Adidas Group scores big with sustainability venture capital fund
<p>Footwear company's greenENERGY Fund invests in a portfolio of efficiency projects that target a strict 20 percent annual return on capital.</p>
If you are familiar with facility management, you may know that facilities have finite annual budgets, and demand for capital predictably exceeds supply. Some projects such as lighting controls may deliver carbon and financial savings, but quantifying these savings requires time and specialized training, two equally scarce resources.
Other projects, such as replacing carpets, don't deliver a return, but may still feel quite urgent to a facility manager. Without a trusted advisor to calculate and validate their economic and environmental benefits, energy-conserving lighting controls are stuck competing for the same funds as carpets.
We experienced similar issues at the Adidas Group and set up a dedicated team to look into it. After months of calculations and visits to our facilities, we established the company's greenENERGY Fund, our creative response to this universal corporate problem.
Launched in 2012, the pilot greenENERGY Fund is an investment fund with three goals: accelerate carbon reduction in our global properties, rigorously track project performance and deliver a healthy return on capital. After six months and seven projects funded, the pilot project is showing impressive results. It is forecast to deliver 36 percent return on investment and cut carbon by 1,401 metric tons of C02 -- that's like taking 256 cars off the road each year.
This pilot is scaling up -- way up -- with $2 million committed to energy efficiency projects across the globe.
Projects with attractive financial and carbon returns deserve preferential treatment. As manager of the Adidas Group greenENERGY Fund, I look at carbon reduction projects as a venture capitalist might: a portfolio of value-creating investments. I rigorously scout, evaluate and invest in efficiency projects because they deliver great financial savings and reduce our greenhouse gas emissions. Green investments are therefore seen as a business opportunity, delivering revenue for the business.
This is why the Adidas Group has worked with Environmental Defense Fund's Climate Corps program since 2010 to identify energy and money-saving opportunities across its portfolio. EDF, which examines efficiency opportunities for hundreds of companies across the map, is so enthused by the Adidas Group greenENERGY Fund that the organization is touting it to its audiences far and wide. Moreover, EDF asked us to present this new project at the recent Fortune Brainstorm Green Conference in California.
The greenENERGY Fund is generating buzz because it is working beautifully, accelerating verified carbon reductions at a nice profit. It is also the first fund in the footwear and apparel industry with our unique "portfolio finance" approach. These two key powers make it a keen carbon reduction tool:
1. The fund has a strict 20 percent annual return on capital target across the portfolio, but flexibility on the project level. This means that high financial return projects can subsidize projects with great carbon reductions but lower financial return. With a portfolio approach, I can deploy more capital -- and reduce more carbon -- than if I evaluated projects individually.
2. If a project falls below the 20 percent return threshold, it competes with other projects on the basis of metric tons C02-e reduced per dollar invested. The higher the MT CO2-e/$, the higher priority it becomes to finance. In this way, the fund is engineered to maximize net present value and carbon reduction.
The greenENERGY Fund is becoming our central hub for energy best practices and engineering know-how. With each retrofit, we learn more about the risks and benefits of certain project types. Each investment case, including all economics, challenges and results, are summarized and shared on a central portal. Facilities can review what has been done and get ideas for their own improvements. It's a positive feedback loop that becomes more powerful every day.
The fund also contributes to our Green Company 2015 targets for reductions in energy (20 percent) and carbon (30 percent). While delivering strong financial results and cutting greenhouse gas emissions, the program reflects our leadership in corporate environmental management.
The 2013 investment prospectus is growing with great projects around the world. We are investing in retail LED upgrades, building automation, lighting controls, process improvements and much more. And working diligently to track the impacts. Efficiency is a tremendous source of value. I've had colleagues tell me, "I wish I could put my retirement savings in this!"
This article originally appeared at the EDF Innovation Exchange and is reprinted with permission.