Sustainability is all the rage as many significantly-sized companies are evaluating it to maximize economic benefits and seeing how it can fit into company plans. We in the environmental community believe that sustainability programs almost always deliver a good return on investment (ROI) because of the long-term economic benefits of reducing waste, water, energy use, etc. Once a system is changed, it won’t be returned to the old way; therefore, the savings continue far into the future. However, some C-Suite executives claim that sustainability projects do not have an acceptable ROI. Why the disconnect over the same numbers? How can the CFO’s ROI calculations be more severe than those of the EH&S Director?
Remember that ROI is a ratio of returns of a project to total invested cost. An ROI may not appear good because a company’s total invested cost in a project or overall program is made mainly early in the process, while the benefits – the time it takes to recover the invested money before the return is made – may be years in the future. Some companies’ ROI calculations take the timing of invested and recovered monies (such as different worths of current and future money) more strongly into consideration. This argument of a poor ROI can be countered by emphasizing the long-term gains that will continue well into the future, once the effort or technology is in place, savings will continue without additional efforts for a long time. In fact, in the energy and water realms, annual cost savings should increase as the unit costs for fuel, electricity, water, etc. are expected to rise sharply in the future.
Another disconnect is indirect monetary returns. The CFO may not recognize that sustainable projects produce many indirect monetary returns, such as fewer compliance fines, enhanced consumer feelings toward the company, improved employee health and productivity, and reduced employee turnover. How do these real factors get quantified in a traditional ROI calculation? Perhaps not at all. In emphasizing the benefits of a sustainability program, the EH&S Director needs to bring to the attention of the CFO these hard-to-estimate, but real benefits which have positive financial impacts.
Some company C-Suiters take risk into consideration when calculating ROI. If the strategies and technologies necessary for a sustainability project are considered unproven, then this may be factored into the calculations negatively. The EH&S Director can point out that sustainability is really “common sense” projects and “smart” usage of resources which at various times have been and will be scarce and expensive. Let the C-Suiters know that the company has likely already done many “smart” projects in the past to optimize resource usage. This is nothing new. In fact, with the growing world population (just reaching the 7 billion mark), clean water and energy may be harder to find for many far-flung plants. Sustainability is also diversifying sources. Therefore, doing nothing about new sources of energy, water, etc. may be the riskier proposition.
The same thing goes with the benefits of a sustainability program. Sustainability projects that reduce business risk (i.e., improve access to diversified sources of energy and water, reduce impacts of climate change-related actions, such as severe storms, etc.) should be recognized and credited in the ROI calculations.
CCES experts can help your company develop smart strategies for a sustainability program and for projects that maximize your company’s financial benefits and acceptance.
Marc Karell is the owner of Climate Change & Environmental Services. Read more useful material in the company’s blog: www.CCESworld.com/blog. CCES has the technical knowledge and real life experience to help all kinds of firms set up “green”, climate change, and sustainability programs that result in many of the benefits listed here. We can help you organize your program, as well as gain the maximum financial benefits possible. And we can help you get the most publicity out of the program results and train you to run your own program independently in the future.