By Jimmy Jia
Climate has been in the news recently with the announcement of the United States’ withdrawal from the Paris Treaty. Although the Trump administration has opted to forego leadership on the climate issue, there are signs for optimism.
Business executives can and are seizing the opportunity to show leadership in this confusing and uncertain time. It’s not only for the common good, it just makes good financial sense.
Problem & Opportunity
Nearly 30% of all energy consumed in the USA is wasted. That’s $50 billion a year in the commercial sector alone—every single year. That is:
- $50 billion lost in value creation
- $50 billion less in cash flow
- $50 billion removed from shareholders
Eliminating this waste is equivalent to:
- Reducing carbon output to 1997 levels
- Removing 22 million cars from the roads
- Planting 618 million trees, an area the size of Yosemite National Park
Distributed Energy Management was established to help small and medium-sized companies identify and eliminate wasted expenditures. In 2016, we helped CFOs and COOs reduce utility consumption by 11% across our portfolio. This revealed hidden pockets of waste across the organization, unveiling operational risks and vulnerabilities previously unknown. Our clients stepped up their efforts to root out waste and led to our development of decision-support strategies that not only reduce costs but also improve profitability, mitigate risk, and increase operational resiliency.
Investors and big businesses have been attuned to environmental, social, and governance (ESG) issues for many years. Investors have realized that corporate investments in ESG is a leading indicator of good governance and value creation. There are over $8.1 trillion in assets under management that utilize ESG factors, a threefold increase since 2010. Microsoft, Apple, and a host of large companies have achieved (or committed to) sourcing 100% renewable energy. The supply chain is listening: consumers are demanding low-carbon products and producers are vying for a bigger piece of the pie.
What You Can Do
Experience is a wise teacher. De-carbonizing a business reduces costs, mitigates long-term risk, improves productivity, and creates long-term value. In treating energy as a strategic asset, executives better control the allocation and usage of their resources to support organizational goals. Here are four of the best practices we’ve observed from our clients:
- Quantify utility line-items: Include all monthly bills (electric, water, trash, etc.) and projected capital costs (capital reserve funds, retrofits, maintenance, etc.). This represents the capital allocation between consuming resources and capital investments. This line-item typically ranges between 3-10% of a company’s operating expenses.
- Centralize leadership, responsibility, and accountability for the utility line-item: Reducing the utility line-item requires a committed leader with the budget, time, and authority to make changes. This leadership capacity can be tapped or developed in a variety of corporate roles, from the Executive Director to the COO, SVP, Board Chair, or a host of other leaders within the company.
- Mobilize company-wide tiger teams for ideation and implementation: Energy-saving ideas are much more than just a better lightbulb or a more efficient heater – it’s a mindset. Something as trivial as a plate of cookies to remind staff to turn off the lights saves money. Checking thermostat set-points, strategically placing recycling bins, and making sure that hauling away a half-full dumpster is priced less than hauling a full one are examples of simple, no-cost and money-saving initiatives.
- Instill a culture of continuous improvement: Savings can compound year-over-year. One best practice is to create a revolving fund that allows leaders to invest achieved savings into projects. This has two main benefits: first, the company improves their capital allocation by shifting utility payments to equipment investments, and second, the savings are invested into projects identified by staff, incentivizing them to identify more opportunities.
We all have a responsibility to eliminate wasted energy. Since the withdrawal from the treaty, cities, states, universities, and businesses have announced their continued commitment to climate leadership. Companies should lead by setting an example of practices and behaviors. Whether a business has invested heavily in de-carbonization and is down to less than 10% waste or whether the recent news is inspiring action for the first time, demonstrate leadership by doing what’s best for the environment and for the company.
Here’s a challenge: take your 2016 utility bill and multiply that by 30%. That’s your opportunity cost to creating value for your business AND lowering your carbon footprint.
What’s preventing you from committing to eliminating energy waste today?