AkzoNobel and Alcoa link sustainability to capital projects

[Editor's note: This is the third installment of WRI's five-part blog series, "Aligning Profit and Environmental Sustainability." Each post, which will run on Thursdays over the course of five weeks, will offer solutions to help businesses overcome barriers to better integrate environmental sustainability into their operations.]

A large, multinational company likely spends hundreds of millions of dollars every year on new projects.

How these projects are designed, constructed and operated clearly impacts costs in the short term, but also poses huge implications for a company's "sustainability footprint" in the long term.

A major challenge is that most corporate sustainability experts within a business are not involved in capital budget requests at the outset. A company's financial leaders make investment decisions with upfront costs and projected revenues in the front of their minds. They are far less likely to take into account a project's potential environmental risks and benefits. Not coordinating financial and sustainability decisions can lead to projects that are cost-efficient to build today, but may not hold up to sustainability pressures over their lifetime. A company, for example, might invest in a factory that is inexpensive to build, but then realize that its location locks it into buying energy sources that hurt their long-term sustainability profile.  

The lack of integration between financial and sustainability-related decision-making is a main barrier to scaling truly impactful corporate environmental sustainability. But as WRI found in its new working paper, "Aligning Profit and Environmental Sustainability: Stories from Industry," there are companies that are starting to show us ways of overcoming this challenge.

Insights from AkzoNobel and Alcoa

Some companies, like AkzoNobel and Alcoa, are working to ensure that projects seeking large amounts of internal capital consider sustainability impacts from the beginning. For example, AkzoNobel, a global paints and coatings company, recently began balancing decision-making between the company's financial controller and chief sustainability officer. Capital budget requests that exceed $5 million must now be routed through both the controller and the CSO. The CSO reviews requests against a set of environmental criteria and has the power to reject budget requests that do not meet the criteria or lack an acceptable explanation for why the company's sustainability factors were not considered. The CSO can also ask for additional justification before making a decision.

Next page: Empowering the CSO