An evolution in green IT is under way as it rounds the bend from a siloed cost-reduction strategy to an enabler of corporate responsibility and sustainability. In this next wave of green IT, smart companies are elevating green IT to the enterprise level and focusing on sustainability intelligence – the information in green IT – to help make strategic decisions.
In particular, companies are proactively leveraging sustainability intelligence to help them pursue tax and financial benefits as well as greater regulatory compliance.
Coordinated enterprise-wide sustainability intelligence is crucial for developing an effective tax platform at the inception of a project, potentially resulting in significant cost savings. A number of new and existing tax credits and incentives are aimed at expanding investment in sustainability initiatives and monitoring (i.e. energy consumption and GHG emissions).
Tax incentives may provide an organization with the financial impetus to jumpstart corporate responsibility and sustainability projects. For example, in the first wave of green IT (i.e. server consolidation, application rationalization, procurement of energy-efficient hardware) many state and local governments passed tax incentives to attract data centers, hoping to convert struggling regions into high-tech hubs.
At the same time, states became increasingly concerned about their own carbon footprint. In order to encourage sustainability practices, states began requesting sustainability-related metrics for project approvals, such as the power consumption per employee.
Organizations that capture and communicate sustainability-related information (particularly around energy efficiency, real estate, and carbon emissions) across their entire enterprise should be better positioned to capture potential tax savings and comply with new and upcoming regulations.
More recently, the American Recovery and Reinvestment Act of 2009 extended and expanded energy incentives that could improve the financial business case of sustainability projects. The new act provides a thirty percent investment tax credit to projects related to reducing greenhouse gas emissions with a particular focus on energy efficiency as well as renewable energy and green manufacturing projects.
Additionally, the act provides investment tax credits and grants rather than production tax credits, which could improve the financial business case of many projects. Beyond the American Recovery and Reinvestment Act, there are numerous federal and state tax incentives for green buildings and jobs, such as energy efficiency incentives that support Leadership in Energy and Environmental Design (LEED) certification.
Companies must coordinate information sharing across the organization to produce required reporting information, help pursue the benefits from the new and existing tax incentives, and help manage risks associated with increasing regulations around climate change disclosure.
To that point, tax planning and processes depend on capturing tax-relevant source data. As companies develop their sustainability intelligence infrastructure, they will need to consider tax data requirements across the entire organization.
The analysis should include a process for managing financial, supply chain, energy utilization, carbon emissions and sales data with enough detail to support the tax benefit sought.
Additionally, companies should be able to improve efficiency and compliance by standardizing and automating the data collection process. A standard approach to data governance can manage risk and potentially improve an organization’s ability to achieve tax benefits. Benefits from a strong sustainability intelligence strategy may potentially include:
- Improved financial performance through tax efficiency;
- Improved ability to subsidize sustainability initiatives with tax savings;
- Improved after-tax cash flows from sustainability practices and investments.
The longer companies wait to operate in the new low carbon economy, the more they risk incurring financial penalties should any form of a carbon tax or cap and trade program become a reality. They also risk missing out on the many new business opportunities that are likely to accompany a sustainability-driven market rebound.
So what are the next steps companies should consider taking to capitalize on—rather than catch up with—the next wave of green IT?
To begin, IT must get control of the carbon it is producing, if it hasn’t done so already. This includes developing an understanding of the underlying metrics and key performance indicators (KPIs) required to calculate its carbon impact. The goal should be to leverage the IT organization to help the business understand its sustainability performance and drive improvements.
Laying out a strong sustainability intelligence framework can help enable smart companies to take advantage of the new administration’s financially incentivized commitment to climate change policy, while transforming vast amounts of sustainability related data into information of strategic business value to help build better, more sustainable enterprises.
Forward thinking companies understand that improving enterprise sustainability, while simultaneously improving the bottom line, requires multidisciplinary experience, knowledge, and skills across strategy and operations, risk management, tax, accounting, and IT strategy and implementation. It is a significant effort, but one that is increasingly becoming a necessity if companies want to stay competitive in the marketplace.