How Energy Points helps CFOs budget for sustainability
How Energy Points helps CFOs budget for sustainability
Way back in 2002, Walsh and Associates, a family business of about 50 employees, moved into a new facility and watched its electric bill skyrocket because of an inefficient heating and air conditioning system.
That, and the increasing cost of electricity and gas, prompted the Midwestern chemical supply company to embark in 2003 on a series of energy efficiency initiatives. By 2009 Walsh had reduced its electricity use by nearly 50 percent, and a new solar roof — another sustainability project — was helping it lower its natural gas use by nearly 60 percent.
Randall Lewis, Walsh's director of operations, reckons it could have been even more. "We were (and are) saving an average of almost $30,000 per year. But we knew we could do better," he says. The company could have saved more money, he believes, if it could have predicted which projects would have been most successful and focused its investment on those.
Fast-forward to 2012, 10 years after Walsh first decided it wanted to be as energy efficient as possible. A Cambridge, Mass.-based sustainability management startup called Energy Points has given it the crystal ball Lewis yearned for, enabling the company — in advance — to identify what initiatives would save it the most money.
Ory Zik, founder and chief executive officer of Energy Points, believes many CFOs shy away from even thinking about sustainability because they struggle to determine the most cost-effective solutions. A Deloitte survey of 250 CFOs of companies with more than $1 billion in revenue in 2012 found that superior sustainability information is still somewhat elusive. Only 12 percent of CFOs believed they had "excellent" sustainability information, while 37 percent rated their information "good" and another 37 percent called it only "adequate."
Sustainability reports are emerging as a critical driver of shareholder value. According to a January report from the Governance & Accountability Institute, 53 percent of the S&P 500 issued sustainability reports in 2011, a huge increase from 2010's 19 percent. But Zik believes most of these reports are all but unintelligible.
Further, he says, they're not providing the context and insight needed by both executives and investors alike to make data-driven, informed environmental decisions. That's Walsh's concern. "It's like working in 10 different currencies without a currency converter," says Zik.
Energy Points's reports application works much like that currency converter, providing one universal metric for natural resource consumption. The application is designed to let executives make energy management decisions based on what will best improve the bottom line. The application also generates reports that more accurately show how the company is affecting the environment in a way everyone — even shareholders — can understand, and at what cost. "CFOs understand that sustainability is tied to shareholder value," says Zik. Indeed, the Governance & Accountability Institute study found that companies issuing sustainability reports attracted more investment dollars and offered shareholders better returns than competitors that didn't.
"CFOs recognize the importance [of sustainability reporting]; they just need the tools to report it," says Zik.
The universal sustainability metric
The problem is that businesses that look at greenhouse gas emissions, kilowatt hours for electricity, BTUs for gas and gallons for water — and then keep them separate — are bound to get confused. What Energy Points does is to use a gallon of gasoline as a baseline. Its algorithms convert all other types of energy — electricity, water, oil, natural gas — into a metric relative to that gallon of gasoline. In that way, a CFO can derive one number to determine his organization's energy use no matter what kind of energy is critical for the business, and track that cost, using it to drive strategic decisions.
With Energy Points' application, what CFOs see is an interpretation generated by that algorithm that is easy for them to understand. "It's like the iPhone," Zik says. "The front is intuitive; the complexity is inside."
Energy Points tracks the actual cost of all the forms of energy a business uses so that the business can allocate its budget accordingly. It also generates a sustainability report based on factors such as consumption, waste and scarcity, which the sustainability officer (more and more often the CFO) can bring straight to the board. "This allows the CFO to determine the budget, decide what projects to pursue, and then track and report the success of the project," Lewis says.
"Say you're a brewery," he says. "That's a very water-intensive business. You'd be more interested in saving water there versus a facility like mine that's electric-intensive. What [Energy Points] has helped us to understand is that if we were to open up a new distribution center, we can look at the universal cost of energy — gas, electric, water and so on — and then look on a map and see where the most sustainable location might be."
For example, the brewery might see that water is particularly costly in Arizona and other parts of the Southwest, and cheaper in places like Idaho and the Pacific Northwest. "It's very intuitive," says Lewis, which is extraordinarily helpful given the complexity of determining energy costs as separate units.
The CFO's responsibility
Energy Points and other sustainability management companies, such as Verdiem (which provides IT energy management and efficiency solutions) and Enablon (which delivers sustainability performance-management software), can't do what they do until a company decides it wants to manage sustainability.
And according to Lewis, companies should very much want to. "As time goes on, energy is going to cost more. Early adopters will receive a competitive advantage," he says.
More CFOs may be starting to see things Lewis' way. The Deloitte survey found that CFOs' attitudes toward sustainability are in transition. Forty-nine percent of respondents saw a significant link between sustainability performance and financial performance, and 34 percent said they are responding to that link by transforming organizational processes related to energy and environmental factors.
What's more, because sustainability accountability counts as a risk, the responsibility for managing energy consumption and the company's environmental footprint has shifted to the CFO. In 2011 only 17 percent of the surveyed CFOs claimed responsibility for sustainability. In 2012 that number rose to 26 percent. More than half of respondents said their involvement with sustainability initiatives has increased over the past year, and 61 percent said they expected that involvement to continue to increase.
Sustainability is not just about the planet; it's becoming ever clearer that it's about profits, too.
Gas pump image by muratart via Shutterstock