Prepared for the energy and sustainability future? Really?

Schneider Electric

This article is sponsored by Schneider Electric.

The energy ecostructure and electricity system are on the brink of massive disruption. Energy is becoming decentralized, and new technologies are enabling businesses to both produce and consume energy like never before. Companies are looking at these megatrends to find new ways to save money, meet sustainability goals and build resiliency.

However, despite some progress, there are gaps in how many organizations approach and execute energy and sustainability initiatives — gaps that can stunt ROI. There’s also evidence that suggests the business community isn’t prepared for the seismic shift that's reshaping the energy landscape. Change will only accelerate and intensify, presenting risks and competitive disadvantages for those behind the curve and opportunities for those ahead.

Companies invested

Every year, companies spend more than $450 billion on energy efficiency and sustainability initiatives. Plus, 63 percent of Fortune 100 companies have set one or more clean energy targets. Coupled with mounting pressure from investors, employees and customers to operate in a more sustainable and transparent fashion, corporations have significant incentive to act. However, action needs to bolster short- and long-term business goals, and be driven by a company-wide vision and strategic plans.

The ideal approach when it comes to energy management and sustainability is to balance social and shareholder responsibility. And it’s eminently achievable. Organizations that are actively managing and planning for climate change, for example, see an 18 percent higher return on equity than peers and 67 percent higher than companies that do not disclose on climate action.

Plus, nearly 80,000 emission-reducing projects by 190 Fortune 500 companies reporting data showed almost $3.7 billion in savings in 2016 alone. 

The incentive is clear. But is there innovation to match?

Growth measured

According to a recent survey of energy and sustainability professionals from almost 240 large corporations — $100 million in revenue or more — the business community at large is confident that it’s prepared for a more decentralized, decarbonized and digitized energy future. But the study, conducted by Schneider Electric and GreenBiz Research, also found that action doesn’t always match perception.

This false sense of security can be attributed to the finding that most companies still take fairly conventional approaches to energy and carbon management. The bias toward traditional measures is further complicated by limited coordination between procurement, operations and sustainability departments, as well as data collection and sharing challenges.

Eighty-five percent of respondents said their company is taking action over the next three years to keep carbon reduction plans competitive with industry leaders. However, the projects that have been initiated or are in development skew heavily toward energy, water and waste conservation.

Outside of renewables, few organizations are implementing more advanced technologies and strategies to manage energy use and emissions. The study found that just 30 percent of companies have implemented or are actively planning to use energy storage, microgrids or combined heat and power — or some mix of the technologies. And only 23 percent have demand response strategies in place or plan to in the near term.

To be competitive, companies will need to deploy a variety of projects including on- and off-site renewable energy, energy efficiency, and energy storage and demand response. The ability to be a "prosumer," an active market participant, will enable companies to build sustainable and profitable operations, and reduce reliance on the traditional electricity grid.

ROI reconsidered

There is positive movement, however. The study found that companies are taking a more comprehensive approach to energy and sustainability planning and decision-making.

While financial return on investment always has been the obvious benchmark for energy and sustainability initiatives, other criteria are being widely considered. Sixty percent of respondents indicated that meeting internal and external goals was a primary driver for energy and sustainability efforts, and nearly half cited improving company brand as a factor, as well as mitigating environmental and organizational risks.

As a wider range of benefits drives interest in energy and sustainability programs, organizations need to evaluate initiatives and outcomes beyond numbers on a balance sheet. Strategies to consider include using established methods such as a scenario analysis to disclose climate-related risks and opportunities, developing integrated energy and sustainability strategies and performance metrics, and calculating an internal carbon price for project review.

Progress activated

Opportunities abound for companies to profit and succeed over the long term by adopting and implementing energy and sustainability initiatives. With the falling price and increased productivity of efficiency, cleantech and renewable energy technologies, financial and environmental considerations don’t have to compete. Many organizations already have recognized this reality, but it doesn’t mean that comprehensive action will come easily.

Organizations should ensure they are considering strategy, processes, technology and data in tandem to prepare for an evolving grid. They should increase collaboration between departments, build a multi-pronged energy- and carbon-management plan, and look beyond conventional financial metrics when considering project criteria as well. Those that put the pieces in place to produce energy, and interact with the grid, utilities, peers and other new entrants — a model known as Active Energy Management — will set themselves up for success in 2018 and beyond.

Download "The State of Corporate Energy & Sustainability Programs" research report.