Keeping the faith
BY TEGAN JONES & SARAH FISTER GALE
AS COMPANIES LOOK TO SLASH PROJECTS DURING THE GLOBAL ECONOMIC SLUMP, SUSTAINABILITY INITIATIVES ARE HOLDING THEIR OWN.
plans to spend on
alternative and renewable
over the next 10 years
With the global economy in a nosedive, companies and municipalities around the world are taking a long, hard look at their portfolios—dividing the essential from the discretionary.
Often dismissed as little more than “touchy-feely” projects with limited ROI, social responsibility initiatives would seem a likely target for the chopping block. But the early verdict is that sustainability projects are not only holding their own—they might end up being a core component of the eventual recovery.
“Sustainability initiatives are increasing, while other projects are getting cut,” says Renan Guedes, PMP, portfolio manager at IT giant CPM Braxis in São Paulo, Brazil.
But he admits some of that may be driven by his customer list, which includes Syngenta, Bayer and Clariant.
“For our clients, sustainability is not a choice. Companies in the chemical and life sciences business have a high environmental impact and they need to address that,” he says. “If they cut environmental projects because of the economic crisis, it's going to lower their revenues now and in the future when the crisis is over.”
His portfolio currently includes several sustainability projects aimed at helping clients design strategies to reduce waste and develop more socially responsible approaches to business operations and practices.
“We are reengineering processes and products through environmental programs because they add value to the business,” he says. “That's especially important in an economic crisis.”
Indeed, some companies are indignant at the mere suggestion that being a good corporate citizen is somehow dependent on the economy.
“We don't treat social responsibility as an add-on that we drop when things get tough,” says Robert Wine, a spokesman for British Petroleum (BP), London, England.
The company sees sustainability as an integral element in its portfolio management strategy. “It's part of how we work,” he says.
With a portfolio full of solar, wind and hydrogen energy projects, BP plans to spend US$8 billion on alternative and renewable energy projects over the next 10 years. Beyond green energy efforts, BP also finances other social initiatives as part of its contracts with partner governments. In Azerbaijan, for example, BP supports a small business development project.
Some business leaders contend such projects are peripheral to corporate strategy. But BP sees them as a way to help strengthen the local economies in which it works, Mr. Wine says.
“We don't do corporate social responsibility,” he says. “We run a business where the investment we put into, say, new offshore platforms is spent locally as much as possible to grow that country's own industrial base.”
STAYING THE COURSE
BP isn't the only company sticking with social responsibility. Despite the declining economy and lower prices for oil, commitment to sustainability looks strong, according to the first-ever Quarterly Sustainability Tracking Study conducted in November 2008 by Panel Intelligence. The 65 Fortune 500 executive respondents reported they expected sustainability and clean technology spending to increase as a percentage of corporate revenues by 73 percent through 2010.
For organizations that have already made a strong push to social responsibility, cutting such projects would carry a hefty price, says Eric Olson, vice president advisory services at Business for Social Responsibility, San Francisco, California, USA.
“It's sort of like cutting research and development,” he says. “It seems easy to do at the time, but then you know you're going to have a [poor] product portfolio three or four years out.”
Instead, organizations need to see the downturn as an opportunity to demonstrate their commitment to strong environmental and social business practices, Mr. Olson says.
“It's a way for the marketplace to separate the wheat from the chaff,” he says.
Georg Kell, executive director, United Nations Global Compact, New York, New York, USA, sees the economic situation as spurring a “cleansing effect” on social responsibility.
“No doubt, in many companies the economic downturn has led to a critical evaluation of investments made in corporate responsibility,” he says.
“We expect to see a reinforcement of those efforts that treat environmental, social and governance issues as strategic imperatives for risk management and value creation,” Mr. Kell explains. “Conversely, end-of-the-pipe approaches to sustainability that place overall responsibility for these issues with corporate public relations and marketing departments will likely be eliminated first. Likewise, philanthropic contributions will no longer provide cover for deficiencies in critical areas.”
Sustainability strategies and projects “must be linked to the core business of a company,” he says. “If they are not, they will not deliver value.”
Companies also have to commit to the cause.
“Sustainability does not happen overnight. It is a long-term strategy that will often require significant strategic and operational transformations,” Mr. Kell says. “Toyota invested in hybrid technology while everyone else was still making gas-guzzling SUVs. Few would disagree that this was a wise strategic decision, a long-term commitment to sustainability. Setting aside the significant structural challenges of the U.S. auto industry for a moment, its current situation is in part also a reflection of the difference between short-term and long-term thinking.”
And fluctuating oil prices shouldn't mean a fluctuating commitment to sustainability.
“A temporary drop in oil prices is not a good reason to cut back on sustainability investments, particularly those that improve energy efficiency or focus on use of renewable energy. The larger issues will not vanish, particularly climate change,” says Mr. Kell. “Investing now in energy innovation and fossil fuel substitution will bring about significant cost savings and help stabilize oil markets. At the same time, failure to take action now will induce dramatic costs for years to come.”
With the hyper focus on the bottom line, the strategic value of sustainable projects and programs is going to be subject to the same kind of heavy scrutiny as any other project in the portfolio— maybe even more. To determine whether a project is worthy of investment in tight times, Eric Olson at Business for Social Responsibility says company leaders should ask themselves five questions:
|1||Is the project sharply aligned with the company's core objectives? As with any project, sustainable initiatives must contribute to the organization's strategic goals.|
|2||Do the project leaders have clear measurements of both the business and environmental or social benefits they are creating? These benefits don't have to be financial, but they do have to be defined early. Otherwise, how can the company measure the project's value?|
|3||Has the project manager created cost-and benefit-sharing opportunities with external partners? Companies don't always have to go it alone. Teaming up to fund an educational program or an alternative energy facility can offer corporate partners equal benefits at a lower cost.|
|4||Is there significant ownership of the project throughout the business? If leaders aren't interested in driving the project, the organization should re-examine the value of its proposed results.|
|5||Would there be any negative consequences if the project was put off for 12 months? If an organization has a list of 10 projects it would like to run but can only afford to fund six, testing time-sensitivity can help executives prioritize.|
THE PRICE YOU PAY
No longer an add-on, sustainability is now an established part of organizational strategy, says Phaedra Svec, an architect in the elements division of Berkebile Nelson Immenschuh McDowell Architects in Kansas City, Missouri, USA. “Before companies were just dabbling in green,” she says. “Now, they are tying it into larger projects from the beginning.”
Part of that commitment is tied to a need to add value to project outcomes. “Companies are trying to find ways to do the most with the budgets they have,” she says. “That means every solution has to have multiple benefits.”
No doubt, in many companies the economic downturn has led to a critical evaluation of investments made in corporate responsibility.
—Georg Kell, United Nations Global Compact, New York, New York, USA
She points to a US$2.4 billion project launched by Kansas City to split the municipality's sanitary and storm sewer system in two. The project is required by the U.S. Environmental Protection Agency to prevent sewage overflows during large storms. It's a huge investment, and the city is using it as an opportunity to incorporate green elements into its neighborhoods, while reducing the overall cost.
In a conventional sewer system project, contractors would tear open the streets and may interrupt service to the neighborhood for several days while they add pipes and build overflow storage vaults underground.
“When they were finished they would close everything up and leave the neighborhood looking exactly as they found it, with a significant tax assessment” explains Ms. Svec.
Instead, Kansas City is implementing a series of green projects that include sustainable water management strategies such as:
- Planting trees
- Replacing impermeable surfaces with porous pavement and vacant lots with gardens
- Digging low basins into medians along boulevards and sidewalks and planting porous vegetation to catch and absorb rainwater
- Adding new curbside gutters and rain gardens throughout the neighborhoods
The projects improve the quality of life in the area, while reducing the flow of storm water into the sewer by catching and diverting it more naturally. That also means fewer vaults need to be built and smaller pipes can be implemented, which cuts the cost of the project, Ms. Svec says.
The city is convinced.
Since mid-2008, the team has helped municipal leaders revise their plan to devote US$80 million to programs that encourage green solutions to the city's sewage problems, up from US$30 million in early 2008.
And the ROI is clear: The price tag on one US$50 million project dropped to US$35 million by integrating green solutions.
“By adding green elements to the project they revitalize underserved neighborhoods, lower the up-front price tag of the project and reduce the gray pipe infrastructure of the city,” she says.
“It's a triple bottom line return. It saves the city money, increases property values and brings people together,” adds Mark O‘Hara, landscape architect at Berkebile Nelson Immenschuh McDowell.
And the payoff will continue.
“The real beauty of the plan lies in its adaptability,” Mr. O‘Hara explains. “We do not have all the answers at this time and as Kansas City implements green strategies, it will be able to learn and adapt to new technologies that may come up. By learning from past success and mistakes the city will have a truly sustainable future.”
The city hopes to use the Marlborough neighborhood, which is the first to undergo the green retrofit, as a national showcase for how sustainable projects can have long-term financial and social benefits.
“These are projects that need to be done anyway. They have deadlines and funds appropriated,” Ms. Svec says. “It's a great opportunity to show how incorporating sustainable solutions adds value to the project.”
Making the case for strong ROI is key for any sustainable project, but that shouldn't prove too difficult. Even in a low-profit economy, organizations have much to gain from going green, says Mr. Olson. Most sustainability projects involve reducing energy consumption, material use and waste, so they have a lot to offer at a relatively low cost, he says. And, being able to wrap a cost-cutting program in green can go a long way toward gaining stakeholder buy-in.
“Cost-cutting is not very sexy,” Mr. Olson explains. “One of the most successful contributions that I think sustainability has made is it infuses cost-cutting with an inspiring message.”
But there is a limit to how much businesses can achieve without making a significant investment. “Real sustainability is created at a cost,” says Winifred Kwofie, senior project manager at the City College of San Francisco in San Francisco, California, USA.
Companies frequently try to respond to pressure from environmental groups by initiating projects that demonstrate their good intentions, then issuing social responsibility reports to appease those groups. But if organizations don't adapt their operations and align sustainability goals and objectives with their strategic goals and objectives, those short-term projects will rarely benefit the bottom line, Ms. Kwofie says.
Cost-cutting is not very sexy. One of the most successful contributions that I think sustainability has made is it infuses cost-cutting with an inspiring message.
—Eric Olson, Business for Social Responsibility, San Francisco, California, USA
Along with infrastructure changes, organizations also need to change the way they approach project development, says Ms. Svec.
“Sustainability is not just about doing projects the same way, then tacking on a green element. It is about integrating decisions and strategies so that each solution provides multiple benefits that are benefits to the larger community, benefits to the bottom line and benefits to the environment,” she says. “Whether it's reducing water usage, improving energy efficiency or reducing transportation, those goals have to be defined and integrated into project decision making.”
But many businesses just aren't ready to make that kind of shift in a faltering economy. Across the telecom, finance, energy and construction industries, companies have turned away from sustainable projects to focus on their core products and services, says Andy Crowe, PMP, PgMP, CEO and founder of project management training company Velociteach in Kennesaw, Georgia, USA.
“Each of them has represented this as a temporary move,” he says, “but, in some cases, most of the staff responsible for the social responsibility efforts has been laid off.”
Yet even if a project's budget is drastically reduced, project managers can still play a part in salvaging some of its sustainable components. “If the budget must be adjusted down to accommodate other needs, communicate with the stakeholders,” Ms. Kwofie says. “Help them determine what they can forego—and what is essential.” PM
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