Harvard Business Online
Finding the Capital to Go Green
Contrary to the popular misconception that going green is expensive, in a very large range of cases, environmental initiatives don't raise costs, they lower them—and fast. In operational areas such as facilities (heating, cooling, lighting), fleet, IT, and waste, leading companies continue to find large savings in shockingly simple actions, such as changing lighting or using outside air to cool a data center.
But even for the most head-slappingly obvious changes with super-fast paybacks, companies still need to find the capital to buy the new bulbs, optimize the HVAC system, or add auxiliary power units (APUs) to trucks. And even if one sees these initiatives as investments, not costs (which is the right way to look at it), there will still be competition for dollars. During a recession—heck, at any time—it's normal to struggle to get funds for even worthy projects. So what to do?
A few leading companies have hit on one incredibly simple solution to this problem—set aside funds for green priorities. I don't mean coming up with a new pool of money; just assign a percentage of the existing capital expenditure budget to green priorities.
In 2008, to find hidden gems of savings, DuPont set aside 1% of capital expenditures solely for energy-saving ideas. With $50MM of spending, the company found $50MM of savings per year—a one-year payback that keeps on giving. All projects still met the corporate hurdle rate, so there was no special dispensation besides making the money available for worthy initiatives managers had overlooked. Building products maker Owens Corning goes even further, dedicating 10% of capex to energy projects. This is a tool nearly anyone can use. Set aside the funds for green and you'll unleash a wave of creativity and short paybacks.
So if there are so many quick, high-ROI projects sitting around, why aren't companies jumping on them? Two big reasons. First, energy efficiency just hasn't seemed sexy. Dawn Rittenhouse, DuPont's director of sustainable development, told me, "If business units can invest in growth or energy efficiency projects, it's more glamorous to go after growth." But in tight times, saving money starts to feel a lot more exciting, doesn't it?
The second reason is the classic problem of the urgent versus the important. Most capital expenditures go to fix things that are already broken. But as Frank O'Brien-Bernini, Owens Corning's chief sustainability officer, puts it, "It's really about redefining what 'broken' means." Think about it: a process that wastes energy may not feel broken with oil at $40, or even $80, a barrel. But it may look like a money-eating disaster at $200 a barrel. In essence, when it comes to energy and resource efficiency, all companies are broken.
Of course reserving some funds could meet resistance. One of my clients pointed out that their capex budget is not one pool, but really a bunch of sub-budgets for different groups. A green set-aside would have to draw money from somebody's hard-fought budget. But DuPont only allocated 1% to great effect. So it doesn't necessarily take a giant land grab to make this operational and cultural shift happen.
So when people say you don't have the money to invest in green, show them that you do. The reality is that unless you're in liquidation, you have a capex budget, even if it shrank this year. You're spending money on things all the time; it's simply an issue of where you place your bets.
Take a piece of what you're already spending, point it in the right direction, and you will find enormous green savings to help survive these (still) hard times—and invest in the future.