A new era: The merging of industrial and energy industries
Frontier technologies are bringing cost efficiencies and sustainability benefits; industrials are taking note in this new wave of innovation
The Nobel Prize–winning economist Milton Friedman claimed, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” Sometimes the motives and actions of a business do have a positive impact on society, but even the most altruistically led enterprises will not be able to sustain loss-making activities solely to provide a social or environmental benefit.
A middle ground is emerging, however, where the pursuit of returns may benefit more than just shareholders. I am taking note of the many companies that are aligning their operations with environmental practices that provide energy and operational efficiencies. Myriad abbreviations — including CSR (corporate social responsibility), SRI (socially responsible investment) and ESG (environmental, social and governance) — seem to have hit a saturation point in terms of impact and efficacy. Yet today, entrepreneurs in frontier technologies have stronger value propositions to communicate to their customers, achieved by embracing the environmental policies that inherently reduce spending on things like energy and waste. Profitable business and environmental stewardship need not be mutually exclusive.
Productivity = profit
Large industrial sectors of the economy, such as manufacturing, transportation and energy, are often slow to change without a big external push. Many legacy companies in these sectors are reluctant to adopt new forms of technologies, and some are just too large to do anything with haste. Others don’t see a reason to change at all; as the saying goes, If it ain’t broke, don’t fix it.
Ironically, this herd mentality and aversion to challenging the status quo has pushed more entrepreneurial minds to do it themselves. Major disruption is now commonplace, with taxis (Uber and Lyft), hotels (Airbnb), automobiles (Tesla) and rockets (SpaceX) — all experiencing the impacts of fast-moving, innovative startups. With the rapid progress of technology, industrial sectors are not safe from disruption, either.
Industrial sectors have seen a major lag in productivity and efficiency in recent years. Looking at productivity data from 1992 to 2003, the manufacturing sector averaged 2 percent productivity growth, whereas from 2005 to 2016 it eked out a negative average growth rate. The adoption of new technologies like artificial intelligence could be the catalyst for change.
Multifactor productivity (MFP) for the U.S. manufacturing sector
In an effort to take advantage of emergent opportunities and to avoid being disrupted, a renewed emphasis on both increasing productivity and lowering costs has spurred companies to develop and adopt new technologies. These include advancements in robotics, machine vision, augmented reality and artificial intelligence. As industrial companies adopt these new technologies, they are increasingly able to realize better operational outcomes and grow their bottom lines. Perhaps less expected is the concurrent benefit of a reduced, sustainable environmental impact from those operations.
Find the opportunities
Take autonomous vehicles (AVs), for instance. AVs are billed as a potentially huge operational enhancement, able to lower labor costs and enhance safety by replacing humans and the errors they make. AVs are also typically electric vehicles, bringing the benefits of reduced pollution-causing congestion in urban areas.
Notably, this cross-pollination of benefits also works in the other direction. Spectral imaging in agriculture, of the sort being developed by Ceres Imaging, is billed as sustainable, as the precise application of pesticides reduces environmentally damaging runoff. It also provides farmers with several cost and operational efficiencies, such as lower costs on chemical treatments, field treatments and water for irrigation.
It is not unusual for an entrepreneur to tackle a specific problem only to find that it solves a number of other problems that could not have possibly been foreseen, including resource depletion, climate change and environmental degradation. Entrepreneurs developing new technologies are just beginning to understand the positive impact they can have.
Show me the green
At a recent event hosted by SVB, the companies polySpectra (industrial-grade polymers for 3D printers) and Holo (3D printing of metals for industrial applications) each acknowledged that while the primary aim of their businesses was never to realize energy efficiencies for their customers, it has proven to be an important indirect benefit.
In developing a 3D-printed resin tough enough to withstand heavy impact and high temperatures, polySpectra uncovered a 98 percent reduction in energy use in the direct manufacture of engineering-grade parts, including halving the energy used in transportation. Holo asserted similar direct energy savings in its 3D metal-printing technology, which is a substitute for traditional computer numerical control machining or injection molding.
Similar to polySpectra’s vision of achieving indirect benefits in fuel-efficiency gains by way of lighter-weight vehicles, Holo is working to understand how to quantify the environmental benefits associated with manufacturing components closer to where they are consumed. The company believes that 3D-printed parts will eventually eliminate much of the transoceanic and transcontinental shipping that constitutes global supply chains for nearly all consumer and industrial goods.
Today, maritime shipping accounts for about 3 percent of global CO2 emissions. But as renewables and natural gas take an increasing share of electricity generation, the European Parliament recently forecasted that maritime shipping could account for 17 percent of global emissions by 2050 in a business-as-usual case. So, in addition to achieving operational efficiencies of lower idle inventory volumes and just-in-time delivery of parts, 3D-printing solutions like polySpectra’s and Holo’s could go a long way toward reducing a stubborn chunk of global emissions that is not easily replaced by solar or wind power generation.
The world is changing, and we’re adapting
We have touched on a handful of cases across manufacturing, transportation and agriculture here, but these are just the tip of the iceberg. The lines between what is clean technology and what is industrial technology are rightfully blurring because no industry is going to modernize while doing worse by the climate and environment. At SVB, we are not just acknowledging this as an interesting trend on our blog. Our Energy & Resource Innovation and Frontier Tech teams are combining our efforts to help clients realize the benefits of these dual strengths and increase their chances of success — and of a more sustainable future.
