Getting the Boss on Board

Getting the Boss on Board

How can I persuade my boss that our sustainability initiative makes good business sense?

This is a big enough question that a full treatment will take more than one "Ask the Experts," but let's take a crack at it. Short answer: you need to make the business case for why it's a good investment (not just of money, but also of time and brand), that will provide a good rate of return on investment (ROI), and generate more value than other potential uses of that time and money (opportunity cost).

Think ROI, not just "payback."

Energy investments are often analyzed in terms of "payback" -- how many years it will take to recoup the investment. The threshold for a "go" decision is the company's "capital hurdle rate" -- which may for example be two years, or 18 months; investments that take longer to pay back may be turned down. In that case, you could try to put together a better offer (by reducing energy demand,developing a more efficient -- and integrative -- design strategy, or a providing a more complete cost benefit analysis -- about which more in a moment); or you could shift the frame of analysis from payback to ROI. The irony, you see, is that a three year payback represents a 33% annual ROI -- which is pretty nice money compared to what capital can earn in a bank or bonds or even a company's own stock.

Consider "indirect" as well as direct returns.

As for more complete analysis, consider ancillary as well as direct impacts. Some energy efficiency projects, for example, may deliver beneficial impacts on employee productivity or product quality -- which can be worth more than the energy savings. Companies can sell their emission reductions; the going price for carbon is far lower in the US than in Europe ($1.70/ton vs. $27 and change, last time I checked) but still worth capturing.

Factor the future.

Consider also the prospect of rising energy prices, and make that an explicit factor in considering the risk and determining the net present value (NPV) on any investment. There's no formulaic answer here, but these volatile times demand explicit consideration of risk and the sustainability business case. Do you expect oil prices to stay at $70/barrel, drop significant, or rise above $100? How can you design a portfolio of strategies that "futureproof the company" by diversifying your risk going forward?

Focus on implementation.

In addition to purely financial considerations, your solutions must be implementable, given both the resources and the know-how of the organization. What training might be needed? (And what side-benefits might that training contribute?) What's the opportunity cost of your proposal -- the things that don't get done in order to do what you propose -- and why is that a good choice?

Build the brand.

And then there's the whole question of "intangible" value -- the impact on brand (often worth much more than the book value of a company), employee perception and other factors typically left out of financial analyses. But that's a matter for another column.

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Gil Friend, systems ecologist and business strategist, is president and CEO of Natural Logic, Inc. -- offering advisory services and tools that help companies and communities prosper by embedding the laws of nature at the heart of enterprise. Sign up online to receive his monthly column via email. Read Gil's blog here.