What's the ROI for a sustainability initiative?

More data comes out all the time on companies, both large and small, that are making corporate sustainability a cornerstone of their management style. For that reason lots of management teams are beginning to look around and ask themselves, "What would it cost us to do the same? What's the learning curve? What can we expect to get back and how quickly?"

post last week talked about how there is no 'secret metric' that can predict what a corporate sustainability effort will mean for your bottom line. The Climate|Money|Policy position is that this is a good thing because it encourages the communication which is critical to a successful sustainability & resilience program. Nonetheless, it's reasonable to recognize that many conservative managers want or need something to take before their peers (and boards) in advance of a decision to embrace a sustainability strategy so here are a few numbers:

37% of 2600 managers responding to an MITSloan survey indicated that sustainability strategies are source of profit for their company or business unit

48% of managers in the same survey say they changed their business model as a result of sustainability strategies

76% of executives responding to one EY survey said that they anticipated natural resource shortages to impact their business in the next 3-5 years

65% of respondents to the same survey said that their CFO is involved in the company sustainability effort.

This is a settled issue among responsible business people. The only question left is how and when you want to get started. Some companies choose to start with efficiency programs, others target supply chain and others still employ tools in marketing and innovation to build opportunities. Many individual initiatives will be amenable to a quick ROI calculation but the reality is that most won't. Let's look at both kinds.

10 Initiatives Worth Looking At:

This brief list represents a tip of the iceberg for sustainability projects. Let's look at a few that you can get clear ROIs for up front and a few that are harder to figure out.

1. Lighting

Lighting can often account for 50% of the energy usage in a typical commercial office space which uses old fashioned incandescent bulbs. Switching to CFLs or LEDs can save roughly 70-80% of that energy cost with hardware that lasts longer.

2. Exterior Landscaping (for Heating & Cooling)

Exterior landscaping that incorporates trees near the building edge can serve as both a wind break and shade cover. In cooler climes wind speed (and chill) can be reduced by half before hitting the building, in Warm climates the natural shade has an equally valuable effect. This translates into as much as 3-6 degrees of heating/cooling your building systems don't have to work for.

3. Exterior Landscaping (for Water usage)

With 80% of California under an extreme drought while this post is being written there are more than a few business owners who now see the mistake of elaborate landscaping and decorative lawn space. Water intense designs can make a business look wasteful, neglected or abandoned depending on conditions. It's also simple to calculate up front the cost of maintaining thirsty foliage and avoid the waste.

4. Packaging

Coca-Cola changed their packaging protocol recently. Their goal was to reduce raw material usage and limit their exposure to volatility in raw material prices. The program has so far saved over $100M as a result.

5. On-Site Power

Solar and wind power now have shorter ROIs than ever. In fact most parts of the country allow for 3rd party leasing models which mean that there is no payback period because there's no debt to begin with.

6. Risk Reduction

Risk manager will often admit that is difficult to place a value on market stability but all of them will tell you that the value is huge. If your organization works with rare earth minerals, water, carbon-intense products or relies on low wage labor you could be in for a serious shock. Adjusting to look at not only your supply chain risk but risk as a function of viability of the sectors those suppliers inhabit is a huge and necessary step.

7. Employee Engagement

A MonsterTRAK poll states that 92% of young professionals would be more inclined to work for an environmentally friendly company. What's the value you place on having an edge in your hiring practices?

8. Attracting Investors

You can see in the link below that green bonds are in far greater demand than supply. In addition, social and environmentally responsible assets grew by over 320% from '95 to '07 and those numbers are tracking upward. It's an unconscionable mistake for a responsible manager to ignore the value that his company's sustainability and resilience profiles will make to investors.

9. Durable/Environmentally friendly materials

This is the model for Whole Foods and many other brands who make the conscious choice to ignore price barriers and compete based on the publics desire for a different kind of product. A recent survey by Cohn & Wolfe says that the majority of consumers world wide believe it's important that companies offer environmentally friendly products and 35% of them said they'd be willing to pay more for those products.

10. Innovation

When you start from the standpoint that resources will be more limited in the future (whether or not that's true!) a company is forced to innovate new processes and procedures. Those unique and proprietary innovations are engines for profit and growth. The Innovation Engineering black belts at the Eureka Ranch site stats that show 21X revenue growth and 7X profit growth over three years for highly innovative companies vs. their peer group. What better stimulus to spur that innovation than a resource limited world?

As stated earlier, this list is a tiny glimpse of a real sustainability effort. Look at it and you'll note right away that the bottom five clearly have bigger upsides that the top five. Those upsides are harder to calculate but that doesn't mean that you should hesitate. Any good manager should be moving forward on the first few to gain credibility in moving forward on the last few. If you don't you're just not serious about organizational health.