A Sustainability Professionals LinkedIn group discussion
Ask a CEO if sustainability is a strategic issue for their firm, and you'll only ever hear one answer: yes. Why is it, then, that budgets for sustainability initiatives are frequently so small that they appear to have been shoved in as an afterthought?
Khaled: Once they realize its monetory returns. Just concluded a report for a client that his investment in energy efficiency had an IRR of 175%!!! Now he wants to implement it across his portfolio.
Ali: To some extent, it's nothing to do with the amount of the budget, the important thing is the effectiveness of the program and its impacts to triple bottom line
Michael : Budgets for sustainabilty decrease in time because it generally involves money. Companies will only realize its return in the long term. Short term, they're not yet ready and willing to shell out more, thus the decrease. Some may even go to the extent of adopting sustainability programs just to show others that they are concerned about the environment, but the reality is that they're not. We all should be morally obligated to adopt this system for the next generation. In the end, this will be beneficial in terms of productivity, profit and social awareness.
Thomas : Corporate and bank business keep their impacts on the environment out of the ROI equations. They are accelerating product and economy cycles, thus eliminating the high competitiveness of SD projects over time. Sustainable development faces corporatogracy. Resistance and elite.
Dan: Khaled, do you have an example report, that is amazing 175% IRR.
Khaled : Dan, unfortunately I cannot share the report for confidentiality reasons, however the way it was done is that, after we conducted detailed energy audits for 18 assets within their portfolio (hotels & shopping malls), they invested in 3 malls, in measures with payback periods (PBP) less than 1 year (average was 0.55 yrs), then the savings generated were reinvested in other malls, the combined savings were reinvested in measures with PBP less than 2 years (1.3 yrs), and so forth.
Dan: Totally understood, thought I ask. I guess energy saving are one of the easiest to measure. That is a great result!
Daniel : The true/objective benefits of sustainability are not understood by many who “'write the cheques” and those who talk to them. Economically, the required levels of environmental improvement are poorly matched by the levels of funding/financial incentive in most countries' legislative framework. Investing in sustainability to the required level is just not the norm!
However all is not lost. The tide is definitely changing with notable changes in senior staff, politics and beliefs - the movement is always growing - albeit (too) slowly. I would advise that there are many low cost/high impact measures (i.e. behavioural interventions - such as communicating norms) which with the right delivery resources, can lead to significant and quick financial measurable benefits. These can quickly lead to the potential for “self-funded”investment into larger projects. Khaled's examples above back this up.
Sustainability investment can yield massive direct and indirect benefits (i.e. wellbeing, health) giving a more holistic approach. In short, the evidence is there - so this is a communication issue!
Klaus: I trust everyone in this thread is familiar with Garrett Hardin "Tragedy of the Commons "http://en.wikipedia.org/wiki/Tragedy_of_the_commons
Good luck trying to put an economic value on that topic.
Then there is Prince Charles with his "accounting for sustainability" project. How is that going to happen? http://www.accountingforsustainability.org/
Scott: Until CEO's & CFOs realize that there's an opportunity to find their hidden "Cash in Their Trash", many will continue down the old road of enriching their trash haulers. IFMA has identified two key ways that sustainability will happen within an organization: a person will either be tasked with the job or it will happen on its own by an individual within the organization who takes the initiative and makes changes as well as challenging the "status quo". IFMA defines the latter as the "rogue" employee. That pretty well defines me and my role in creating our Zero Waste Program as I saw the potential to improve the operational bottom line of our company at the same time benefiting the environment as well as helping to create or sustain "green jobs" locally. Our program is so successful in diverting waste via comprehensive recycling and commercial composting that it not only breaks even, it actually generates positive income for the company.
Robert: Scott I agree with your comments and the approach. Our work is more project-oriented where capital invested has to have a return under 2 years. We often have to provide capital for the projects or help clients secure outside capital because internal budgets are tight or projects are deemed non-core. I believe companies need to have a broad approach that invests in processes that provide proven savings (energy, landfill diversion, upcycling materials, water, and process improvements), along with software and systems to report sustainability activities, and hires dedicated professionals to manage the efforts.
John: Sustainability is not just about cost savings, though I massively agree that energy and resource efficiency is a rich area for fast payback projects. In addition to cost saving, we have been doing a lot of work with clients on innovating highly sustainable products and propositions based on sustainability best practice. For example one of the companies we worked with in 2012 (electronics manufacturer in the Far East) innovated a new highly sustainable product with 30% lower carbon footprint and 20% lower cost than any competing product on the market. It is being brought to market this year by one of the big European brands as a mainstream product. This is forecast to have a big top line impact. In the UK, a recent survey indicated that just over 50% of companies are motivated to address sustainability by cost savings and almost 70% would be motivated if it helps them increase sales. This is the area we are using to drive sustainability investment decision making.
Robert: I agree that sustainable actions and initiatives open doors for marketing and sales. That happens when the entire organization is engaged. It often does start with simple actions that reduce costs at the plant level while reducing carbon foot print or increasing recycling revenue.
Lucy: Why is it that environmental values have to be second choice and only financial issues talk! This is a very narrow minded view and will not allow the long term affects of what we are doing help us save our planet for the future. We are living in a very modern society with outdated views! There will come a time when one big business will stop and think, take the time to have a budget for sustainability. However, with such difficult economic times ahead it’s going to take a very special business to have the strength to pull this one off, we can only hope! My opinion is that once someone goes for it, it will set a trend and kick start a new generation....we are waiting!
Klaus: Garrett Hardin: "In economics, the tragedy of the commons is the depletion of a shared resource by individuals, acting independently and rationally according to each one's self-interest, despite their understanding that depleting the common resource is contrary to the group's long-term best interests."
When you follow the examples of a common resource strategy, i.e. self-managed fishing grounds with catch limits, or grazing zones in the Swiss Alps, it requires an alliance amongst impacted businesses to respect limitations set by nature. So far this has not been possible in the international arena, the individual players are mis-matched in strength and size and do not trust each other, with good reasons.
This would only be possible by creating regulations that set a common standard and create a level playing field for all participants. Strong head winds from companies too big to fail have prevented any progress. It becomes increasingly clear that not much time remains to save what is left.
Robert: Iam a pragmatist who tries to get things done.. It is laudable to have the vision of corporations placing the same value on sustainability initiatives as profits. We have helped clients triple their recycling rates increasing revenue to fund other initiatives with lower ROI.
This then created momentum in other business units to duplicate the programs and allowed the marketing people to champion their efforts to customers and consumers. I believe that approach builds value and leads companies to be better actors in all environmental activities.
Thomas: Only financial issues count. Because it definitely requires no decisions based on creativity.
You just have to do, what everybody does, supported by millions of educative financial papers, books and works. Responsibilities disappear in anonymous numbers. Endless replications of the same: Output: Degradation and depletion everywhere.
If I built a house, I have the responsibility for the house, paying for all costs created by the house to third parties.
If I am a shareholder of a corporate I am not responsible for any costs to third parties. If the corporate is too big to die ,the house owner pays even the damage created by the shareholders. Corporate business is embedded in a self protective environment. Development is in the hand of the exclusive circle of number sgurus.
Since sustainability is en vogue, any rationalization or modernization scheme is sold as a contribution to sustainability. The question of the limited available natural resources is tackled as if they would be sufficient to carry future generation. That the generations born in the 3rd Millennium will face empty oceans with the age of 20 is not part of the equation.
You will have to wait forever if you wait for a trend to kick start. Kick starts to trends are corporate business. They set the trends. You have to do it, I have to do it and we have to do it. To set the new trends.
We should not forget that depriving indigenous people of their natural stock is an accepted sustainable income generator. That’s what count: Sustainable share holder development. We are all involved.