The war in Ukraine, which now seems as if it will last a long-time, is one of the most important threats we face. Preventing, or in this case, correcting, the illegal annexation of a sovereign country by another country is fundamental and if Russia gets away with it, Europe and the world will be a more dangerous place. As everyone knows Russia can only act like this because of the huge inflows of money that result from selling gas to Europe. I wrote about energy security several times in 2013/14 – particularly when Russia invaded Crimea. I think back then Europe was sending Russia more than €0.5 billion a day (a day!) in return for oil and gas supplies. Just imagine a pile of a half a billion euros being carted off to Russia, (I know it is done electronically in reality).

Of course, energy security is not a new issue. We had the oil crises of 1973 and 1979 which highlighted dependence on oil from the Middle East. Trade is generally a good thing but by being energy dependent a country reduces it’s degrees of freedom of action. It has been good this time round that there has been concerted action in the EU at least to reduce dependence on Russian gas.  Improving energy efficiency has always been, and remains one of the most powerful, and potentially quickest acting, levers that we have to reduce energy dependence. Obviously increasing domestic production of energy, of whatever source, is the other lever.

The EU through its RepowerEU initiative aims to bring down consumption by 15% by March 2023.  For some reason the UK is almost alone is not responding to the war in Ukraine with a programme of at least encouraging, if not mandating energy saving despite the fact that in the UK 38% of gas is used for domestic heating and we are heading for a very hard winter that will see millions of people and businesses unable to pay their energy bill. Still, the government refuses to give any advice and only continues to issue anodyne press releases saying supplies are not threatened.

One of the really effective, and interesting things that has emerged is how much gas most homes are wasting, even the millions that have condensing boilers. When condensing boilers were introduced they were sold, and ultimately mandated, on energy saving grounds. Now it turns out – perhaps no surprise – that most of them have not been set up properly and are wasting 6-8%.  This waste can be prevented by turning down the flow temperature, see here for details.

This conversation about boiler flow temps, which I’m glad to see is being turned into action, is a reminder that good energy management (for organisations or homes) consists of first managing what you have already got and then, and only then, considering investment opportunities, which can either be adding something to an existing system e.g. better controls on a heating system or lighting, or replacing something eg replacing a boiler with a heat pump, or conventional lighting with LEDs.

We learnt the basics of energy management in response to the oil crises of the 1970s (and before that the UK fuel crisis of the late 1940s) but somewhere along the line, as energy prices fell and incomes rose, they were largely forgotten. It is good to see them re-emerging, just disappointing that it takes another crisis.

The fact that homes with condensing boilers can save c.8% of gas consumption through simple re-adjustment of flow temperature shows two things:

1.    The potential for cost-effective energy efficiency is still very large. At any one time, the cost-effective potential for reducing energy is probably 25-30% – and that has never changed, it is about ‘slack’ in the system. With higher prices the cost-effective potential increases.  That 25-30% can usually be achieved with low cost measures and is before you get to the harder, more expensive stuff. I recently saw examples of schools saving 25%+ through low cost sensors that highlighted times of waste e.g. running heating when the building was closed or very early start times that were not justified by the weather.

2.    The gas boiler industry has, with some notable exceptions, been woeful in its quality standards, training & integrity. What was the point of installing condensing boilers and claiming all the savings they were producing when they weren’t most of the time. Improving skill levels is essential, but is so improving basic integrity at senior levels within big organisations.

The idea that the government can’t or won’t do anything to give advice on energy saving is such nonsense, doing so would be an example of leadership, something that current politicians don’t seem to understand. Any information campaign does not have to be ‘authoritarian’ or ‘condescending’ – at the end of the day it is up to people whether they follow the advice but there is a real need for advice.

A case study. Back in the late 1980s I designed & ran an energy motivation programme for 45 of Coventry’s social services homes, mainly elderly people’s homes. These are some of the most difficult facilities to address in a way because: a) they are kept warm (usually too warm) all the time because residents are often sedentary and ‘need’ a high temperature – (or at least that was the belief structure) – and staff are non-technical, and they are rightly focused on their primary mission of administering care, often in difficult circumstances.

With the input from a wide range of stakeholders including the union we designed a motivation programme with a training course that:

1.    explained WHY saving energy was important (which was all about budgets then, as it was pre conversations about carbon)

2.    explained HOW to save energy, the usual simple tips

3.    explained how to read meters (which is never easy) and record consumption (there were no smart meters back then).

Using the meter data we then gave them regular, simple weather corrected feedback (having explained how it worked), and the establishment received a percentage of the proven savings to spend on stuff that benefited the home.  Often they spent it on additional simple energy saving measures, like draught proofing, adding a porch, etc., or on little niggly maintenance jobs that they had not succeeded in getting done through the system.

The net result was an overall 6% savings on energy use over a year, with individual savings ranging up to 38%. All of this was with no capital expenditure. The result was financial, energy, and carbon savings and engaged staff.

We developed a simple model which seems to work. In order to create Action, you need 2 things: Knowledge (or know-how) of what to do and the Motivation to do something. Training provides know-how and when done well can increase Motivation. Motivation is also (greatly) increased by Incentive, (which does not have to be financial), and Feedback that shows that the action is having the desired effect. Put those things together and you have effective action.

Other motivation campaigns at the time gave a percentage of savings to a charity chosen by the end-users, thus creating a double impact.

If we could do that with basically no technology, other than a spreadsheet, imagine what smart meters and cheap smart sensors can do. The schools saving 25% through smart sensors I referred to above are good examples.

We should be getting our energy management basics right before considering capital projects. Optimising energy consumption first can change what is viable or optimum for the capital projects, as well as reduce capital through techniques such as right-sizing. The differences between the 1980s and now are essentially: better technological options, increased motivation, and decarbonisation of electricity. When considering capital expenditure options the combination of climate change and the war in Ukraine should drive everyone to consider what would once have been considered radical, higher cost options including electrification and deep retrofits, rather than small improvements. At today’s prices many of these measures will be economic, the problem then is how to finance them, particularly in the residential sector. When assessing financial benefits we should also never forget, although most people do, the impact of energy price volatility, which in itself has a financial impact, irrespective of the energy price being made.

We know what to do to reduce dependence on dictators selling fossil fuels, along with all the other negative environmental, economic, and social impacts from their use. Let’s just do it.

The Coventry project is described here.

This book sets out the issues that company boards face in the light of climate change and the wider set of factors that fall under the ESG banner, and provides useful advice for boards at all levels. It is clear that climate change, the drive to net zero, and the rapid rise of ESG investing creates many new problems for boards to consider and there is an urgent need to upskill boards to deal with them adequately. All of these factors are also in the context of a fundamental shift away from the shareholder primacy model of capitalism towards a broader model of stakeholder capitalism, the exact forms that this shift takes is not yet totally clear and there may be multiple models.

The book sets out the context and explores specific issues including amongst others; the SDGs, gender diversity; corruption; and managing responsibility in supply chains. As well as setting out the context of each of these the book provides useful examples of how to deal with them and recommendations for action.

My only criticism of the book is that it seems to assume all ESG investing is equally good, even though it is clear that there are degrees of ‘ESG washing’ and not all ESG investors or funds are applying truly rigorous standards. Having said this the direction of travel of the finance sector is clear and the shift towards ESG and impact investing is already having a massive impact on boards of companies of all sizes. As well as the requirements for larger companies to comply with regulations such as the Sustainable Finance Taxonomy, smaller companies are increasingly being asked by customers to demonstrate their ESG performance.

This book is a very useful guidance for board members getting to grips with these increasingly important issues and the work of Helle Bank Jorgensen through Competent Boards is to be commended.

At ep group we are impact led and working hard to integrate consideration of all of our impacts into our decision making. Because we believe in long-term stewardship and the need to re-adjust the relationship of capital to companies as part of the move towards a new form of stakeholder capitalism and enterprise design, we are transitioning to steward ownership. We will certainly use this book in increasing our knowledge and skills.

Dr. Steven Fawkes

Managing Partner

ep group

6th June 2022

The title of this piece comes from a quote by Charles Suckling, who first synthesised halothane, an inhalational anaesthetic in 1951 while working at Imperial Chemical Industries. Charles Suckling went onto various senior roles in different ICI divisions before ending his career as General Manager Research and Technology at the company’s HQ in Millbank, working closely with the board.

He contributed greatly to the recognition of the importance of managing R&D and linking it to the business objectives. After ICI he served on the Royal Commission on Environmental Pollution for 10 years and worked part-time with the University of Stirling where I first encountered his work on R&D management while I was working on my PhD in the Technological Economic Research Unit.

The quote seems relevant to much of the discussion of decarbonization and net zero. We know what the overall objective is, transition to a net zero economy but there still seems to be an issue translating that society wide objective into objectives, and plans within individual companies or buildings. One contribution to this is down to lack of capacity i.e. knowing what to do, but a large part of it comes from excessive focus on the constraints. We know that decarbonization is difficult, but many things are. If we focus on constraints and forget the objective we will never get anywhere.

I have written before about leadership being the short resource and it really is. Leaders need to set the objectives and drive / help / cajole people to overcome the constraints. We see our role at ep group as building capacity and enabling leaders to be able to set clear, sensible decarbonisation objectives and then manage the process to achieve them.

The history of innovation has many cases of leaders focusing on the objectives and pushing through radical change; the Ford V8 engine, the first V8 light and cheap enough to be mass-produced is one example. Many engineers thought Ford was crazy. A more recent automotive example of course could be Tesla, Elon Musk’s focus on the objective and driven behaviour, which I imagine is not always pleasant to be around, has created Tesla, as well as Space-X.

Only by focusing on the objectives can we reach a net zero economy, constraints are always present.

I launched ‘Only Eleven Percent’ in 2013 as an outlet to write on energy efficiency, energy services and financing energy efficiency, and share ideas and experience. Since then I have written about 200,000 words across some 200 blogs, mainly focused on energy efficiency and the problems of financing efficiency, but also touching on some of my other interests including management and leadership; innovation; broader sustainability issues including biodiversity; space travel; aviation; and Formula 1.  I have also found it a useful outlet to express myself on a few personal subjects including the death of a dear friend.

Over the Covid period I decided to put together some of the blogs into one volume in order to make them more accessible to both existing and new audiences. It is arranged by subject matter, although there is some overlap, and fully indexed.  It is designed to be dipped into rather than read from beginning to end. I hope that you find it useful and interesting.

It is now downloadable here: Only Eleven Percent Book 2013_2022 Vol One and on www.epgroup.com.

As always I am happy to engage on any of the blogs or subjects they cover, and ep group continues to work on many of the topics covered.

I will continue to blog as and when I have something to say, so there may be a volume 2 someday.

The start of a new year is always a time of reflection and re-dedication. For me and ep group, 2022 is the year when we really start to multiply our impact in the areas that we care about.

When we consider what those areas are, we all think first about the obvious ones like climate change, the energy transition and the wider, urgent environmental problems such as the threat to biodiversity, all of which are pressing, critical problems.  The other area that is deeply important to us is the way that companies are run and managed, and the linkage between companies and the provision of capital. The dominant model of capitalism, with its emphasis on shareholder primacy, is undoubtedly one of the causes of the environmental problems we face. It is also a cause of problems, both at the social level such as extreme wealth inequality, and the level of individuals such as lack of purpose and sense of worth.

As with the solutions to environmental problems, the solutions to the problems of shareholder primacy capitalism are out there, they are just not widely distributed.  They are, however, growing fast. The rise of the B Corp movement, which we admire and support, is evidence of that.

And it is not just B Corps and other ‘alternatives’.  Blackrock’s Chief Executive Larry Fink recently wrote to CEOs of investee companies and amongst many other things said:

‘Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success’

‘we focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients’

‘our conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders’

Just over a year ago we decided to act on our beliefs around these issues and implement a form of ownership called steward-ownership, one that is not widely known but is more common than is generally appreciated. Steward-ownership is defined as follows:

The concept of “steward-ownership” harnesses the power of entrepreneurial for-profit enterprise while preserving a company’s essential purpose to create products and services that deliver societal value and protecting it from extractive capital.

Steward-ownership represents a viable alternative to shareholder-primacy ownership. In addressing fundamental structural deficiencies of our system, it retools the goals and incentives that guide decision making in companies in the corporate DNA. By doing so it has the power to transform the economy. Steward-owned companies are committed to two principles:

(1) Self-governance — Control remains inside the company with the people directly connected to stewarding its operation and mission. With the control of the company held in a trust, it can no longer be bought or sold

(2) Profits serve purpose — Wealth generated by these businesses cannot be privatized. Instead, profits serve the mission of the company, and are either reinvested in the company, stakeholders, or donated. Investors and founders are fairly compensated with capped returns/ dividends

What does this mean for ep group?

Firstly we are restructuring our various companies into a formal group and secondly we are re-writing the articles of the companies to reflect the principles of steward-ownership.  In parallel with those internal changes we are engaging with SMEs with services that support net zero and the regenerative economy, the kinds of companies that are the ‘picks and shovels’ of the transition, and who like the idea of coming together and building a larger steward-owned business rather than selling to extractive capital. Our intention is to bring these companies into the ep group through acquisition in a way that brings equitable rewards and balances a high degree of autonomy with support in key areas.  By aggregating these SMEs we can bring to SMEs the financial, impact reporting and marketing systems of a bigger company, as well as access to lower cost capital.  Furthermore there can be real synergies between the companies within the group.

In order to execute this strategy we are raising capital for the first time. The investors we want are impact driven investors who are committed to enabling the transition to a net zero and regenerative economy but also recognise that the structure of companies and their relationship to capital has to change.  If that description fits you and you are interested in joining us in this journey by investing please let me know and we will share more details.

Steward-ownership; ep group impact report