Value-Based Sustainability: The Business Case for Green, Clean & Lean

This is the first of three posts on the Executive Council’s “Value-Based Sustainability” event last week. As official sponsor of the event, CleanTechies raffled off five free tickets to our Facebook fans, Twitter followers (@CleanTechies) and Newsletter subscribers. The author of this article was one of the lucky winners. Fan us and follow us to learn about upcoming raffles like this!

First of all, a big thank you to Bob Johnston, Eric McNulty, April Lo and the rest of the Executive Council staff for putting together an excellent event last Tuesday.  Value-Based Sustainability: The Business Case for Green, Clean and Lean brought together a high caliber of sustainability professionals and thought leaders from many sectors.  Thank you Ceylan Thomson for bringing the event to our attention on www.CleanTechies.com.

This event had excellent speakers throughout.  Some of the speakers highlighted what their specific companies were doing and what were the drivers for those priorities.  This component provided excellent examples of early wins and highlighted the importance of proper metrics.  The keynote speakers, Adam Werbach, CEO of Saatchi & Saatchi S (and author of the book “Strategy for Sustainability” – see cover on the left) and Rupert Davis of MontaRosa discussed more generally, the state of sustainability and what needs to happen to make sustainability viable long-term.  Werbach emphasized that sustainability must incorporate social, cultural, economic, as well as environmental aspects in order to withstand the downturn.  To be successful, these four elements must be combined into a single corporate “North Star” goal that is transparent, engages stakeholders (at a personal level) and expands networks.

A few examples of North Star goals include:

• Dong Energy: In a single generation, move from an 80% fossil fuel-based generation mix to one that is 80% renewable sources.

• Proctor and Gamble: Sell $50 Billion in sustainable innovation products by 2012.

• Toyota: Make a car that never crashes and cleans the air as it drives.

Rupert Davis echoed those sentiments, emphasizing the importance of couching sustainability in language of decision makers:  profit, image, risk management, growth and regulation.  By framing sustainability in terms of critical business drivers, everyone will listen because they recognize that it is smart business.  Rupert provided numerous compelling examples:

• Johnson & Johnson spent $1 million on sustainability initiatives and had 16% IRR, which matches the best private equity returns
• The Empire State Building’s $14 million energy efficiency retrofit earns $5 million annually – that’s a 37% IRR
• The reliability of project IRR will be critical as China continues to grow and demands more inputs.  As China grows, so too do the eco-efficiency returns on projects
• Clorox’s GreenWorks line had $200 million in sales in its first year, gaining a 50% market share in its segment
• Sustainability efforts future proofs the enterprise and creates competitive advantage.

The balance of the panels and interviews raised many interesting points.  Bryan Jacob, Head of Energy and Climate Protection for Coca-Cola discussed his company’s recent initiatives including their executive delegation at COP-15 in Copenhagen.  Bryan commented that while many have expressed their disappointment with the outcome, he feels optimistic because not one single group (governments, NGOs, private sector) can make decisions in a vacuum.  There needs to be collaboration and coordination.  This is evidenced by climate change being high on the agenda at Davos and continuing discussions between the US, BRIC and South Africa.

Francois Ajenstat, Microsoft’s Director of Environmental Sustainability stated that Microsoft sees sustainability as a global good and the company approaches the issue much like they do security – by quietly incorporating sustainability features into their products and processes.  Microsoft’s efforts focus on three elements – driving responsible leadership, using IT efficiently, and using IT to increase efficiency elsewhere.

The Green IT panel moderated by Dunstan Hope, Managing Director of BSR’s ICT Practice, included Dr. Peter Williams, CTO Big Green Innovations IBM, Scott Bolick, VP Sustainability SAP, Kathrin Winkler, VP Sustainability EMC and Sumir Karayi, CEO of 1E.  The discussion brought up some very interesting tidbits but revolved around two primary points

• While ICT is in every supply chain, it must be used and addressed strategically not just tactically to reduce our overall ecological footprint
• ICT currently generates 2% of global GHG emissions, but could help use reduce up to 15% (according to a recent McKinsey study) of global emissions if currently available technologies were more widely deployed.

It was also noted that looking strategically across any given enterprise was not enough to fully leverage the benefits of IT.  Rather we must look at the big picture – across ecosystems and the planet – to ensure the transparency, inter-operability, and life cycle analysis necessary to achieve that 15% reduction.

A panel consisting of Bob Stoffel, SVP Engineering, Strategy, Supply Chain and Sustainability at UPS, and Libby Reder, Head of Environmental Initiatives at eBay discussed issues around greening the supply chain.  Both speakers provided interesting insights and statistics from both companies.  Bob highlighted UPS’s internal sustainability activities as well as initiatives with clients to help simplify routes, reduce costs and reduce the carbon footprint of logistics and distribution.  Libby highlighted the challenge of a working in a largely virtual supply chain and the importance of leveraging eBay’s community of 39 million users and 25 million sellers.  Both firms emphasized that metrics are the Holy Grail of sustainability and essential for any good strategy.

Jonathan Storper, Partner at Hanson Bridgett moderated a panel on Clean Tech, post recovery.  The panel consisted of Lynelle Cameron, Chief Sustainability Officer at Autodesk, Derek Sim Loo, VP of Stirling Energy, and Aaron Johnson, Director of Renewable Energy Policy and Strategy at PG&E.  The key points made during this discussion include:

• All too often CFOs insist on extremely low hurdle rates for sustainability projects (i.e. 3-8 months).  Increasing the hurdle rate to even 12-15 months can facilitate 40-50% IRRs, enabling “deep” retrofits, rather than more superficial actions
• The primary drivers for renewable energy manufacturing companies are the stimulus package (ARRA) – especially the Investment Tax Credit (ITC), Manufacturing Tax Credit – and the state Renewable Portfolio Standards.
• For renewable energy manufacturing companies the consolidation in the auto industry provides tremendous access to domestic manufacturing capacity and talent that otherwise wouldn’t be there
• Leading electric utilities such as PG&E are investing heavily in renewable energy, but it takes time to bring that mix online.  Since these new renewable energy facilities cost more than older, largely amortized assets, there is also the thorny issue of who pays for that cost of transformation and how much.  Volatile natural gas markets further complicate the situation by making it harder to accurately gauge relative costs.

The closing keynote by Rupert Davis of MontaRosa came full circle from the opening keynote.  Rupert emphasized five key elements (profit, image, risk management, regulation and growth) to make a strong business case for sustainability.  By framing the argument with critical business drivers, executives will understand that sustainability is seen as smart business.

Thomas L. Rosenberg is an energy, climate change and environmental sustainability specialist with more than 11 years of experience working in Latin America, Europe, and the US. By combining big picture market and policy strategy with solid technical knowledge to connect the “less-than-obvious” dots, Mr. Rosenberg empowers senior management to develop effective sustainability strategies for their organizations.