How To Align Profit and Sustainability

Source: Environmental Leader.com

Johnson & Johnson has set up a fund for greenhouse gas reduction projects like chiller optimization and solar PV installations — just one example of how companies are allocating capital for long-term environmental performance, according to a report by the World Resources Institute.

Aligning Profit and Environmental Sustainability: Stories from Industry looks at what’s needed to bridge barriers between existing corporate behavior and environmentally sound business practices. WRI interviewed sustainability managers from AkzoNobel, Alcoa, Citi, Greif, Johnson & Johnson, Mars, Natura, Siemens and others about how companies scale up strategies that are good for business and the planet.

Companies usually have separate capital expense and operating expense budgets, the report says, and this practice can make it difficult to increase one budget to benefit the other. In Johnson & Johnson’s case, the special fund for GHG-reduction projects increases its capital budget, and the operating budget is then adjusted to account for expected savings. This allows the company to invest in projects that cost more upfront, but have lower operating costs.

Diversey, now called Sealed Air, bridges this “capex-opex” divide by bundling its GHG reductions projects into one portfolio, which includes projects with a high ROI and moderate GHG reductions as well as those with a lower ROI but higher GHG reductions. This spreads the risk across many projects to produce an acceptable ROI.

UPS is another company that prioritizes environmental performance in its capital allocation, the report says. The company reduces its minimum rate of return, called the hurdle rate, on fuel-efficient vehicles it tests as for its fleet. Their potential fuel and cost reductions justify the lower hurdle rate.

Meanwhile DuPont prioritizes environmental performance by investing in R&D programs with environmental benefits to consumer and customers. The company sat a goal in 2006 to double such investments by 2015. Similarly, Citi uses its own facilities to test energy-efficiency finance products, which also helps the bank cut its own energy consumption.

In late 2012, WRI launched a tool to help companies evaluate their sustainability efforts. The Sustainability SWOT, or sSWOT, adds sustainability to the traditional strengths, weaknesses, opportunities and threats (SWOT) analysis to help businesses translate environmental risks, like climate change and water scarcity, into opportunities for profit.

Nearly one half of CFOs see sustainability as a key driver of financial performance and two-thirds are involved in driving such strategies in their organizations, according to a 2012 global Deloitte survey of 250 CFOs, representing companies with greater than $1 billion in annual revenue.