Author: ashton

Music to my ears: Spotify’s pursuit of profit

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Since its launch in 2008, Spotify has become the world’s largest music streaming service. The company boasts 159 million users and operates in 65 countries. However, similar to other technology companies like Twitter and Uber, Spotify has an unprofitable history. It has focused instead on gaining a dominant market share in the music streaming industry, with the expectation that profits will follow.

The Swedish streaming service has filed for a direct listing and began trading on the New York Stock Exchange on April 3, ending its first day 13 percent up from its reference price of $132. The move sparked discussions about why it didn’t file for a traditional initial public offering (IPO). However, by implementing a direct listing, Spotify has allowed existing shareholders and early backers to sell their shares without the usual holding period associated with an IPO.

This approach also does away with the need for underwriters and intermediaries, making it a cheaper option too. According to the Financial Times, it has cost Spotify $30m to implement the direct listing, which pales in comparison to the $100m Snapchat paid for its IPO in 2017.

Considering that Spotify’s losses have been increasing – it reported an operating loss of €378m ($468m) in 2017 – it’s not surprising that it has made the decision to go public. “It comes to a point where you can’t continue on just private money, you need to take the company public both to operate and to offer investors a return,” explained Justin Barker, Group Director of Streaming Strategy at PIAS, an indie music label.

Considering that Spotify’s losses have been increasing – it reported an operating loss of €378m in 2017 – it’s not surprising that it has made the decision to go public

Expansion strategy
Despite losses, Spotify has been able to achieve a significant market share. Its main competitor, Apple Music, has 36 million paying subscribers, which is no match against Spotify’s 71 million premium subscribers.

In order to maintain its market-leading position, Spotify has been investing in its original portfolio in a bid to diversify its content. Podcasts such as Viva Latino, which gives listeners an insight into the world of Latino music, as well as curated playlists such as RapCaviar, hailed as the most influential playlist in music, bring users content they won’t find on other streaming services.

Rapper Gucci Mane performs onstage during Spotify's RapCaviar Live event in Houston
Rapper Gucci Mane performs onstage during Spotify’s RapCaviar Live event

The company is now working to bring its playlists to life. In 2017, in partnership with Live Nation, Spotify Presents took RapCaviar on a sold-out six-city tour across the US. The show returns this year with 13 dates. Stuart Dredge, Contributing Editor at Music Ally, commented on how this approach will benefit Spotify: “Making [playlists] a concert, building it into a brand, making videos around it, it makes it something associated to Spotify. You make it almost tangible when taking it to the real world.”

Ben Green, Head of Production at Muddy Knees Media, thinks the service should be offering even more to paying subscribers in particular: “Spotify needs to offer more than just an absence of adverts to make people sign up to the premium service. I can see Spotify offering a lot of high quality, non-music content behind their paywall as part of their subscription package in the same way that Netflix and Amazon have exclusive programming.”

The future of audio
Spotify is branching out from its musical origins, incorporating different multimedia formats into its services. At the beginning of 2018, it unveiled Spotlight, a feature that will bring photos, video and text to its playlists. Andrea Young, Partner and Chief Playlisting Officer at Koral Young Group, discussed this move: “Spotify is positioning [Spotlight] as a way to engage on the platform beyond the music listening experience. It has to do that to capture the younger demographic and keep its existing users from going off the platform for additional content and interaction with artists.”

To compete with market leader Apple Podcasts, Spotify is expanding its podcast section, offering original podcasts

To compete with market leader Apple Podcasts, Spotify is expanding its podcast section, offering original podcasts in partnership with the likes of BuzzFeed News, TechCrunch and Gimlet Media. The monetary potential of radio advertising could explain this effort to produce more spoken content. In 2017, worldwide radio advertising spending amounted to $28bn. Spotify, which already inserts adverts between songs at regular intervals, could certainly benefit from advertising in this way.

Global markets
There are a few geographical markets that Spotify has not successfully tapped into. In 2016, it began operating in Japan but has had trouble establishing itself as a big player in the market due to the lack of local music on offer.

Spotify also has its sights set on India, but faces some stiff competition from established players like Saavn and Gaana, the latter boasting 50 million active users in the country. If Spotify can bring Indian users regional content with a subscription that competes with homegrown music services, it may be able to carve a position for itself in India.

In China, Tencent Music dominates streaming. The service has twice as many paying customers as Spotify across its three platforms – QQ Music, KuGou and Kuwo. In December 2017, Tencent and Spotify announced a strategic share swap; each company acquired an undisclosed minority stake in the other.

Peter Tschmuck from the University of Music and Performing Arts in Vienna told The New Economy that a strategic partnership “is the most important precondition for sustainable development and Spotify has to recognise that before entering emerging markets in Asia”.

Spotify’s mission of global domination is well underway. It already operates in 65 markets worldwide and is trying to gain headway in larger markets in which it has not found a significant foothold. The stake in China’s Tencent and its potential in India could see Spotify scale new heights in these markets.

It is evident that Spotify must innovate to remain competitive. The introduction of video and podcasts may keep users happy, but in terms of profitability it might not be enough.

Pushing its curated playlists is most likely the best course of action to make a profit now it has gone public. The playlists have already proved their value through the success of live concerts in the US and UK. By strengthening their playlists, Spotify may finally find a way to generate profits.

SoftBank Vision Fund and Saudi Arabia to build biggest solar project in history

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In remarks made to reporters on March 27, SoftBank CEO Masayoshi Son and Saudi Crown Prince Mohammed bin Salman announced they had signed a memorandum of understanding to build the largest solar project in history. The push into solar power is part of Saudi Arabia’s ongoing strategy to reduce its dependence on fossil fuels.

The project will be built in Saudi Arabia – though it is not yet clear where in the country – and will reach maximum capacity in 2030, when it will have an output of 200GW, far exceeding any existing or planned solar farm.

It will carry a price tag of $200bn and create around 100,000 jobs, according to Son. The project is also set to more than quadruple Saudi Arabia’s solar capacity, which is currently around 60GW.

In theory, one gigawatt can power 725,000 homes, meaning the completed solar plant will have the capacity to power 145 million households, although actual output varies depending on weather conditions. The first phase of construction will begin later this year; seven percent of maximum capacity will be reached by 2019. The majority of the funding will be generated through debt financing, with SoftBank and the Saudi Government each investing around $1bn initially.

The project is also set to more than quadruple Saudi Arabia’s solar capacity, which is currently around 60GW

The project is consistent with Saudi Arabia’s Vision 2030 – the Kingdom’s long-term strategy to wean itself off oil revenues and diversify its economy. Bin Salman is also planning on meeting with a number of tech giants – including Amazon CEO Jeff Bezos – during his visit to the US, which is aimed at attracting investment into the Kingdom.

The project is another high profile investment for SoftBank Vision Fund, which has become an aggressive player in the venture capital space since it was founded two years ago. The $100bn fund is dedicated to technological investments and has poured money into industry disruptors like Uber, chipmaker Nvidia and Indian e-commerce giant Flipkart.

Amazon targets European grocery market with Monoprix partnership

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Amazon and French supermarket chain Monoprix announced a partnership on March 26 that could enable the US company to make further inroads into the European grocery market. As part of the collaboration, Monoprix shoppers in Paris and the surrounding area will be able to purchase goods through Amazon’s Prime Now app, as well as a dedicated virtual store.

The move is the latest attempt by Amazon to secure a foothold in the food retail sector. Last year, the e-commerce giant purchased US retailer Whole Foods for $13.7bn but, aside from a partnership with UK-based supermarket Morrisons, its European footprint is small.

The move is the latest attempt by Amazon to secure a foothold in the food retail sector

Amazon’s tie-up with Monoprix will certainly improve matters on that front, and Jean-Charles Naouri, Chairman and CEO of Monoprix’s parent company, Casino Group, believes that his organisation also stands to benefit from the new relationship.

“Thanks to this unique partnership between Amazon and Monoprix, Casino Group reinforces its omnichannel distribution strategy and gets even closer to its customers and their needs,” Naouri explained. “This commercial partnership is a new milestone in Casino Group strategy to innovate ever more for tomorrow’s urban commerce.”

French supermarkets have been looking for ways to develop their e-commerce solutions for some time now and Amazon has proven keen to offer a helping hand. The online retailer had been linked with Monoprix rival Leclerc in recent months and has been offering its Amazon Prime Now delivery service to Parisians since 2016.

With another rival, Carrefour, investing $3.48bn in its digital commerce division over the next five years, Monoprix’s Amazon announcement could be viewed as a major coup. However, Fabienne Caron, an analyst at Kepler Cheuvreux, has described the partnership as a “very defensive move” and it’s difficult to argue with that assessment given the increasing competition in the sector. In particular, it should help Monoprix fight off a renewed challenge from Leclerc, which recently announced the launch of its own food delivery service in the French capital.

Nissan announces plans to produce one million electric cars a year by 2022

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On March 23, Nissan announced plans to aggressively expand its electric vehicle (EV) operations, with the aim of producing one million EVs by 2022. As part of the plan, the company also wants to ramp up its development of automated driving technology in an effort to stay ahead of the pack as the EV market continues to heat up.

Nissan, which also owns Datsun and Infiniti, plans to develop eight new electric car models by 2022. Also revealed in the statement are plans to incorporate its ProPilot automated driving systems into 20 models in 20 different markets.

The company wants to ramp up its development of automated driving technology in an effort to stay ahead of the pack as the EV market continues to heat up

“Our product and technology strategy is dedicated to positioning Nissan to lead the automotive, technology and business evolution,” said Philippe Klein, Chief Planning Officer at Nissan, in the statement. “Our efforts are focused on delivering Nissan Intelligent Mobility, encompassing the three core elements of electrification, autonomous drive, connectivity and new mobility services.”

This is part of the company’s push to compete in an ever more saturated global market for non-petrol vehicles. Nissan Leaf, the company’s recently-rebooted flagship EV, has long been the world’s best selling car in the category. The rest of the company’s electric product portfolio, however, is weak compared to global rivals Volkswagen and Tesla.

Even the Leaf, which owes its popularity to its affordability and range, is under direct threat from Tesla’s long awaited Model 3. While the Model 3 will be more expensive – it’s priced at $35,000, compared with the Leaf’s $30,000 – it also has a stronger brand than the Leaf, as well as the advantage of a well-developed charging network around the world.

The 2019 Leaf model does show some promise, however, in its 225 mile range, beating the Model 3 by five miles.

Nissan expects electric and hybrid cars to account for half its European sales by 2025. It also predicts that, by 2025, its EV sales in the US and China will be 20-30 percent and 35-40 percent respectively.

BlackBerry and Jaguar Land Rover strike deal to develop tech for next-gen vehicles

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On March 22, former smartphone giant BlackBerry announced a multiyear partnership with Britain’s largest automobile manufacturer, Jaguar Land Rover, to develop technology for the company’s next-generation vehicles.

The deal will see BlackBerry license its security technology, Certicom, and QNX operating systems, which deal with embedded systems including entertainment and automation, to Jaguar Land Rover. According to the statement, the Canadian firm will help develop the technology by using its own team of engineers, whose first project will be a “next-generation infotainment system”.

While BlackBerry’s market cap is nowhere near what it was at its height in mid-2008, it has almost doubled since September 2016 when it pivoted away from making phones.

“We are at a pivotal moment, where innovative automakers, such as Jaguar Land Rover, are realising they need to take an active role in defining the software architecture for their vehicles,” said John Wall, Senior Vice President of BlackBerry QNX, in the statement.

“Connected and autonomous vehicles will react and drive based on rich data. Our platforms help process data efficiently and keep it secure and trusted. We are incredibly honoured to work with Jaguar Land Rover and look forward to our teams working hand in hand to deliver an enhanced driving experience for their customers.”

The deal comes as BlackBerry continues to diversify its portfolio. The company ceased smartphone production two years ago following the collapse of sales and has since formed partnerships with the likes of Microsoft, Baidu and Qualcomm to develop software in a number of sectors. The company has been particularly keen on carving out a space for itself in the automotive software industry.

BlackBerry’s diversification strategy got a financial boost last year when it won a $940m refund from Qualcomm in an arbitration dispute following the company’s complaint that it had been overpaying royalty fees. While BlackBerry’s market cap is nowhere near what it was at its height in mid-2008, when it had around 20 percent of the smartphone market, it has almost doubled since September 2016 when it pivoted away from making phones.

De Beers uses blockchain to clean up diamond industry

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Diamond records are forever, or at least they will be. De Beers, the company that has historically dominated the global diamond market, announced its progress in introducing blockchain technology to its operations. The technology will be able to trace the origin of diamonds through its value chain.

This is a significant development in the diamond industry and has the potential to transform public perceptions of the entire sector.

Blockchain, which found fame as the technology underpinning cryptocurrencies, is a platform that allows for a permanent, traceable and incorruptible record of transactions of an item from its origin all the way to its final recipient.

The system works by producing a digital record of a transaction, called a block, that has to be verified by the other participants in the network. Once verified, the block is placed on the chain of blocks, which details the item’s entire history. The more participants there are in the blockchain system, the stronger its verification mechanism is.

Conflict diamonds have historically made up a small part of the global diamond supply, but the industry has come under fire for not seeming incentivised to cut them out altogether

Bringing blockchain to the real world
Blockchain has traditionally been used for digital products, but its potential with physical products is substantial as items can be given a unique reference to track their every move.

With gemstones, features like blemishes can be logged and used for identification, making them even easier to trace than other physical assets with less permanent attributes.

The challenge lies in making sure the information on the blockchain accurately reflects reality, that is, that the unique digital references represent real stones, and that changes appearing on the system actually take place in real life.

“Ensuring the integrity of the information that gets recorded onto a blockchain is important,” said Hilary Carter, Director of Research at the Blockchain Research Institute.

“The information is only as good as the integrity of the players all throughout the chain. But it does allow for a higher level of accountability because one of the features of blockchain technology is immutability.

“The fact that records are permanent, that you cannot reverse transactions, means that we all have to endeavour to transact in a more accurate way.”

No more blood
The diamond industry’s image has long been plagued by the spectre of blood diamonds. This refers to diamonds that have been mined illicitly but make their way into legitimate supply chains and consequently fund the violent groups that control mines.

For decades, this has cast a shadow over the industry, causing consumers to worry about the path their diamond has taken to reach them.

Conflict diamonds have historically made up a small part of the global diamond supply, but the industry has come under fire for not seeming incentivised to cut them out altogether. Blockchain would inject a sense of integrity that would change that perception and represent a marketing coup for the industry.

“The system is designed to prevent against fraudulent activity,” Carter said. “There is just a natural disincentive for bad actors to engage on a blockchain when it comes down to supply chain management and provenance of goods.

“If you know that there is no opportunity to change the record, then the record has a higher chance of being done right the first time.”

A new diamond standard
The potential advantages of blockchain for the wider diamond industry, which generated $80bn in consumer sales in 2016, extend well beyond just consumer confidence. Some business costs would fall as parts of the existing verification mechanisms, such as paper-based certification systems, become redundant.

This would also minimise the threat of document forgery, a particularly necessary development considering the synthetic diamond market’s growth. The industry would further benefit from the higher barriers to entry associated with the high fixed costs and logistical challenges of having the system to catalogue vast diamond inventories.

Adopting blockchain is a natural evolution for the diamond industry. The change will streamline clerical and record-keeping functions but, more importantly, it will cultivate a degree of trust that has long been missing from the industry.

Top 5 things businesses should consider when adopting AI

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The digital world has been inexorably marching forward over the last 20 years, providing ever more efficient services to business and the public. Yet, only now is a new technological revolution occurring. Just as the Industrial Revolution transformed the nature of manual work in the late 18th century, AI is set to dramatically change the roles of white-collar workers and the service industry.

Chatbots are already a familiar feature in call centres, but now even accountants, lawyers and truck drivers are finding themselves substituted for AI technology. Greater computer power, the availability of huge volumes of data and the fact that digital means of interaction are preferred by consumers have led AI to the point at which it can take off.

AI now has the data it needs and is no longer a disembodied brain; it has the means to interact with people, businesses and even machinery. There is little need for physical infrastructure and, as such, computer power can be harnessed in minutes, by anyone and at low costs.

As with all revolutions, AI will bring opportunities to those who embrace change, and those who get there first will reap the biggest benefits. In today’s business environment, competition is intense, and, now more than ever, it occurs on a global scale.

Costs are plummeting as businesses around the world take advantage of fixed-income arbitrage. Meanwhile, government policy is being designed to positively encourage competition. Consequently, businesses must work even harder to differentiate themselves from the rest of the pack; AI provides one such means of differentiation.

There are a number of steps that organisations should follow when looking into the use of AI, and after its implementation.

Understand what AI is capable of
AI has the ability to process huge volumes of data, learn from the data, be taught, spot patterns, make predictions and draw conclusions rapidly, 24/7 and without faltering. In a business context, it can make accurate and reliable decisions of ever-increasing complexity based on the data it receives.

It can also communicate in both text and voice. AI can understand customer and supplier behaviour and will draw conclusions about segments and markets based on this knowledge. By monitoring data, AI is capable of understanding processes and operations, predicting issues and determining how to optimise, research, collect and summarise data.

Consider current business practices
In businesses where teams of people are carrying out very similar, human-intensive tasks, AI can help to significant cut costs. Whether it’s communicating with customers, completing back office tasks or considering data to make decisions, many processes carried out by AI systems at a fraction of the cost and with less chance of error.

Businesses must work even harder to differentiate themselves from the rest of the pack; AI provides one such means of differentiation.

Identify opportunities for improvement
Businesses should take the time to identify the tasks that AI could do better than current systems. This may be decision-making, understanding customer behaviour or providing faster service for a greater number of hours. These are the types of value-added services that give businesses an edge over their competitors.

Additionally, AI makes it significantly easier for companies to reach new or wider markets. It can complete processes in new languages, work in different time zones and deal with the volume of mass markets in a way that humans simply cannot.

If AI technology is adopted, it’s important that businesses continue to assess if there are new AI offerings that could be used to provide even better services; they must keep up with the technology as it changes and not fall behind.

Evaluate the feasibility of adopting AI
Once the opportunities offered by AI have been identified, businesses will need to act quickly to evaluate the feasibility of using such technology. The challenge of AI-driven solutions is that they are very dependent upon data and it’s not guaranteed that they will deliver the accuracy and benefits required.

There are two ways to address this issue. The first is to find a similar case study in which the implementation of AI was successful. The second is to run a ‘proof of concept’ that uses data to mathematically prove AI’s capability. For example, if the AI system needs to interact with customers, focus groups or A/B testing may be a useful way to collect proof of concept data.

Continue to evolve after implementation
Not all AI solutions work completely independently of humans; many of them augment the tasks performed by humans. The design of AI systems should be carefully considered to ensure they aren’t too ‘black box’, that is, that deep learning doesn’t occur in a system that is opaque to outside scrutiny. By mixing expert system approaches with machine learning techniques, the decisions made by AI systems can be understood by users.

It’s also important to understand just how quickly the field of AI is moving, to adopt open platforms and focus on reviewing and improving AI decision-making models. By collecting new data, automated decision-making processes can be refined and made more effective, bringing even greater benefits to businesses.

Street View can reveal demographic profiles

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The car that someone drives can reveal a lot about them. In fact, the Stanford Artificial Intelligence Laboratory has discovered that by totting up the number of Sedans and pickup trucks seen on a drive through a US city, it’s possible to predict that city’s voting preference with over 80 percent accuracy. Pickup trucks are associated with Democrats, while neighbourhoods with Sedans tend to vote Republican.

This technique is part of the fast-growing field of big data research that is receiving an increasing amount of attention from businesses and governments looking to gain fast access to more accurate demographic data.

The research project analysed 22 million cars visible on Google Street View using artificial intelligence, and discovered that it is possible to accurately estimate income, race, education and voting patterns at the neighbourhood level.

Big data research is receiving an increasing amount of attention from businesses and governments looking to gain fast access to more accurate demographic data

The researchers used deep learning computer vision techniques on 50 million images to identify the make, model and year of the cars present in each neighbourhood. They then used this data to make predictions about the demographic makeup of neighborhoods. These predictions are accurate even at the precinct level, which usually consists of a population of around 1,000 people.

The research team’s goal was to create a tool that would assist policymakers in collecting census-like data. The particular focus was the American Community Survey (ACS), a yearly survey that reports demographic results for every city in the US with a population of at least 65,000 people.

The Google Images algorithm is seen as a complementary technique that will fill in the gaps left by traditional survey methodologies. It can be used, for instance, to collect data on smaller neighbourhoods that are currently skipped by ACS survey teams. It is also far quicker: the lag-times associated with labour-intensive door-to-door surveys can be virtually eliminated.

There is no indication that these algorithms will be released into the public domain. So, as of yet, it won’t be possible for members of the public to check the affluence, racial makeup or voting preferences of a neighbourhood.

However, the images that have been used are available to the public, so there is nothing to stop others pursuing similar projects. Businesses looking to expand or relocate, for instance, may be interested in an area that is more affluent, or they may seek out a particular demographic profile. Additionally, political parties may be able to harness this kind of information in targeted campaigning.

Governments must act fast to control the threat of cyber conflict

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When cybersecurity professionals were polled recently at their annual Black Hat conference in Las Vegas, 60 percent said they expected the United States to suffer a successful attack against its critical infrastructure in the next two years. And US politics remains convulsed by the aftermath of Russian cyber interference in the 2016 election. Are cyberattacks the wave of the future, or can norms be developed to control international cyber conflict?

We can learn from the history of the nuclear age. While cyber and nuclear technologies are vastly different, the process by which society learns to cope with a highly disruptive technology shows instructive similarities. It took states about two decades to reach the first cooperative agreements in the nuclear era. If one dates the cybersecurity problem not from the beginning of the internet in the 1970s, but from the late 1990s, when burgeoning participation made the internet the substrate for economic and military interdependence (and thus increased our vulnerability), cooperation is now at about the two-decade mark.

United front
The first efforts in the nuclear era were unsuccessful United Nations-centered treaties. In 1946, the US proposed the Baruch Plan for UN control of nuclear energy, and the Soviet Union promptly rejected locking itself into a position of technological inferiority. It was not until after the Cuban Missile Crisis in 1962 that a first arms control agreement, the Limited Test Ban Treaty, was signed in 1963. The Nuclear Non-Proliferation Treaty followed in 1968, and the bilateral US-USSR Strategic Arms Limitation Treaty in 1972.

The development of norms among like-minded states can attract adherence by others at a later point

In the cyber field, Russia proposed a UN treaty to ban electronic and information weapons (including propaganda) in 1999. With China and other members of the Shanghai Cooperation Organisation, it has continued to push for a broad UN-based treaty.

The US resisted what it saw as an effort to limit American capabilities, and continues to regard a broad treaty as unverifiable and deceptive. Instead, the US, Russia and 13 other states agreed that the UN Secretary General should appoint a Group of Governmental Experts (GGE), which first met in 2004.

That group initially produced meager results, but by July 2015 it issued a report, endorsed by the G20, that proposed norms for limiting conflict and confidence-building measures. Groups of experts are not uncommon in the UN process, but only rarely does their work rise from the UN’s basement to a summit of the world’s 20 most powerful states. But, while the GGE’s success was extraordinary, last month it failed and was unable to issue a consensus report for 2017.

Rewriting the rules
The GGE process has limitations. The participants are technically advisors to the UN Secretary General rather than fully empowered national negotiators. Over the years, as the number of GGE member states increased from the original 15 to 20 and then to 25, the group became more unwieldy, and political issues became more intrusive. According to one diplomat who has been central to the process, some 70 countries have expressed interest in participating. But as the numbers expand, the difficulty of reaching an agreement increases.

There is a wide range of views about the future of the GGE process. A first draft of a new report existed at the beginning of this year, and the able German Chairman argued that the group should not rewrite the 2015 report, but try to say more about the steps that states should take in peacetime.

Some states suggested new norms to address data integrity and maintenance of the internet’s core structures. There was general agreement about confidence-building measures and the need to strengthen capacity. The US and like-minded states pressed for further clarification of the earlier agreement that international laws of armed conflict, including the right of self-defence, apply in cyberspace, but China, Russia and their allies were reluctant to agree. And the deterioration in US-Russian relations soured the political climate.

Moreover, whereas some states hope to revive the GGE process or enlarge it into a broader UN process, others are skeptical, and believe that future progress will be limited to discussions among like-minded states, rather than leading to universal agreements.

Norms that may be ripe for discussion outside the GGE process could include: protected status for the core functions of the internet; supply-chain standards and liability for the Internet of Things (IoT); treatment of election processes as protected infrastructure; and, more broadly, norms for issues such as crime and information warfare. All of these are among the topics that may be considered by the new informal Global Commission on Stability in Cyberspace, established early this year and chaired by former Estonian Foreign Minister Marina Kaljurand.

Setting standards
Progress on the next steps of norm formation will require simultaneous use of many different formats, both private and governmental. For example, the 2015 agreement between China and the US to limit industrial cyber espionage was a bilateral accord that was later taken up by the G20.

In some cases, the development of norms among like-minded states can attract adherence by others at a later point. In others, such as IoT, norms for security standards may benefit from leadership by the private sector or non-profit stakeholders in establishing codes of conduct. And progress in some areas need not wait for others.

A regime of norms may be more robust when linkages are not too tight, and an over-arching UN treaty would harm such flexibility at this point. Expansion of participation is important for the acceptance of norms, but progress will require action on many fronts. Given this, the failure of the GGE in July 2017 should not be viewed as the end of the process.

© Project Syndicate 2017

Iceland champions the power of geothermal energy for the environment and businesses

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As renewable energy is increasingly used around the world, geothermal sources have started to gain ground in the field. A clean energy solution with further advantages for the environment, its as-yet-unrealised potential presents multiple opportunities for individuals and businesses.

In the last few years, Iceland has led the way in the development of geothermal energy thanks to its location. Iceland has access to ground water and clean seawater, plus it sits between two tectonic plates, providing the country with rich resources of geothermal energy.

In Iceland, geothermal energy currently supplies 70 percent of the country’s primary energy, with district heating using the majority of this resource. Geothermal generates 30 percent of the country’s 100 percent renewable electricity, proving that it is ideal for supplying baseload energy, improving energy security and boosting economic growth.

Energy independence
By the mid-20th century, Iceland was one of the poorest countries in Europe. Without any resources of its own, it had no choice but to import fossil fuels for heating houses. The future was gloomy for a nation with a sparse population living on an island totally dependent on fossil fuels.

It took decades, but Iceland finally got rid of the burden, becoming a pioneer in the energy field by developing a self-supply matrix of renewable sources. This was the result of a process of trial and error, during which the country learned how to take advantage of its geothermal resources. Over the years, Iceland expanded its scope to hydropower from glacial rivers.

Geothermal power’s as-yet-unrealised potential presents multiple opportunities for individuals and businesses

Now, the discussion is centred on whether Iceland can take the next step and become an exporter of renewable energies. This is especially important today, when the world is seeking solutions to curb pollution.

An example of the cooperation needed to make further progress in this field comes from China, where, working together with Iceland, cities were able to reduce their carbon footprint and clean the ambient air while implementing district heating.

Despite the proven advantages, geothermal power generation is still under-exploited. Although in the last few years it has gotten increased attention, the industry needs a better understanding of its possibilities to make full use of its benefits.

Reaching full potential
In 2014, direct use of geothermal energy around the world was estimated at 70.3GWth (gigawatts thermal), growing at an annual pace of 7.7 percent. Based on available resources, geothermal energy could grow up to 210GW (gigawatts), though this figure could be multiplied by five or even 10 considering the potential of hidden resources.

Worldwide, geothermal energy has a much larger potential as it currently contributes, at 13.4GW, only 0.56 percent of the total power generated by renewable sources.

The fact is that this renewable source has been growing at a slower pace compared with other types, such as wind and solar. The reason for this lies in the nature of these resources: drilling deep wells to access a geothermal reservoir requires a big investment with considerable risk.

But this long-term investment has offered returns and, moreover, as geothermal energy’s multiple uses have been revealed over time, a diverse portfolio of other related revenue streams. In addition, until now, the main focus has been on power generation, forgetting the low-hanging fruits: district heating.

Now, the industry is taking steps towards the development of international standards and a legal framework to harness geothermal resources. The sector also looks forward to cooperating with oil and gas companies to speed up development.

Barriers, challenges and business opportunities will be the main topics to be addressed in the fourth Iceland Geothermal Conference, which the country will host in April 2018. Ultimately, Iceland is working to unleash the full potential of geothermal energy.

Electric car market races to meet demand

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Plugging your car into a power socket next to your mobile phone is a novel concept, but in the not-too-distant future, it may well be the new normal. The shift towards electric cars is gaining traction at a significant rate and, consequently, the massive fossil-powered car industry is experiencing a decline in sales.

This shift away from traditionally powered cars has been pushed by the outrage sparked by Volkswagen’s emissions scandal in 2015, when it was revealed that the company had been cheating emission tests. Another factor boosting the trend is the increasing urgency of tackling climate change. Governments globally are reacting to the growing threat of climate change by clamping down on the emissions produced by vehicles.

The emissions issue
The group of countries planning to phase out fossil fuel cars is growing. Among them, Norway plans to reach a zero-emission vehicle market by 2025, while the Netherlands is also in discussions to implement a similar policy ahead of others in Europe. Equally, in India, the government is seeking to only sell electric cars by 2030.

Transformation seems to be around the corner. In recent months, the UK and France, the second and third biggest economies in Europe, set 2040 as their own target for a petrol and diesel car ban. One of the reasons for this urgency comes from research by the British Royal College of Paediatrics and Child Health and the Royal College of Physicians, which has linked 40,000 deaths per year to air pollution. This is largely attributed to the 97 percent share that diesel and petrol vehicles have of total car sales.

France’s deadline for banning high-emission vehicles was set shortly after President Donald Trump confirmed the US’ withdrawal from the Paris Agreement

France’s decision came at a significant time. The deadline for banning high-emission vehicles was set shortly after President Donald Trump confirmed the US’ withdrawal from the Paris Agreement, which was signed by 195 countries in 2016.

The emissions issue has also grown bigger in Germany. As Chancellor Angela Merkel pursued a fourth term in office, she was accused of being soft on the car sector. She agreed that other countries’ approach to the issue was right. Without naming a year, Merkel added that a general changeover was “structurally possible” in Germany. Nevertheless, she has stopped local administrations from implementing driving bans, such as the one applied in Oslo.

The gloomy horizon for gasoline-powered cars got even darker after China announced it is preparing to end the sale of petrol and diesel vehicles in the largest car market worldwide. In 2016, Chinese vehicle sales totalled 24 million – 10 times the annual output in France, to mention just one example. Meanwhile, the US auto industry is also evolving towards electric cars, with low-emission vehicle sales growing by 32 percent on average since 2013.

Battery power
Carmakers are rushing for a slice of the burgeoning market, in particular trying to catch up with Tesla. Although electric cars are not a new invention – the first was built in 1884 – Tesla is helping to bring them to the mainstream. By 2025, 14 percent of all cars sold around the world will be electric, according to the financial services company UBS. This would mean a huge leap from the 0.86 percent of global production they are set to reach this year.

Moving forward, carmakers need to be supported by adequate supply. In anticipation of this, Elon Musk opened a gigafactory in Nevada with a planned annual lithium-ion battery production capacity of 35GWh, to back a production goal of 500,000 cars a year. A similar plant will be built in Germany by a consortium of 17 companies, which is backed by public support. In the same country, Daimler is disbursing €500m ($595m) for its own battery factory.

These developments are essential if the electric car market is to cope with steeply rising demand. Batteries are a significant cost for the new generation of cars, despite the fact prices have dropped by half since 2014. According to UBS, if manufacturers manage the price of batteries properly, electric vehicles could reach the same prices as combustion engine cars as soon as next year.

Electric cars were the stars at the Frankfurt Motor Show in September, when a number of companies revealed their latest strategies. Volkswagen, for example, announced it will invest €70bn ($83.3bn) to develop batteries and new models. But the industry’s concerns also came to light during the show. A Mercedes Benz’s executive measured the challenge: some new cars, he said, would only give the company “half of the margin of the vehicles they replace”. With deadlines established, the industry has a long way to go to in the race to create the perfect substitute for fossil fuel-powered cars.

Banks must become sustainable to secure prosperous future

Posted on by ashton

The economic crash of 2008 shook people’s confidence in the financial system. Images of greedy bankers playing fast and loose with regulations – and clients’ money – came to dominate public consciousness.

Of course, the reality is not quite so clear-cut. Banks and investment managers make mistakes, and some of them act irresponsibly, but financial institutions also deliver valuable services that benefit businesses and individuals across the income spectrum.

However, there is always more that the financial sector can do to improve the services it provides to its customers and clients. Primarily, it must always see access to capital as a means to an end, not the end itself. Financial institutions can pull individuals out of poverty, provide opportunities to businesses and help people build better lives, but only if they promote fair and sustainable banking.

Accepting accountability
One of the key functions of the financial system is to match the supply of capital with demand to create sustainable value in the economy. Capital flows to and from the three main users of finance – households, businesses and governments – and passes through a range of intermediaries in the investment and lending chain. Returns and accountability for managing these funds then flow back to the beneficiaries.

The fundamental purpose of a sustainable financial system is to serve both the economy and wider society

The responsibilities, incentives and regulations governing financial intermediaries in the investment and lending chain profoundly influence the direction of capital towards productive and sustainable investments. Influencing these governing characteristics is fundamental to ensuring that the financial system is stable and productive.

However, at the heart of the sustainability challenge are two misalignments: one concerns the appropriate time scale; the other concerns the appropriate conception of risk.

Key objectives such as job creation, environmental protection, retirement financing and climate transition require a focus on the long term and a broad perspective on potential risks. Yet much of the financial system is biased towards the short term and has a narrow view of financial risk.

These misalignments pose a challenge for investors and firms entrusted with capital, placing on them a duty to consider long-term sustainability risks.
Taking account of sustainability risks should be integrated into the duties of investors, whether through fiduciary duty in common law or its equivalent in other legal systems. These duties should then cascade down to the other participants within the investment and lending chain.

From such duties, it follows that both the governance of financial institutions and the agencies that supervise them have to be developed simultaneously. In parallel, policy and regulatory interventions will go hand in hand with the advancement of market-based tools essential to investment decision-making, such as benchmarks and credit ratings.

A sustainable future
Sustainability is the model for future economic development, and finance is an essential factor in achieving ambitious goals relating to economic prosperity, social inclusion and environmental regeneration. Underpinning these objectives is better environmental, social and governance (ESG) disclosures by firms, which should accumulate over time to give an accurate picture of their performance.

Developing broadly accepted industry standards relating to measures of carbon emissions, human capital and health and safety would support better-informed decision-making.

The fundamental purpose of a sustainable financial system is to serve both the economy and wider society. The activities and resources of the financial system are there to underpin balanced prosperity and competitiveness, as well as to promote innovation that boosts social inclusion, respects the environment, protects the climate and delivers on objectives for human rights.

For the financial system, sustainability has a dual imperative. The first is to ensure that ESG factors are at the heart of financial decision-making. The second is to invest capital in ways that help solve the challenges facing society that require long-term finance: creating jobs, improving education and retirement finance, tackling inequality and accelerating the shift to a decarbonised, resource-efficient economy.

A sustainable economy must not only protect natural resources but also have high employment levels and financial and economic stability.

Much has been done to strengthen the financial system following the crisis, but it still does not function as effectively as it could. Achieving sustainability requires a long-term approach – both in terms of providing funding for critical infrastructure and responding to threats.

If the financial system can address the long-term – yet pressing – risks and opportunities related to climate change, it will have developed processes, approaches and thinking that can be drawn on to deal with other deep-rooted sustainability challenges.

In order to meet the United Nations’ sustainable development goals, they must first be translated into effective policy proposals that are capable of mobilising the financial system. Long-term policy objectives for sustainable development and climate action need to be refashioned as robust policy signals that provide incentives for the allocation of capital to sustainable investments.

The persistence of external environmental and social costs that are not reflected in market prices and valuations means that sustainability does not always appear to be an obtainable objective. This results in an insufficient supply of sustainable assets with attractive risk/reward characteristics, and in missed opportunities to invest in job creation, innovation and environmental improvement.

A range of practical issues within financial institutions and markets are holding back progress. There remains a lack of industry standard definitions, and the current quality of disclosure is insufficient to enable informed decision-making and oversight. Financial incentives and the business models of intermediaries are not yet fully aligned with sustainable development.

Alongside this, financial institutions need to better understand the sustainability expectations of individual savers and investors. In addition, levels of literacy and expertise around the issue of sustainability are often inadequate along the investment and lending chain.

Looking long term
If things remain as they are, the financial system and related policy frameworks risk succumbing to the ‘tragedy of the horizon’, an issue that arises when financial outlook is short term and so doesn’t factor in long-term issues such as climate change, demographics, technology or the benefits of long-term investment, thus blinding financial institutions and policy-makers to their implications.

Firms and financial institutions that wish to make long-term investments are often subject to short-term market and regulatory pressures, and so under-invest in human, technological and natural capital. The result is maturity mismatches between long-term projects, long-term risk materialisation and their short-term market liabilities.

As the largest asset pool in the EU, banks play a key role in sustainable lending, but the overall level of sustainable investments is unclear. Banks remain the main source of external finance for households and small and medium-sized enterprises, as well as roughly 80 percent of green infrastructure finance.

The rapid evolution of the sustainable finance agenda could provide the best opportunity for the world to reorientate its financial system from short-term stabilisation to long-term impact.

In a narrow sense, sustainable finance means integrating ESG criteria into financial investment decisions. In a broader sense, it refers to a financial system that is promoting sustainable economic development rather than boom and bust, sustainable social development rather than inequality and exclusion, and sustainable environmental development rather than damaging natural resources.

Achieving this requires a clear vision – one that can be understood, implemented and measured in practice.