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Show Me the Money: Sustainability in the Mid-Market

The business case for sustainability is compelling ― even for companies tightening purse strings.

The enthusiasm over sustainability is easy to understand. According to a white paper by consulting firm McKinsey & Co. titled “Unlocking energy efficiency in the US economy,” energy efficiency measures could save the U.S. economy up to $1.2 trillion by 2020. Progress is already being made. Blue-chip multinational corporate names, such as Bloomberg, eBay, McDonald’s, Pepsi and Target, have been working with the Environmental Defense Fund (EDF), a U.S. nonprofit organization, as part of its Climate Corps program, to identify 1.6 billion kilowatt hours of energy savings that would eliminate 1 million metric tons of air pollution over the past four years. 

Key Takeaways
  • Sustainability is more than just numbers. It’s about good, responsible business that takes into account a company’s reputation, shareholders and customers.

  • Often, sustainability initiatives don’t require a huge capital outlay. Instead, look for ways to inspire employees to make small adjustments that add up.

  • Looking beyond the company for ideas ― to suppliers, distributors and customers ― can generate big wins.

However, forward-looking companies such as these know that sustainability amounts to far more than statistics, notes Robert L. Corcoran, vice president of corporate citizenship at General Electric, which is also an EDF ally. “What is your company’s reputation worth?” he asks. “What is your shareholder base worth? What is your customer base worth? This is about good, responsible business.”

In pursuit of a payback

Despite the progress, however, experts say something is amiss. All told, “there is still concern that some companies don’t actually walk the talk,” and that many corporate sustainability efforts are getting stuck, observes Ann R. Klee, head of GE’s global environmental, health and safety programs.

A paper published by EDF in July 2011 titled “Show Me the Money,” noted that “companies often see a host of barriers standing in the way of these cost savings and associated greenhouse gas emissions reductions being realized.” Among the obstacles: High upfront capital costs, long payback periods, uncertainty of savings and perceptions of risk. All that is happening at a time when companies are facing a tough economic environment in which short-term survival pressures are squeezing resources as never before.

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The paper also observed how industrial companies retrofitting their sites require rapid positive returns on investments, and it cited research finding that approximately half of the executives and managers surveyed required energy efficiency projects to have payback periods of less than three years.

While sustainability programs can save a company money and keep it “ahead of the regulatory curve,” says Klee, there’s another pivotal benefit: The boost to a company’s overall reputation among all stakeholders. “I would argue sustainability is the single-most important factor in enhancing that asset. You obviously need to have really good products at the right price points, but if you are the company [producing and selling] those products in the most sustainable way, increasing [your profile] with the market, that’s a huge ― yet hard to quantify ― benefit.”

Treasure hunts and cost savings

The good news is that achieving those benefits doesn’t have to cost a lot. In fact, sometimes it just involves finding new ways to inspire individual action on a local level. At GE, for example, “we initially thought it was about these big capital projects, like putting solar panels on roofs. And we did some of that,” says Corcoran, who is also president and chairman of the GE Foundation.

But other initiatives quickly saved, rather than cost, the company money. At a number of its facilities, GE began rolling out resource usage “treasure hunts,” enlisting cross-functional teams that visited sites on weekends and identified unnecessary energy consumption, like machines that are left on round-the-clock, seven days a week, but actually only need to run three days a week. That detailed exercise has saved GE $150 million so far.

“The thing about sustainability is that you can tailor it to the needs of the company. There’s a lot you can do if you’re a 10-person shop, or a 100- or 5,000-person company.”

And it’s straightforward to replicate, regardless of the size of a company or site. For example, with the help of EDF, IUE-CWA, a 45,000-member U.S. labor union whose members are based at more than 300 factories nationwide, ran a pilot treasure hunt of its own at a manufacturing plant, which identified $70,000 in annual savings (20% of current energy costs) and more than 700 metric tons of carbon reduction (20% of carbon emissions) through better use of lighting, equipment and the like.

Mid-sized companies are key

Even for CFOs tightening their companies’ purse strings, the business case for sustainability is compelling. “Any company, proportionally speaking, has the resources to devote to this exercise,” notes Robert Giegengack, an emeritus professor in the University of Pennsylvania’s department of earth and environmental science and an advisory committee member of the University’s Initiative for Global Environmental Leadership.

Klee agrees. “The thing about sustainability is that you can tailor it to the needs of the company. There’s a lot you can do if you’re a 10-person shop, or a 100- or 5,000-person company.” And while mid-size companies might not have the same economies of scale, “in many respects, they are the key to sustaining sustainability,” she notes. “I suspect they are going to be driving innovation in sustainability, because they will have an energized workforce and they are the link between consumers and big companies like GE.”

Listening to customers can help generate big wins, and even set new sector-changing trends. In his book, The Future of Value: How Sustainability Creates Value Through Competitive Differentiation, Eric Lowitt includes Monadnock Paper Mills, a mid-sized, New Hampshire-based firm, among his list of “Sustainable Market Leaders.” One reason: In 2007, the firm joined forces with another company, NexGen Packaging, to develop a Forest Stewardship Council-certified commercial printing paper, which eventually helped it become retailer Gap’s primary supplier of clothing tags. Already known in the industry for its eco-friendly manufacturing, that innovation “sent its peers racing to step up their green certification efforts,” wrote Lewitt.

Whatever the size, companies most of all need a clear vision from the start ― and throughout the company ― of what sustainability can achieve. “The direction and support have to come from the top, but it’s got to be driven from the bottom, at every level,” says Klee. “If you empower your employees, they are going to come up with the ideas. Eighty percent of people turn off lights when they’re not in a room at home; only 20% do the same thing at work because they don’t feel empowered to identify and fix problems. Those little things add up.”

This article is a collaboration between GE Capital, Americas and Knowledge@Wharton, the online research and analysis journal of the Wharton School of the University of Pennsylvania.