is built with a model that fits a view of the world and works for awhile, then some aspect of their environment shifts. Whether it is a declining customer demand, diminished supply of raw materials, challenging labor availability, fluctuating government policy, increasing environment issues, or other pressures, business must adapt, change course or die. Sadly, very few businesses can make the shift and survive. (For a really deep understanding, try reading the Origin of Wealth by Eric Beinhocker.  He discusses classic economic theory and suggests modeling economies based primarily on biological evolutionary patterns.)

Welcome to our new Economy.
Unemployment is at an all time high. The job pool is shifting drastically. People are not equipped or trained for this shift.  Even in Silicon Valley, the techies can’t find jobs. The social media savvy technical young generation of engineers and marketers are doing ok, but their 40 year old and above counterparts in the Semiconductor, Fiber Optic, and Communications industries are struggling.  It’s like we’re back in the 90’s: Trained professionals cannot find work, and the tech world has passed them by.  They must reinvent and market themselves intentionally or perish.

The Valley represents the essence of creative destruction.  What worked before is over, and it’s time to move on to the new. The old way is as commoditized as the workforce that built it.

To make it in today’s workforce, we must think of ourselves as a product that needs to be marketed and sold into the marketplace (i.e. the competitive workforce).  We need to retool and continually adapt to remain current.  We need to position ourselves with intention and strategy to be relevant, authentic, and branded to our target audience.  In order to remain competitive, we must make sure we are poised and ready adapt to the next shift because it is coming whether we like it or not.

I know this sounds harsh, and it is.  This global marketplace is not what many of us envisioned. Change is faster than ever.  The fluidness of information, creativity and capital are speeding up the system, and there is no turning back.  The path we are on is here to stay.  It is nature.  It is Darwin.  It is life as we know it and will know it into the future.

As we all know, each of us lives on this massive island called “Earth” and for the most part, we use it as we see fit.

Progress in the developing world is accelerating at an amazing clip of 7-9% annually; advancement in the so-called “developed world” is mostly flat. The developing world wants what the developed world has: namely, food, cars, and comfortable housing.  Herein lies the fundamental environmental issue: The world cannot sustain us as it is, nor can it support us all having the same conveniences and lifestyle.

When you really understand this little island with 9 billion people on it, you realize that it is critical that we recycle and reuse everything. We should strive for a zero waste society. As long as there is waste, it will continue to accumulate over time and important parts of nature will continue to be destroyed. Every natural resource we have — water, energy, food, and minerals – can and should be reused. If not, we will eventually run out of these resources and there are will be no more substitutes. For sustainability of species’ the planet, we must adopt the full recycle mentality to keep our island healthy.  Here is an example of one person’s efforts to live “zero-waste.” Couldn’t we all do our part to move in this direction?

Also, we must keep our natural systems functioning in order for us to prosper as humans. The very systems that supported life for millions of years are being thrown off balance and are becoming unpredictable as we alter the landscapes, oceans, and atmosphere. The balance of climates is shifting so fast and significantly that we are seeing the extinction of massive species. Our arrogance lets us believe that we are not affected.  But we are. Many societies in the past 20,000 years have perished as they altered their environments to the point of their own undoing (for example: Mayan, Angkor wat, Babylonian, etc.)

Similar to societies before us, today we believe that our technology is superior and can empower us to alter everything to suite our needs.  This is not the case. For example, we are using up carbon-based fuel.  “So what?” many people say as we continue to find renewable replacements. Solar, wind, hydro, etc. all appear to be adequate alternatives, but we are putting them into the atmosphere as well as the ocean and land pollutants. These all amount to big changes in chemistry to our little island.

Every day, we are carving up huge tracks of land in pursuit of minerals and fossil fuels, leveling mountains, stripping landscapes bare and leaving nothing behind. We are taking out the last dense tropical forests at an alarming rate. We have created land dumps and land fills the size of the State of New Jersey (not to pick on them). We are dumping so much garbage into oceans that an island of trash the size of Texas is floating in the Pacific, killing the ecosystem, indigenous species and making navigability a big challenge.

As we farm more than one-third of the Earth’s surface, we are stripping soil of all its biology and injecting chemicals and fertilizers, which contaminate the air, earth and water.

We have to rethink and redo our fundamental premise of what we can and cannot do here on our little island. We need to apply true costs — environmental and social — to our actions and decisions and understand there is no free ride. It is a zero sum game and potentially a negative growth game to enable us to keep our world safe for future generations.  We have to address our need to “grow our way out of our economic problems” philosophy, as the world might not tolerate much more growth.

If you really want to experience what we have and why this matters try this lovely view of Earth.

Impact Investing, Sustainable Investing. Double Bottom Line. Triple Bottom Line. Investing for Change. Three years ago, these were big ideas and messages that 99% of the world didn’t understand or even care about.  They amounted to doing good and trying to make some money.  It was the world of foundations and charities trying to express that they are not all giving money away, but rather are trying to use some of the principles of capitalism.

This year we have seen a major shift in the choice of words used to describe what is going on and what investors are willing to invest in. We are in the middle of the shift to investing in key resources that are under pressure or becoming scarce.  We are seeing mainstream capital pay attention to the value of these resources and how they are being used. Sometimes, unfortunately, not for the betterment of that resource but for the exploitation of the opportunity, but we will get back to that later.

We are now seeing the first of the mainstream investors stepping up and realizing that not only can they invest in agriculture, water, energy and real estate, but they can do it the right way and take into account the environmental and social costs: By first investing in asset managers that understand and make more money (enhanced Alpha,) and then the asset class as a whole.  This is a huge and significant step for capital management and the environment.

In public and liquid securities, 2011 has been  a turning point as well. This week, Generation Investment Management published the Manifesto for Sustainable Capitalism, citing what companies are doing, should be doing and how investors can view their portfolios differently to encourage long term gain through better management of resources, assets, environment and people.  Clearly this message is going mainstream and it is not just a negative screen or positive screen: It is a new understanding of how companies think about their impact and use of resources. It is becoming definable, measurable and investable.

One of the largest data providers, Bloomberg Data Services, makes it possible to analyze many factors of ESG that public entities publish now. For instance, we can evaluate how efficiently energy, water, carbon is being used compared and crossed with revenue, employees, sq. ft. of space, etc.  It looks at the social metrics as well, such as how a company invests into its communities of interest. Bloomberg also tracks the governance metrics that look at policies, objectiveness and transparency. These are important metrics and can only get better over time. There are 5 to 10 other interesting metric providers and we can expect that many of these will get absorbed into the mainstream investing as well.

This is also a key year for B-Corporations, a new type of corporate classification that says we are in business to make money but also count into the equation of looking at the environment and social issues that the business effects.  They promise to publish even more data and have more transparency in their business operations. This year 5 more states (New Jersey, Virginia, Hawaii, California, and New York) have adopted the corporate form from the original two (VT and Maryland) and it looks like 10 more will for 2012.

Major investors such as Pension Funds, Endowments, Wealth Management Firms and Private Banks are all looking for products in agriculture, water, energy, land, real estate as well as other valuable resource investment plays.  While this is good, and can be better, they do not completely understand which ones are creating a better environment and social construct versus those that just exploit the short term value: For instance, an agriculture investment that improves the land, the soil and the natural systems versus one that uses the industrial system of agriculture and also can deplete soils and ruin the environment will perform better over the medium and long term.

More time is needed to inform investors of what is possible using best practices and methodologies.  More investors need to take the time to learn which are the driving forces that can make all the difference. As we look back on 2011, we will remember many key milestones — in politics, innovation and environment — and hopefully move forward in our goals to be better stewards of our planet.

Farming is the epitome of entrepreneurship. It is not easy work. It is a business that first requires an understanding what the market wants: How much does the market need, what can you sell and to whom?  Then you have to figure out if you can grow it for a certain cost and still make a profit. If you approach it any other way you will most likely fail. Like any other new venture, it all starts with the market.

A recent article in the New York Times, “Young Farmers Find Huge Obstacles to Getting Started,” sites many of the issues of getting into farming and how hard it is. Many farmers cannot affordthe land, and even if they can, they have a hard time getting the farm working and selling the produce at market. Yes, it is hard to run a farming business.

By way of example, suppose I decide to sell pencils. Everyone needs pencils, right?  They are always consumed. So I buy the wood, lead/graphite, metal, and rubber, and then I purchase the machines to roll stamp and press the pencils. And finally I rent the building to do all this in. I spent all my capital to do this. Then I go to the corner store and ask him to buy my pencils to sell in his store.  The store owner (being the nice local merchant he is) ask how much I will charge him for the pencils. I tell him, “$1 a piece, they are locally made”.  He tells me, “I buy pencils from my supplier for 25 cents, and I don’t think my customers will buy $2 pencils.”

Then I pursue the option of opening a corner vendor kiosk and selling my pencils direct to the customer for $1 each.  I sell a few, but within a year I am out of money, out of pencils and out of business. That’s when I say this is a hard business. Yes it is.

So what went wrong?  I did not understand the market, the customers and the customers’ need to get a product at a specific price. It’s that simple.

When you read the article about how tough it is to be a farmer and how many new farmers failure, put this in context:  They say that 22% of new farms turn a profit the first year. That is great actually. But only 1 out of every 5 farmers make it all the way to sustainable profitablility.  How many other new business start ups fail in the first 1 to 5 years?  How many actually make it through that long, hard start up phase to actually make a profit? 1 in 5. Sound familiar?

Farming is also unique in that one learns to farm through trial and error. Failure of a crop is inherent in farming and then you learn to do it better.

The top 5 reasons for business failure are:

1. Lack of experience

2. Insufficient capital (money)

3. Poor location

4. Poor inventory management

5. Over-investment in fixed assets

All of these elements are within the control of the new businesses owner.  These reasons apply to farming and business. A well thought out business plan mitigates these issues.

Farming is a hard business but you need to start with the notion of the market and then you have a fighting chance.

Urbanization is reaching new levels around the world. In developing countries the continuing influx of people from the country side and small villages is accelerating. These people are searching for better paying jobs and a way to support their families. There is also a trend towards greening the cities; becoming more energy efficient, recycling water, creating local (roof top) power generation, etc. Cities are wonderfully efficient if designed right. In these urban settings, the power and water consumption are lowest per capita, and the walkability makes living easier and healthier.

One of the biggest trends is the greening of roofs and walls in buildings. The popularity of  “green walls,” “vertical gardens” or “living walls,” is hitting a new benchmark.  Many new firms are developing the technology and services to support these efforts, such as Gsky plant systems. Establishing plant material on rooftops provides numerous ecological and economic benefits, including stormwater management, energy conservation, mitigation of the urban heat island effect, and increased longevity of roofing membranes, as well as providing a more aesthetically pleasing environment in which to work and live. It is truly remarkable what we will begin to see in the next decade.

Just when you thought sustainability and Platinum LEEDS was as good as it gets, leave it to the Italians to redefine the green building. The Vertical Forest Buildings of Milan are reaching for exactly that: living in a vertical forest.  They are amazingly efficient with water (gray water) heat and light shading. These could be one of the most beautiful buildings to live in. Your personal yard and forest on the 20th floor. Very clever.

I believe the innovation we will begin to see in new developments around the world will redefine what good standard of  living is in cities. The resource and living benefits of mid to high density living, coupled with as much nature as possible, will reset the way we look at urbanization.

I had a good talk at the Wharton School’s IGEL Program (Initiative for Global Environmental Leadership) A great group of MBA students attended. While the presentation was one about the key asset areas that both Bio-Logical Capital and Equilibrium Capital are focused on (energy, water, agriculture, real estate, etc) the questions were even more interesting.

The most awakening realization seemed to be that in these key sustainability sectors, it is possible to build business models that generated outsized returns while “doing it right.”  In other words, by becoming a steward of the resource and managing for the long term, the IRR were more stable and higher yielding.

This surprised most people as it should.  The work that needs to be done can get done and provides a path for driving change that can make great returns, and in turn, drive more capital into the sector which drives more change. It becomes a virtuous cycle. While I gave examples of how Bio-Logical Capital can turn around an agricultural system, or a wastewater treatment system and generate superior returns, it is often hard to see until you work through the plans, the numbers, and see it in action.

I could see that the audience liked the idea of the potential to work in sectors that are interesting and prospering while taking care of the environment. Rarely do people get to hear this viewpoint. There is a sense that most initiatives in the area of CSR or ESG are just a tax to the corporate P&L. These thoughts exist in Corporate America and even in most business schools.

I began my presentation with this key point: These initiatives (CSR, ESG, impact investing, etc.) all understate the problem and underestimate the opportunity. There will be fundamentally new businesses created in the key resource areas that will drive the changes needed to maintain or restore our much needed natural resources.

One student asked, “Why don’t other people do this?”
My response: It requires a rethinking and systems view and you cannot fear the complexity of what we are doing.

Another asked, “Is there an exit path for shorter term investors? (Typical being 5-10 years for these assets). Are you are talking about being stewards for a longer period of time?”
My response: Yes, once a project is up and running and stabilized the risk/return changes, we can securitize it in a REIT like or MLP-like structure with reduced yield but very predictable returns.

After the presentation, I heard from Wharton professors who said students continued to talk about the ideas for hours after the talk.  They discussed how it would be great to create a roundtable/panel discussion to engage students from different parts of the college (policy, social work, design) who could discuss and debate the ideas and approach from multiple angles.

For me, being able to participate in the discussion of creating impact by doing it profitably and doing the right thing is exhilarating. I encourage others to follow what is going on and get in front of this big wave of change. It will be bigger than most people ever thought and it will be paramount to any society that wants to survive.

On October 13th, I will be giving a talk to The Wharton Program for Social Impact and the Initiative for Global Environmental Leadership (IGEL).

The essence of what I will be speaking about is how the world needs to rethink or redo how we live. This is more than a question of sustainability, instead it addresses what will be needed to allow us to thrive again on this planet. While it might sound lofty, it is all about how to invest into and profit from the redesign of our core services. I will speak in depth on how Bio-Logical Capital, a land development and conservation company,  is looking at large landscapes to restore, redevelop, and conserve the land so the human settlement can thrive within the natural environment. We are creating a living model that will not only function well, but be a great place to live and profit so that many can follow.

Our basic services and systems of water, energy, agriculture, transportation and housing are all in major need of not only an upgrade, but a fundamental philosophy and design change. It is not that these services and systems were ever bad, they are now just outdated in function, design and technology. Just because something worked 100 years ago does not mean that it is right for today. These systems were never designed to carry the loads they are experiencing today. More importantly they never really looked at natural systems as an alley, but rather viewed them as an impediment and obstruction that needed to be altered to suit man’s needs. We keep patching a framework that is now a flawed design.

Let’s look at water and wastewater for starters. Water naturally flows down hill. It rains up top and runs in rivers to the ocean, then is evaporated into the atmosphere and back again. Our water systems do the same: We take water from a source use it, filter it and dump it back to the ocean. We take rainwater and wisk it away to big pipes and dump it in the ocean. Good right? Not really. Nature stores water everywhere. Good rich soils, forests, and aquifers store water and hold onto it for dry times.

Natural systems have cycles that the animals and plants learn to work with.

Our water system interrupts all that evolutionary work and short-circuits it. So how do we redesign this? First, we must think decentralized solutions. We need to recycle water on a local basis, using gray water (which is practically potable) where ever possible. We need to use natural water stores for rain in the land, soil, and aquifers.  We need to use more decentralized natural filtration techniques (biomimicry). We should use that big brown pipe full of wastewater and harness the energy from the waste, which will either be additional revenue or an offset of cost.  We can also resell the nutrients from the wastewater as well as sell the gray water itself as a product. This shift is so fundamental that the costs of such a system are dramatically less and the profits much more.

To touch on agriculture as I have written before, if we use the natural systems we can grow food more sustainably, growing healthy soils and healthy food in a post industry agriculture system that is robust, resilient and abundant. Food and agriculture are central to the health of a community. Knowing where your food comes from is not only necessary for good health but wonderful in that it brings people together. A large part of the failures of our healthcare system can be attributed to our food system. Natural agriculture solutions work in cooperation with nature and leverage its resourcefulness.

I use these two examples to show what is possible in all the basic services. Bio-Logical Capital is in process of rebuilding communities based on the principles of natural systems, as pioneers of stewardship development. How can mankind fit into this landscape and build a living environment that we all would like to see and be part of?