In our inaugural edition of the Journal of Sustainable Finance and Banking, we discussed the issue of declining money velocity and suggested that a concerted effort to drive greater transparency in capital markets would help put in the motion the capital that is needed to drive economic growth. This is only a piece of the puzzle, however. Economists are currently debating whether anemic job growth and capital investment are preventing the global economy from recovering more quickly, or if slower productivity growth is the culprit. Productivity growth accounts for the changes in output not caused by changes in labor and capital inputs. In essence, productivity growth represents the effects of efficiency improvements, technological change, and the contribution of other inputs that we cannot measure explicitly. The Conference Board points out that with the exception of the 2008-09 recession, 2012 saw the slowest global growth in a decade. This doesn’t appear to be entirely a cyclical phenomenon either – mature economies have witnessed steadily declining productivity growth since the late ‘90s. Greater efficiencies in major emerging economies have been an offsetting factor, but they, too, are now seeing productivity growth decelerate. The challenge we’re now faced with is not only putting capital to work, but accelerating the flow of capital to innovative, sustainable businesses that in aggregate will help reverse this alarming productivity trend.
In pursuit of this goal, one field worth exploring is biomimicry, which is the study and imitation of nature’s best ideas to help solve human challenges. A well-known, yet simple example of biomimicry-driven innovation is Velcro, which was inspired by the way burrs stuck to fur. While still nascent, biomimicry is receiving attention not only from academia, but from engineering departments of large corporations around the world. Qualcomm, a US-based leader in semiconductors and telecom equipment, turned to the wings of a butterfly when developing the mobile display technology, mirasol. As described by Qualcomm, “Certain butterflies have tiny scales and ridges that reflect light in such a way that only certain colors are perceptible to the eye…The use of minute structures and ‘interference’ is essentially the same principle employed in mirasol displays.”
Biomimicry is playing an important role in the transportation sector as well. Airbus, a leading aircraft manufacturer based in France (and subsidiary of EADS), utilized research on the beaks of sea birds to design the nose of the new Airbus A350. Airbus incorporated probes on the nose of the plane that detect gusts and deploy moveable wing surfaces for more efficient flight, thus reducing fuel consumption and emissions. In rail transportation, the engineers behind the Bullet Train of the West Japan Railway Company also borrowed an idea from a bird’s beak. In this instance, changes in air pressure produced a loud “sonic-boom” which led to resident complaints. The train’s chief engineer turned to the kingfisher, a bird able to dive from the air into bodies of water with very little splash to catch fish. He modified the train’s nose to mimic the kingfisher’s beak and, in doing so, not only addressed the noise issue, but reduced electricity consumption by 15% and increased speed by 10%.
In the field of architecture, architects and engineers collaborated to design a building in Zimbabwe without air-conditioning. A termite-inspired ventilation system resulted in a building that uses only 10% of the energy of a conventional building its size, saves $3.5 million in the first five years, and enables rents to be 20% lower than a newer building next door.
The aforementioned examples are evidence that the field of biomimcry is yielding both economic and sustainable results. The next step, however, is to apply the concept of biomimicry more broadly across entire solutions opposed to isolated products or projects. To this end, the Sahara Forest Project (SFP) has designed a technological system with the goal of restorative growth. SFP, with pilot projects in Jordan and Qatar, is looking to take what we have enough of (CO2, salt water, sunlight and arid areas) to create what we need more of (energy, fresh water, vegetation and food). Biomimicry plays an important role this process. The seawater-cooled greenhouses developed by SFP essentially mimic and enhance the conditions in which the Namibian fog-basking beetle harvests water in a desert: evaporation of seawater is increased to create higher humidity and then a large surface is created for condensation.
As we confront the challenges of declining money velocity and waning productivity growth, it falls upon capital market participants, companies and governments to consider the road less traveled. Clayton Christensen, Harvard professor and author of The Innovators Dilemma, suggests business leaders have become overly focused on short-term gains driven by “efficiency innovations” such as streamlining and cost-cutting. Meanwhile, they have underinvested in “empowering innovations” which generate new wealth and opportunity in underserved or unserved parts of the markets. We recognize, however, that investors are encouraging management teams to invest in this manner in order to meet near-term guidance. Simply stated, the economy is not growing quickly enough to generate acceptable revenue growth so management teams must employ “efficiency innovations” to expand margins. Moreover, governments are pumping massive amounts of liquidity into economies, but in many instances are falling short when it comes to establishing an environment conducive to long-term investment.
The field of biomimicry is not a silver bullet, but it is an area that offers promise for the development of sustainable technology. Janine Benyus, an expert in the field of biomimcry, reminds us that life has 3.8 billion years of experience in adapting and evolving to changing conditions. It is inherently efficient and sustainable. We would be remiss not to take advantage of nature’s R&D resume.
Michael Shavel, CFA is a Research & Business Analyst at Cornerstone Capital Inc. and a former Research Analyst on AllianceBernstein’s Global Growth & Thematic team.