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What corporations can learn from green revolving funds

<p>An innovative financing mechanism universities have used for investments in energy efficiency can deliver double-digit returns.</p>

Through an innovative financing mechanism, universities have found a way to make investments in energy efficiency generate double-digit returns -- and research suggests corporations that follow suit can deliver similar results. The secret: A simple savings-recycling system called a green revolving fund. 

The success of the green revolving fund stems from its ability to transform expenses into investments by recapturing cost savings from projects that reduce energy and resource use. As projects start to return savings, that money is then "revolved" back to the fund. These new infusions of capital can be redeployed into new projects, which accrue further savings that go back to the GRF or can be sent to the general budget.

The popularity of the green revolving fund (GRF) is due to its demonstrated return on investment. Two of the oldest funds in the country, the Quasi-Revolving Fund at Western Michigan University and the Green Loan Fund at Harvard University, consistently post high portfolio returns— Harvard with 29 percent, and Western Michigan with an impressive 47 percent. Collectively, all institutions that operate a GRF have committed more than $111 million to capitalizing their funds.

Now time for some truly compelling statistics: Harvard is currently saving $4.8 million annually across its 200 GRF projects, while the fund at Western Michigan University reports a lifetime savings of more than $16.71 million across 101 projects. This GRF success has been replicated on many campuses across the country, small and large, public and private, on campuses with large endowments and those with limited financial holdings.

Though GRF projects are relatively straightforward -- typical projects include water efficiency, lighting upgrades and waste reduction -- their financial returns are compelling: Funds report a median annual return on investment of 28 percent, with returns ranging from 20 percent (reported at the Georgia Institute of Technology and the University of North Carolina at Chapel Hill) to a maximum reported ROI of 57 percent (Boston University).

Outside the world of higher education, many notable businesses have already committed to invest in sustainability. Companies like Dow Chemical, General Electric and News Corp have improved the energy efficiency of their own buildings, operations and profits, a move that raises their public standing as it reduces their utility bills. A 2012 report published by Deutsche Bank Climate Change Advisors and the Rockefeller Foundation has emphasized the financial benefits of such investments, reporting that buildings consume almost half (49 percent) of all energy used in the United States and account for three-quarters of all electricity. Especially for companies with large real estate footprints, ignoring the need to invest in reducing one’s environmental impact is at best a missed opportunity, and at worst financially wasteful.

Next page:   Will it work outside the ivory tower? 

A university campus and a private company share a few critical characteristics. For both, one top concern is the ability to financially support operations: for companies, being able to continue to offer services and turn a profit; for universities, to offer education to students, continue to run operations and support future capital expenditures and campus growth. Both industries depend on positive public relations and an active community that supports and contributes to the entity's growth. In a climate of rising and volatile energy prices, both are concerned with increasingly costly operating expenses.

Right now, there is the opportunity for companies to learn from colleges and universities that have employed the GRF model. The model is proven, with a track record lasting for more than three decades. The model has gathered a network of skilled fund managers who can offer insight into what projects work, what projects to avoid and the best practices of GRF management. For companies that are just starting out with environmental programs, these lessons learned are incredibly valuable and will save implementation and staff time. For those with an established tradition of sustainability, GRFs can help communicate and frame a company’s long-term investment in energy efficiency. To be sustainable, corporations need to consider long-term profits and risks, and green revolving funds are a perfect vehicle to accomplish this while also meeting brand-building and bottom line objectives.

Corporations can no longer afford for sustainable actions and ecologically minded operations to be a shallow gesture. Sustainability has become a financial necessity for those companies that are looking to adapt, save money and reduce their environmental impact. The for-profit sector has abundant opportunities for sustainability projects. Green revolving funds offer a mechanism for institutions to invest in their own efficiency, recapture the savings and boost their bottom line -- all leading the way to a future that is ecologically and financially stable.

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