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Four Reasons Why CFOs Need a Plan for Energy Efficiency

emissions-6Increasing energy prices, the hidden cost of carbon, growing risks from energy supply disruption and climate-change compliance issues are four key reasons why finance executives need a multi-year efficiency strategy to maximize costs savings, meet carbon reduction goals and make financial decisions based on total cost of ownership, according to a Verdantix study.

A key finding of the report indicates that the energy-efficiency plan should include investments with a short payback period, such as installing lighting controls, in combination with larger energy efficiency projects such as voltage power optimization that deliver bigger cash and carbon savings, reports Green Economy Post.

The report, “The Energy Efficiency Imperative: Why CFOs Need a Financial Strategy for Energy and Carbon,” indicates that rising energy costs, price volatility and carbon compliance risks have made energy efficiency an important strategy again. In addition, energy management is also becoming a boardroom compliance issue due to growing regulations. For example, the climate bill passed by the House in June calls for a 17 percent carbon emissions reduction by 2020, and includes a cap and trade system for carbon emissions.

Analysts also recommend that CFOs need to comply with investor demands for transparency on exposure to carbon costs, which means finance teams will need to include the cost of carbon in their financial plans and forecasts, according to the article.

As an example, the U.S. Securities and Exchange Commission issued new climate change disclosure guidance in February, which requires businesses to report on how climate change will impact their businesses.

Another major finding shows that energy efficiency tops the action list to deal with financial issues because it impacts across several areas: cost reduction, energy price risk mitigation and alignment with sustainability goals.

To address the issue, the report suggests that CFOs include an analysis of total cost of ownership of energy consuming assets, not just replacement costs, process re-engineering and alignment of procurement and efficiency objectives, according to the article.

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