From green to black
BY SARAH FISTER GALE /// ILLUSTRATION BY MIKE AUSTIN
Even though budgets remain tight, sustainability projects can survive the ax—but only if they tie to organizational strategy.
sustainability was heralded as the new fixture of “business as usual.” But a funny thing happened on the way to zero emissions: reality, in the form of an economic meltdown that spread across almost every sector in every major market.
Suddenly, investing in green projects wasn't worth the risk, even with the potential long-term energy savings and public relations boost. Low-carbon projects couldn't compete with ones promising high growth.
In sum, during this so-called “recessionary hangover,” sustainability projects slowed, stopped and in some places even reversed, according to the 2012 State of Green Business report from GreenBiz Group. Among the areas showing a drop in interest were:
- Clean technology innovations
- Energy intensity
- Certifications of energy-efficient buildings
- Recycling and decreasing paper use
But companies cutting their sustainability projects may be missing out, especially if they equate them just with greening their image. They also need to take a good, long look at the hard numbers.
“If you reduce your water footprint, you can drive sustainability performance, mitigate risks and pick up significant cost savings, especially when you look five to 10 years down the horizon,” says Joe Rozza, global water resource sustainability manager at Coca–Cola Company, Atlanta, Georgia, USA. “It's this redefined business case that drives these investments and supports the mainline growth strategy of the company.”
Forward-thinking companies aren't succumbing to the hangover; they see sustainability investments as offering a true edge over rivals.
“When we talk about sustainability, we see it as a business and innovation driver,” says Robert Metzke, senior director and program manager for electronics manufacturer Philips' EcoVision program in Amsterdam, Netherlands.
Two-thirds of companies see sustainability as a competitive necessity in today's marketplace, according to a 2012 survey of 2,800 corporate leaders by MIT Sloan Management Review and Boston Consulting Group. That's up from 55 percent a year earlier.
The study also revealed that just over 30 percent of respondents said sustainability is contributing to their company's profits. Dubbed “harvesters” by the report authors, these companies aren't merely implementing individual initiatives such as lowering carbon emissions or investing in clean technologies; they're changing their operating frameworks and strategies. Compared to their more traditional counterparts, harvesters are:
of companies see sustainability as a competitive necessity in today's marketplace
Sources: MIT Sloan Management Review and Boston Consulting Group
- Three times as likely to have a business case for sustainability
- 50 percent more likely to have CEO commitment to sustainability
- Twice as likely to have a separate sustainability reporting process
- Twice as likely to have a separate function for sustainability
- 50 percent more likely to have a person responsible for sustainability in each business unit
It's that ability to turn green into black on the bottom line that will keep projects moving even when budgets are tight.
“The best way to approach environmental issues is from an efficiency and value-creation standpoint,” says Peter A. Soyka, author of Creating a Sustainable Organization: Approaches for Enhancing Corporate Value Through Sustainability.
Companies should start by identifying places where environmental issues intersect with operational inefficiencies or innovation opportunities. “Think about the cost of waste consistent with the cost of material. Those are inputs you pay for that you are not converting to productive use,” Mr. Soyka says. “If you can implement a recycling program that reduces material waste, you drive costs down while improving your environmental profile. Depending on what you recover, it is likely that you can offset the cost of the recycling activities.”
54.8 billion liters (14.5 billion gallons) of water have been replenished
in 94 countries through the Coca–Cola Company's Community Water Partnership projects, representing 35 percent of water used in the company's finished beverages.
Source: Coca–Cola Company, Atlanta, Georgia, USA
IMAGE COURTESY OF COCA-COLA
SPECIAL REPORT: SUSTAINABILITY [CASE STUDIES]
The Sustainability Edge
At logistics company Performance Team (PT), sustainability projects are considered a must-have—whether the payoff comes in 30 days or 30 years.
“From upper management down to the front lines, sustainability has become a priority,” says Andy Miller, president of retail supply chain at the Los Angeles, California, USA-based company.
By fostering top-down leadership support, Mr. Miller makes the case for sustainable projects to both improve the company's efficiency and increase its growth.
Every project plan must have a defined business value based on hard data. Sometimes that value is financial, sometimes it's tied to regulatory requirements, and sometimes it's designed to meet customer demands for more eco-friendly services, Mr. Miller says. “Green initiatives are driving the future of this industry,” he says.
To help ensure that every sustainability project aligns with strategic business goals, the project manager meets with a financial analyst during the planning stage to define the project's business benefit and establish measurable outcomes. Upper management then must approve the project plan.
Many projects have obvious demonstrable financial and environmental benefits, Mr. Miller says. For example, PT is currently partnering with power companies throughout the United States in a multi-year project to replace metal halide lights with energy-saving fluorescent fixtures. The ROI of each site depends on the size of the facility and whether it's new construction or a retrofit. But even for the largest buildings, the payoffs come in three years or fewer, Mr. Miller says.
Other sustainability projects have a less clear immediate benefit to the bottom line. For example, this year, senior leadership approved a project to install hybrid trailer skirts on all of its trucks to improve aerodynamic performance and reduce debris being flung into traffic. And in their port operations, PT has purchased dozens of clean-diesel tractors and uses clean equipment in retail fleet operations.
“There isn't a clear financial ROI on these projects; it's about our carbon footprint,” Mr. Miller says.
It's also about appealing to customers in a still-recovering economy. The clean port equipment, for example, means customers won't have to pay fees at the ports in Long Beach and Los Angeles, California, USA through 2015. “That's a great selling point for us,” he says. “No one is going to do business with a logistics company unless they are willing to support green initiatives. When they see the decisions we are making, it builds their trust in us, which helps our business grow.”
Asked for their company's definition of sustainability, 53 percent of 232 global respondents described a holistic approach combining economic, environmental and social benefits, according to a 2012 survey by cloud computing company Rackspace Hosting. Only 16 percent viewed sustainability primarily as environmental stewardship, the same portion that defined it as economic prosperity.
An integrated approach helps keep sustainability projects in the portfolio mix—all sustainability projects need is a champion at the starting line.
SUSTAINABILITY AS STRATEGY
Demonstrating the quantifiable value of a sustainability project starts with the business case, which must outline a measurable ROI that will deliver long-term strategic advantage.
Philips' strategy is addressing key challenges that require sustainable solutions, including global trends such as aging populations, healthy living, climate change/biodiversity and urbanization.
“As a company, if we can contribute innovative solutions that address these global issues, we will be in business for a long time,” Mr. Metzke says.
To that end, Philips has three goals for 2015:
- 1. Deliver care to 500 million people with its healthcare projects that focus on aging, healthy living and personal well-being
- 2. Improve the energy efficiency of its portfolio by 50 percent
- 3. Double the collection and recycling amounts of its products
The KPIs measure the sustainability of every project and new product Philips delivers, Mr. Metzke says, and project teams are expected to factor metrics into their project plans from the outset.
“If you think about sustainability from the beginning and aim to make it part of every decision, you get better solutions,” he says. “It makes sustainability tangible for everyone on the team.”
“‘Sustainability’ is a big word, and it means different things to different people.”
—Alison Rowe, Fujitsu, Melbourne, Australia
Strategy often comes down to a delicate balance of opportunity and risk, of course. And sustainability aspects play a fundamental role in both.
“Risk management is a big part of sustainability,” Mr. Rozza says. For Coca-Cola, those risks often lead to one of their most significant resources: water.
Water supports the company's production and operations, and it's the main ingredient in most of its 500 brands. “Increasing scarcity and the rising competition for water is a significant business risk for us,” he says. So projects that reduce water use also reduce risks across the portfolio.
To reduce its water use, Coca-Cola has launched projects to retrofit bottling plants, create water treatment systems to reuse wastewater for landscape irrigation and truck washing, and improve monitoring of water use and efficiency in the plants. “We view these sustainability projects as a solution to a business problem,” Mr. Rozza says.
One of the company's goals is to replenish the water it uses through community water partnerships so that the water returned is equivalent to the company's global production volume by the year 2020. The business case lays out each project's ROI in terms of sustainability, productivity, and reduced cost of and risk around water usage. In addition, a governance committee audits projects to ensure they're delivering the promised strategic and business goals.
Along with saving resources and money for the company, sustainability answers another strategic need: providing a quantifiable answer to critics in markets where Coca-Cola has come under fire for its water usage. Approximately 54.8 billion liters (14.5 billion gallons) of water have been replenished in 94 countries through the company's Community Water Partnership projects, representing 35 percent of water used in the company's finished beverages.
Transforming wheat straw reduces Ford Motor Company's petroleum usage by more than 20,000 pounds (9,72 kilograms) and cuts carbon dioxide emissions by more than 30,000 pounds (13,608 kilograms) every year.
Source: Ford Motor Company, Detroit, Michigan, USA
SHOW AND TELL
Earning buy-in for sustainability projects is no different than on traditional ones: The stronger the metrics, the stronger the business case. That can be particularly important when addressing skeptical stakeholders still sleeping off their recession hangovers.
“We track and monitor the metrics, which is a huge driver of strategic outcomes,” Mr. Rozza says.
Building the business case for basic energy-efficiency projects, such as changing out light fixtures, is usually fairly easy because they have an obvious and quick ROI. But as the discussion moves into more complex projects, assessing profitability over the entire life cycle can help business owners build a stronger case.
“These longer-term projects will die if you are always focused on short-term returns,” says Emily Reyna, a San Francisco, California, USA-based senior project manager for the corporate partnership program at the Environmental Defense Fund, an environmental not-for-profit group.
Instead, companies should conduct life cycle assessments to outline with solid numbers the long-term environmental impact of a project.
In 2011, for example, EDF Climate Corps fellows identified energy-efficiency projects in 78 organizations that would not only cut 600 million kilowatt hours of electricity use and 440,000 metric tons of carbon dioxide emissions annually, but would also save US$650 million in net operational costs over the project lifetimes.
Those first two figures may not mean a lot to business-minded stakeholders, though, just as the latter won't necessarily win over those concerned with carbon reduction. Adapting the value message of these projects to different stakeholder groups is one of the many ways project owners can gain buy-in and support.
“‘Sustainability’ is a big word, and it means different things to different people,” says Alison Rowe, global executive director of sustainability and international business at Fujitsu, a global IT products and services provider in Melbourne, Australia.
Project owners must put benefits into the language of their audience. “With the environmental team, we talk about our legacy and protecting the planet for future generations. With the economists, we talk about sustainable growth,” she explains. “And with the businesspeople, we talk about aligning sustainability and strategic goals to gain a competitive advantage.”
Fujitsu also looks for ways to align sustainability projects with growth and revenue opportunities. That focus spurred the product development group to come up with a sustainable data center service, through which Fujitsu customers can reduce the carbon footprint of their own operations by moving their assets to Fujitsu's.
For each customer, the Fujitsu team performs both a cost- and carbon-reduction analysis, comparing the in-house data center to Fujitsu's operation. The teams develop KPIs, including financial and carbon achievements, which they track across the life cycle of the project.
The results have very real implications for Fujitsu. More than three-quarters of respondents said sustainability influences their purchasing decision, according to the Rackspace Hosting survey.
“Innovative sustainable solutions demonstrate to our customers what we stand for,” says Ms. Rowe. “We don't expect to be known for this, but we do understand that if we don't make these efforts, we will be excluded from doing business in the future.”
DISCOVERING A NEW SHADE OF GREEN
Ultimately, building a strategy that benefits both the environment and the organization requires looking across the entire project portfolio through a new lens.
“You should always look at your projects from all angles. Don't just do the obvious; really push to be innovative and resourceful, and exhaust all avenues,” says John Viera, global director, sustainability and vehicle environmental matters at Ford Motor Company, Detroit, Michigan, USA.
For example, Ford transforms wheat straw—the waste byproduct of wheat—into filling for storage bins. Doing so reduces its petroleum usage by more than 20,000 pounds (9,72 kilograms) and cuts carbon dioxide emissions by more than 30,000 pounds (13,608 kilograms) every year. Ford is now looking for ways to use the waste material in other vehicle components.
The same old take on sustainability won't do. “Balancing financial goals with sustainability goals is a given, but the key is to have bold and insightful innovators on your team,” Mr. Viera says.
The business case for sustainability is often a variation of implementing a product or strategy that will reduce environmental impact and evolve the brand, all while still promising profitability. “Consider each of these components when building your business case,” he says, “and you will be able to deliver on what's most important at every level.” PM
SPECIAL REPORT: SUSTAINABILITY [CASE STUDIES]
Tools for Sustainable Decisions
When Ingersoll Rand set out to create a culture more focused on sustainability, it realized that it required a fundamental change in the way its project teams work. And the global industrial equipment company knew precisely what it had to do to get them there: Break out the tools.
“We are an engineering culture, and our people like tools,” says W. Scott Tew, executive director for the Center for Energy Efficiency and Sustainability at Ingersoll Rand, Charlotte, North Carolina, USA. “When you give them tools to make decisions, it helps them understand what's important.”
Working with the Environmental Defense Fund, Ingersoll Rand's project teams are performing energy audits of all of the company's manufacturing and operations facilities, and rolling out projects to cut power use. As part of that process, Mr. Tew and his team are implementing several project management tools to focus project teams on sustainable choices throughout the decision-making process.
When project teams use a template to consider material options when designing new products, there's now a prompt that suggests choosing recycled metals or materials that can help customers achieve points for energy-efficiency standards.
“By embedding these prompts into the decision-making process, it asks the right question at the right time,” Mr. Tew says.
The company also holds periodic “rapid improvement events” where cross-functional teams come together to brainstorm innovative solutions for specific products or operations. In 2011, one of these events addressed the company's Kryptonite locks brand; the team discovered it could reduce waste, cost and environmental impact by changing the product's heavy hard-plastic packing to a lighter, recyclable one.
That resulted in a redesign project in which the team replaced 90 percent of the plastic packaging with cardboard, cutting the carbon footprint of the manufacturing process and offsetting an 8 percent to 10 percent inflationary cost increase related to labor, materials and freight.
“These rapid-improvement events are about looking for ways to improve efficiencies and drive out waste,” Mr. Tew says. “Sustainability is an integral part of that.”
And just as the project teams rate products on reliability, quality and safety, they use a product-level sustainability index report card to rate a project's environmental outcomes. These reporting tools help Mr. Tew track the company's sustainability progress and can spark conversations about where teams might improve on the next project.
“The best way to change behavior is to have dialogue about what you are doing now,” he says. “That way, you can think about what to do differently in the future.”
The best way to change behavior is to have dialogue about what you are doing now. That way, you can think about what to do differently in the future.
— W. Scott Tew, Ingersoll Rand, Charlotte, North Carolina, USA
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JULY 2012 PM NETWORK