Sustainability vs. ROI: How to Successfully Achieve Both
With the global population growing at a rate of 200,000 people a day, according to the World Bank Institute (WBI), there is an arduous strain on the world’s resources, especially food, energy and materials. This increase in demand and resulting decrease in supply warrants a closer focus on sustainability efforts to renew the supplies being used. But as governments and businesses across the world have discovered, it’s not easy being green.
Businesses simply cannot be 100 percent focused on sustainability efforts—the bottom line is always and will always be the top concern. With the current state of the economy, it is difficult to hold environmental sustainability goals on par with financial goals. The question is: is there a way to effectively do both? Can sustainability and profitability be balanced? How effectively managers can balance these shared objectives often determines how successful organizations are in terms of profitability and long-term growth.
Forestry, One of the Oldest Commodity Markets in the World, Is an Exemplary Model
The average US citizen uses 3.5 times more wood products than in 1970, according to the Oregon Resources Institute. Forestry companies across the globe need to scramble to meet ever-increasing demand—but the key is to do it in such a way that future resources are protected.
Coillte, Ireland’s largest forestry and forest products company, prides itself on maintaining a sustainable forestry business and never cutting down more wood today than will be available tomorrow. To do this successfully, the company has embraced analytics and optimization technology, which has provided it with a stronger strategic perspective on forest resource management and the ability to make better decisions based on fact-supported analysis.
The myriad of variables and data points that Coillte must take into consideration before making a million dollar decision includes the impact of an environmental, managerial or economic change on operations; harvest and production schedules; road maintenance; growing international demand and more.
With analytics technology, Coillte has been able to run test scenarios that take into consideration these variables, interchanging factors such as alternative tree species, location and aerial fertilization to test for more optimal results.
The ability to consider, assess and strategize around an infinite number of “what-ifs” not only minimizes risk by ensuring there is always a “plan b,” but also empowers Coillte to make strategic decisions that will help sustain their forestry resources, allow them to meet demand and grow their business at the same time.
What Forestry Can Teach Other Industries Like Oil and Gas
Forestry is a complex industry, dealing with a mix of public and private lands, facing a heavy regulatory environment and established competition. As a commodity industry that has very low margins, the sector has been forced to be as efficient and conscientious of risk as possible to assure survival. The Coillte example shows just how tightly forestry companies must plan and analyze every decision in order to turn a profit—and ensure they’ll have the resources they need for next season.
Similarly, the oil and gas industry shares many of these pressures. While they have stronger long-term profitability and play a more pivotal role in the basic global economy, there are some efficiencies to be learned from forestry.
Forest land managers require complex models far greater than other industries where variables are more stable, geographic distances less relevant and time horizons shorter. Analyzing these long time horizons and geo-spatial factors for the best travel route and most efficient time to harvest offers useful lessons to oilmen looking for cost-effective ways to tap new fields well into the future. By improving efficiency at all levels of the business, oil and gas companies’ bottom line can be dramatically improved.
Another area where foresters have prevailed longer and better than other industries is around environmental regulation. While both oil and forestry, as natural resource industries, face heavy regulatory burdens (for example, there are recreation land needs and defined limits on harvests and drilling operations, as well the need to ensure water resources are not damaged), operational forestry planning must tackle huge amounts of uncertainty as there are layers of state and federal regulations that often shift with the political winds. Oil, which is no stranger to uncertainty, especially around the exploration, proving and permitting of new fields, can learn from foresters who have long had to account for political and social risks that manifest in regulation, activism and ownership challenges.
The oil and gas industry also wrestles with complicated and overlapping claims to land that impact operating plans for decades. Since forestry companies are planning out 100 years, they have turned to analytics and optimization solutions to balance the different needs of the land –public recreational use vs. private harvesting–and determine the best case scenario of the land use, its profit potential and environmental risks and gains. Analytics helps them take a long-term view of their resources.
The oil and gas industry can learn from this approach and better balance the various risks and gains associated with each drilling site, including duration and method. Additionally, advanced analytics can help oil & gas businesses find new uses and revenue streams from the land around drilling sites that have dried up or been discarded. Planning ahead and taking the long-term view will allow for future use to be factored in from the start.
The take away here is that it is about smarter spending – not just more spending. With the use of optimization and analytics technology, forestry companies like Coillte have demonstrated that, with smarter investments informed by complex analytics, they can efficiently maximize resources, improve the bottom line and balance conflicting interests among environmental, political and business decision makers.
Doug Jones is vice president of Forestry at Remsoft, the world’s leading provider of asset life cycle optimization solutions for land-based and infrastructure assets. Under Doug’s leadership, Remsoft’s Forestry Group continues to support customers and partners across the globe. Doug is also a former professional hockey player who played with teams in Sweden, Denmark and Italy.
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