How UPS makes the business case for sustainability projects
When UPS adds new alternative fuel or advanced technology vehicles to its fleet, it doesn't simply choose just any alternative-fuel vehicle. The company only adopts new vehicles when they're proven to be economically viable, have a reliable fueling infrastructure, are readily available, provide fuel savings and are safe.
The key to choosing new vehicles and potentially using them on a wider scale is data.
"Everything begins with management and data," said Patrick Browne, UPS's UPS's corporate sustainability program manager, "UPS is no stranger to big data. We use data to drive many aspects of our business."
Data is also a major factor in justifying sustainability decisions based on their return on investment.
"At the end of the day, you're going to have to drive a link between your sustainability initiatives and financial performance and financial outcomes," said Adam Cooper, senior manager of global strategy and sustainability practices for Accenture
The value from sustainability projects isn't typically a matter of, say, just the electricity savings of using occupancy sensors. Sustainability initiatives of all types can drive value from revenue growth (through new business models or services), cost reductions, brand enhancement and risk management, said Cooper.
"Defining the ROI in some areas is easier than others," he said.
Five steps to take with any project, Cooper said, are:
1. Gain senior level sponsorship.
2. Be relevant and aligned. Depending on the project, define who the benefactor is. "Are you taking on a sustainability initiative related to your sales and marketing group? In that case you might be able to talk more about brand and goodwill value with stakeholders."
3. Establish tangible metrics. Related to the point above, vet these metrics throughout your organization so that you understand what the different groups want analyzed and what is relevant to them.
4. Communicate effectively. How you talk about the project and the potential outcomes needs to resonate with the people who are involved with the project.
5. Incentivize and reinforce. Senior management needs to lead by example while also looking at follow-up activities.
When you're working within those steps and looking at ROI, Enablon project manager Tom Hazeldine said that you want to see an ROI projection that is strengthened by quantified estimates of risks that have been mitigated.
For example, when justifying a purchase of new equipment, being able to say that the equipment will reduce energy costs by a specific amount over a certain amount of time while also reducing equipment breakdowns and reducing waste, which will in turn increase production and reducing material costs.
To get to that point, Hazeldine said, you must:
1. Understand corporate objectives and value drivers.
2. Assess key risks within the context of those objectives and drivers.
3. Analyze the initiative you're proposing in terms of how it mitigates those risks. For instance, the purchase of electric vehicles can reduce reliance on oil, thus mitigating risks related to volatile commodity prices, transportation delays and supply chain failure.
4. Identify the biggest risk mitigations.
5. Quantify the benefits.
6. Distill the risks and benefits into easily understood messages.
Some UPS projects that were supported with this type of approach include the addition of more than 2,500 alternative fuel and advanced technology vehicles to its fleet, adding winglets on its fleet of 767s that will save $21 million and 6.5 million gallons of fuel a year, and installing three photovoltaic solar systems on New Jersey facilities that will provide free electricity after seven years.
"For all three," Browne said, "the reduction in energy and fuel usage was the driver for a strong financial ROI, but other benefits such as reduced noise in the communities we operate in, reduced exposure to volatile oil markets, greater reliability of our aircraft and vehicle fleet, and strengthening our brand as an innovative supplier all played a role in the business case for sustainability."
Those add-ons might not always seen necessary if the project already has a good-looking ROI, but remember that projects are frequently in competition.
"You can have a positive ROI in energy efficiency initiatives," said Cooper, "but the ROI isn't as high as other projects, and that is when you layer on the ROI in these other areas."
UPS EV photo courtesy of UPS.