High ROI on Sustainability

Again, proof by the biggest capitalists that sustainability pays big ROI.

Bloomberg just produced its third sustainability report. This is the first one to be made public.

My favorite highlight is that for every $1 spent on sustainability they have seen $2 in savings in operating costs, which goes directly to the bottom line profit.

Bloomberg is reporting using the Global Reporting Initiative standard. I congratulate them on their transparency as a leader in the business community.

According to the website "Sustainability combines corporate citizenship, risk management and strategic opportunity – driving our operating costs down, our revenues up, and influencing wider adoption of sustainable practices across the business community."

I don't care what school of business you went to, costs down and revenues up is a good thing.

To see the full report go here: http://www.bloomberg.com/about/sustainability/#report_1

Compliance is cheap

Business estimates to comply with the clean air act of 1990 to reduce acid rain put the prospective compliance cost at up to $1,500 per ton. Over the first 10 years the price per ton NEVER went above $200 and the mean and average costs were significantly less*

The laggards in the US Chamber of Commerce have been beating the governmental pavement for years creating a false relationship between GHG and carbon emissions and economic recovery. Cleaning up our act will create more jobs, not less. That's why all the clean tech jobs are in Europe and China and not here.

* Source: "Green to Gold", copyright 2006, 2009; by Daniel C. Esty and Andrew S. Winston

The Results of Efficiency

The Las Vegas Sun reported today that the electric utility NV Energy is seeking a rate increase because efficiency programs are working and therefore people are using less energy and decreasing revenues. In any other commercial venture, a decrease in output means the supplier uses less raw material. They mistakenly overestimated demand and built too much supply (with taxpayer supported low cost financing). In a free market they suffer the consequences. Electric utilities are not like other companies though. They are a monopoly supplier and guaranteed a profit.

In any other business they would increase efficiency and create a long-term guaranteed supply (like wind). Should state officials grant them their request? I am torn.

As a businessperson, I believe they should increase their operational efficiency to match demand. On the other hand, the higher the energy prices the more we become even more efficient, creating a virtuous cycle that is only better for the commons in the long run.

Mental models and systems need to be updated to meet our new energy efficient economy. Simply giving the same model more money to burn more coal is more of the same. And that we for sure don't need. What should the electric utility and grid even look like in the future? Is our current system of regulated monopoly outdated?

See the full article here: http://www.lasvegassun.com/news/2011/may/04/nv-energy-does-good-so-it-wants-raise/

Green is a fad, sustainability is a trend

I remember in the late 80's through early 2000's the complaints I would hear about "fads" in quality. TQM, ISO, Lean, Re-engineering... the list of buzzwords goes on and on. A funny thing happened on the way though. American quality has gotten significantly better over the last 25 years. The truth is, any given label might have been a fad, but the trend was (and still is) quality improvement in US manufacturing.

A fad has a relatively short term lifespan and may be vague. A trend last a long time. I remember when people thought jogging was a fad. Health consciousness is the trend.

The term "Green" is the current hot word for anything that may be or pretends to be environmentally friendly. But sustainability (defined as meeting today's needs without sacrificing the resources of future generations) is a trend. We are not acting sustainable now, but momentum is in place to drive forward putting the systems in place to become sustainable.

How do I know... some of the biggest companies in the world like Walmart and Proctor & Gamble are forcing their suppliers to create continuous improvement systems to become more sustainable. If you cant put a good sustainability management system in place, you lose Walmart or P&G as a customer. These players are just too big to ignore.

At the World Economic Forum the most discussed topic is sustainability. The top leaders know their businesses will die if they don't have clean water and breathable air. When the big boys lead the rest will follow because their pocket books depend on it.

One big hurdle for the laggards and haters will be putting sustainability management systems in place in their companies. I'll talk about what a sustainability management system is in a future post if you don't already know (hey, maybe it will be the next buzzword that people call a fad!).

Will there be resistance? You bet. Will people say it is a fad? Of course. Will new terminology replace the current language? Absolutely. But the trend is there. Get on board or get out of the way.

Sustainability is just an accounting problem

In the end we as individuals and businesses pollute because it is free or nearly free to do so. The actual costs of our actions are recognized elsewhere in taxes, healthcare or put off for future generations to pay. They are called externalities.

All of the products (like water, coal, oil and other extracted things) and services (like air that does not make us sick and allows food to grow) that we get from the earth and atmosphere are ecosystem services. And those services have a price.

The solution is to value these ecosystem services. “This is nothing to do with corporate social responsibility and the green agenda, it is hard-nosed economics,” says Chris Knight, assistant director of the forestry and ecosystems team within PwC’s sustainability practice in the Financial Times.

The challenge is to link the scientific data with business and personal choice. And the way businesses and individuals make choices is based (mostly) on cost and benefit. Also known as accounting in business speak.

The World Business Council for Sustainable Development, a global coalition of some 200 companies, is about to release a guide to corporate ecosystem valuation.

A new report, The Economics of Ecosystems and Biodiversity, aims to put a price on those products and services that we get from nature, so we can recognize the costs. I believe there is nothing more critical to sustainability than paying the price of all we consume at the time of use.

The Financial Times article referenced here is "Biodiversity: Valuing nature can cut business costs" published on March 21, 2011.

To see the report The Economics of Ecosystems and Biodiversity you can go to www.teebweb.org.

Efficient Buildings Pay You

Sometimes they say the devil is in the details. For those that care about sustainability and jobs, the God is in the details. Tax rules and regulations that will decrease energy use and increase jobs without sacrificing tax dollars. Its a rare, true win-win-win. Win for business, win for jobs, win for the environment and energy security. It adjusts the EPAct Section 179D from a tax deduction to a tax credit.

In previous years if you bought a $50,000 HVAC or building management system you could deduct (reduce your income) by $50,000. Assuming a 35% tax bracket this would have saved you $17,500 in taxes, making your net cost of the new system $32,500. This was still a great deal for a building owner.

The new proposal (and it is just a proposal, not law yet) will allow you to have a tax credit of the $50,000. So instead of saving 17,500 in taxes you will save the entire 50,000 in taxes, bringing your net cost on the system to ZERO.

The tax system will not suffer from a loss of revenue though. Although the building owners will pay less taxes when making the upgrades, the employers and employees doing the work will add to the tax rolls.

Want Affordable Clean Energy? Remove ALL Subsidies

Subsidies for Fossil Fuels Far Outweigh Renewables

A report of energy subsidies from 2002-2008 by the Environmental Law Institute shows that subsidies for traditional fossil fuels and corn ethanol totaled 87 Billion dollars. During the same period, subsidies for traditional renewable energy and carbon capture and storage were a paltry 14.5 billion. Although some would argue corn ethanol is renewable, it is not sustainable and uses nearly as much fossil fuel to produce as the energy that it creates. So it is essentially unsustainable.

Green energy would benefit significantly by simply removing all subsidies. It would make the price of dirty energy more expensive than clean energy. Even a tea partier can like that. 

After a summer hiatus, the blog is back. Here I will continue to show that sustainability is not only good for your neighbors, but good for the bottom line.

A big piece of news that crossed my desk recently is that the beverage maker Sunny Delight, makers of Sunny D, Veryfine Juices and several other brands, achieved zero waste to landfill from its 6 plants in the US recently.

They started this quest in 2009, with a goal of reaching zero waste by 2013, and hit it three years ahead of schedule. As recently as 2007, 36% of waste in plants went to landfills.

According to the company's sustainability report, in the first six months of working toward the goal, it was able to change waste from an expense to a revenue stream by sorting trash and, when possible, recycling it.

In addition to waste reduction, the company has been able to cut energy use by 8% and water use by 9% —  dropping carbon emissions by 17% in the process and reducing operating expenses.

As they work on their own processes the company is also now turning to its supply chain to help reduce total emissions and waste.

Stages of ROI on Eco-efficiency

Eco-efficiency pays dividends year after year. Various practitioners have different titles and phases for implementing sustainability in organizations (and buildings for that matter). I have taken those stages and put them in financial terms. The good news is the more mature you get in the phases, the more money you make over time.

1. Pre-compliance was what we had at the turn of the 20th century all the way until as late as the 1960's. Reckless abandon with regard to worker rights, the environment and the community.

2. Compliance is where about 90% of buildings and companies are right now. They are doing what they need to do to meet the minimal requirements to stay out of the courts.

3. Easy money is the current sweet spot for most companies and buildings. If you haven't initiated any green initiatives or if you've implemented only a few, this is where to start. Usually by upgrades in buildings and the waste stream you can see huge savings. There are two great benefits to this phase at this point in history. First, there are plenty of tax breaks that make this available without any money up front and immediate additional cash flow. Second, these items require no cultural or work practice changes by employees or building occupants. So they can be done easily for immediate cash flow.

4. Long Term Gain happens when you combine what you have already done in stage 3 to changing procedures, supply issues, stakeholder relationships and more. At this phase your profit margins will soar as you can keep price where it is (or even raise price) but your customers stay with you and you even gain more customers because your reliability is so high and people like dealing with a firm they can trust (see the book "Firms of Endearment" for plenty of evidence of this). You will be able to recruit and keep the best employees and they will be more productive than they would have been if they worked for your competitors. You are now in the virtuous cycle (the opposite of a vicious cycle). At this phase employee turnover is very low, customer loyalty is high, margins are high and sales can withstand economic downturns. If you don't believe it just ask the owners of Stonyfield Yogurt, The Body Shop and many more...

5. Highest Company Value is where the dividends really pay. Because your firm has such high margins and is at low risk, the value of the company itself is very high. When you are ready to take on new investors or sell the company or building, you will get a premium price for it.

The bottom line: The more eco-efficient you are the more money you make at every phase of implementation.

Sustainability delivers higher productivity

It has been proven over and over again that businesses that have a higher purpose than just profit can recruit and keep the best employees. Furthermore, those good employees are more productive than their counterparts in companies that are only focused on profit. But why is this so? How do you nurture those great employees to deliver their best? The answer is NOT money.

To learn what motivates good people, and why, watch this great lesson from RSA.