Energy Management Not a Priority for Many CFOs
We are currently conducting an online survey of purchase intentions of large companies for carbon and energy management software and services. One notable finding that has already surfaced is the lack priority some chief financial officers (CFO) assign to energy management, which mirrors our consulting in the field.
Simply stated, energy management is not a priority for many CFOs.
This presents an opportunity for sustainability leaders, since energy management is a rich area of cost savings that can be linked to the strategic benefits of sustainability.
The CFO is in a natural leadership position for energy management and sustainability. Typically, the CFO has responsibility for Investor Relations, Environmental, Health and Safety (EHS), Facilities, Purchasing, Human Resources and Legal departments. It is not uncommon for IT to also fall under the CFO. The CFO has a unique view of and a responsibility to the organization from an operational standpoint.
Many of the internal and external opportunities and risks related to sustainability and energy management involve teams under the CFO. Investor Relations are involved with carbon dioxide emissions disclosure to investors and investor research groups such as TruCost. EHS manages all the environmental regulations and data for the company. Facilities are involved with facility planning and capital improvements.
Purchasing is responsible for energy procurement and tax rebates for energy efficiency projects. Human Resources manages communications with employees and ensures the company is attractive to new hires, for which sustainability is an important attribute, especially for younger candidates. Enhanced data center, computer and lab efficiency is a large cost savings opportunity for which IT can lead. And the list goes on.
Moreover, the CFO leads business processes that directly affect the allocation of the company resources toward energy management and sustainability. The capital request procedure is one such process, along with the annual budgeting cycle and yearly setting of executive bonus plans.
Yet, most respondents to our online survey have indicated that energy management is not a priority for their CFOs. Respondents are large companies with at least $2 billion in revenue and more than 10,000 employees.
We believe this is a large missed opportunities for many companies, particularly in this economic environment where revenue growth is often stagnant. Few areas in a firm's expense structure have as much cost reduction opportunity as energy efficiency.
If sustainability is to move beyond a marketing-type function and truly become integrated in the core business processes in a company, sustainability leaders need the leadership, support and involvement of their CFO. We recommend sustainability leaders do the following:
• Educate your CFO about all the areas in his or her span of control that affect energy management and sustainability. Emphasize both opportunities (margin improvements through cost savings, improved competitiveness with top customers through enhanced company sustainability) and risk (legal risk for failure to disclose environmental risk, reputation risk from poor peer rankings in investor research).
• Confirm that the CFO knows how much the company spends on energy per year. Also help the CFO understand the cost savings opportunity through better energy accountability, visibility and management.
• Make certain that energy usage and cost are reported on a quarterly basis in operations and business unit reviews, and are clearly allocated to specific profit centers.
• Check that capital requests include estimates of energy consumption and estimates of future energy price increases (some capital requests processes do not even account for energy use).
• Build and support a culture of energy project accountability by insisting on post-project measurement and verification (M&V). While M&V may seem like a superfluous expense for an individual project, it is absolutely critical to ensure that senior management and the finance department gain and maintain confidence in current and future energy project savings claims.
• Connect the CFO with the individuals in the organization who are very passionate about energy savings and sustainability.
The CFO role is vast and covers many areas, but CFO leadership is critical if energy management and sustainability are to move from isolated teams in the company to pervasive aspects of all critical business functions. Sustainability leaders play a critical role in this evolution.
Image CC licensed by Flickr user Velo Steve.