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At the end of my 10-week fellowship with PHH Arval (PHH), as part of the Environmental Defense Fund's Climate Corps Fellowship program, I delivered a presentation to a roomful of the company's leadership team making recommendations on how the organization can capture business value by making investments in energy efficiency.While you would think I would be nervous making a pitch to high-level executives, as opposed to when I'm in my comfort zone presenting to my peers in the MBA program at George Washington University (GW Full-Time MBA Profile), I was surprisingly relaxed. The reason? I knew the numbers in my presentation speak for themselves.
The EDF Climate Corps program places trained MBA fellows into companies to capture unrealized financial and environmental gains through the identification and implementation of cost-effective energy-efficiency improvements. It's a program that combines consulting, organizational change, project management, sustainability, and finance into a 10-week package. I walked away with quantifiable results and the knowledge that I helped make a real difference for a company by directly helping it increase profits, while actively making a difference by combating climate change. I learned and developed my own skills and joined a network of other like-minded business students. In all honesty, I could not have asked for a better opportunity.
As an environmentalist, I'm proud that the projects I identified for PHH Arval will help reduce greenhouse gas emissions and take action to fight global warming. The aggregate total of the 20 energy-efficiency projects in lighting, heating and air-conditioning, office equipment, and data centers that I analyzed would reduce energy consumption by more than 3 million kilowatt-hours per year, the equivalent of the electricity used by 1,500 homes annually. It would also avoid nearly 1,600 metric tons of greenhouse gas emissions, which is the same as removing 1,300 SUVs from the road. I knew explaining the environmental benefits of my recommendations would not get them approved by a bottom-line-oriented CFO. Instead, I relied on my business acumen and presented the financial analysis in terms of net present value, rate of return, and payback period. The fact is that energy efficiency is not just responsible business; it's good business, period. The projects that I analyzed would reduce annual energy costs by about $374,000 per year. At a total cost of about $284,000, these investments would be paid back in only nine months and provide a return on investment of 131 percent. I knew investment opportunities like this would earn the approval of even the most conservative financial officer, particularly given these tough economic times.
How was I prepared? First, I was well-trained and had access to great resources. I began the EDF Climate Corps program with a weeklong crash course in energy efficiency at EDF's headquarters in New York City, where I heard from a variety of experts in the field, toured the efficiency measures being implemented at the Empire State Building, and was briefed on the methodology and tools developed by the diligent Climate Corps program coordinators after successfully organizing the program the past two years. Throughout the summer, I had frequent expert calls, access to case studies and white papers, and regular check-ins with Climate Corps project managers. But perhaps the best resource I had throughout the summer was my contact with, and the help of, 50 other Climate Corps fellows who were simultaneously working with other major companies to identify, analyze, and recommend energy-efficiency projects that make sense to them.
It's 11 p.m. on a Tuesday night, and I'm roaming the halls of the PHH Arval headquarters in Sparks, Md. Armed with a keycard that grants access to any room in the building, I'm on a mission to identify opportunities for my host company to reduce its electricity rates. I open the mailroom, and I see about 50 bright lighting fixtures illuminating an empty room. Occupancy sensors, I think. I head upstairs and notice that even though the only people still working are those on the cleaning crew, about 50 percent of computer monitors remain on. Computer power management software makes sense there. I enter the data center; it's freezing. The room is being cooled to a frigid 68 degrees. I learned that technical standards state that there is no risk to computing equipment at data center temperatures as high as 80 degrees, and there are obvious energy savings, at no up-front cost, that result from changing the temperature set-point.
How did I crunch the numbers? Here's an example: After identifying that occupancy sensors make sense, I contacted a lighting vendor and got a quote. The installation of sensors in all the conference rooms, bathrooms, offices, copy rooms, and other enclosed spaces in the 200,000-square-foot headquarters would cost $15,000. This is made up of materials, labor, and factors in a discount received in the form of a rebate from the utility company. The sensors automatically detect when the space is occupied through infrared or ultrasonic technology and turn lights off when the space is empty. Savings occur because of the reduced electricity consumption. To predict the savings, I estimated the reduction in hours that each space is lit, the total wattage of all lights being controlled, and the kilowatt-hour charge for electricity. In this example, it is determined that annual savings would be about $18,000. A basic financial analysis calculates a rate of return of 120 percent and a net present value of $105,000 (using 10 years of projected cash flows and an 8 percent discount rate), and this analysis is what I ultimately presented to company leadership.
Businesses can play a major part in solving the climate crisis in a manner that actually earns them money. It is the ultimate win-win situation, and quite frankly it is not happening quickly enough. McKinsey, in its July 2009 study Unlocking Energy Efficiency in the U.S. Economy, estimated that by 2020 the U.S. could reduce its annual energy consumption by 24 percent through energy-efficiency measures. That could cut greenhouse gas emissions by more than a gigaton—that's a billion tons—and save companies and consumers more than $1 trillion. Energy efficiency is doable right now, and I strongly advise any organization to dedicate resources to make it a top priority.
The goal of the EDF Climate Corps program is twofold: to deliver energy- and cost-savings to companies today, while developing tomorrow's business leaders. The first goal has been met and exceeded—participating host companies have saved billions of watts and millions of dollars. The aggregate potential net operational cost-savings of the 47 participating companies is more than $350 million over project lifetimes. The second goal, though less quantifiable, is also being met. From the experience I gained in the EDF Climate Corps program, coupled with the education from GW, I feel confident in my ability to responsibly lead a profitable business operation. Outside my own ambition, I know that I am not alone in this endeavor. It is evident that business students' interests are shifting from simply making money to making a difference.
Just one glance at Net Impact's Business as Unusual guide for 2010 shows that more and more business schools are incorporating content on social and environmental responsibility in their course offerings and extracurricular programs. I believe that both business schools and companies are getting it. After my experience this summer, I am confident that the business world is prepared to drive an effort to combat climate change because I learned that profit and the environment are not mutually exclusive.