The True ROI for Sustainability Programs

Social pressure and a few positive case studies are causing many corporate executives to consider adopting programs and moving toward more sustainable practices (i.e., investing in reducing energy and water usage, conserving resources, etc.). However, most CEOs and CFOs will still judge sustainability actions based on the likelihood to maximize return for investors. If a project or a program does not meet a suitable return on investment (ROI) – say 15-20% - then it will not be approved.

As has been shared in this blog, many sustainability practices, such as upgrading lights and using more energy-efficient electronic equipment, should meet most ROI criteria, if managed right. However, many other sustainability strategies, while clearly beneficial and cost saving, may not meet the standard numeric criteria. The problem is that many business benefits are difficult to quantify and thus excluded from ROI calculations.

While most sustainability projects produce measureable monetary returns, such as reduced utilities costs, permitting, and waste disposal fees, many other positive benefits are harder to quantify. For example, how can one accurately estimate the near universal benefit of more motivated employees translating into greater productivity? Even items such as reduced turnover and sick days have no clear cut quantification procedure, leaving the need for assumptions or estimates. Therefore, these benefits are more often not included in the calculations, causing an underestimate of the ROI and financial benefits of a sustainability program and its projects. While your Financial group will undoubtedly perform its own analysis and perhaps calculate an ROI of a proposed project, the group proposing the project should simultaneously perform its own financial analysis, including the benefits of the other elements that are less easily quantifiable.

Many sustainability projects require upfront capital investments for equipment, designers, consultants, testing, etc. before the project begins to generate financial benefits. Getting approval of such capital spending, particularly for new technology of which many in the C Suite may be unfamiliar, can be difficult. Change, risk, and the fear of failure are barriers to getting approval for sustainability projects. It’s easier to stay with the status quo and not have a sustainability program than have to address an even slight chance of failure. Thus, education of appropriate executives and demonstration that such projects have worked for other firms is imperative. Showing that a competitor has successfully incorporated a strategy or that it will give you an advantage over a competitor should be a particularly strong argument.

CCES experienced experts can help you establish a smart sustainability program with appropriate planning based on your needs – to go slowly or “hit the ground running.” We can craft a variety of potential money-saving sustainability projects, including calculating financial ROIs and paybacks. We can utilize an interactive, site-specific program to anticipate potential specific roadblocks unique to your organization. By determining potential concerns, you can address these early and better enable your sustainability program to be successful and timely. We want to help you make this a success.  Contact us today at 914-584-6720 or at karell@CCESworld.com.


Marc Karell, P.E., CEM, Principal, Climate Change & Environmental Services, LLC

 

 


Reprinted with permission by CCES

 


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