Archive for June, 2012

June 11, 2012

What is Sustainability ROI?

Scott Lewis, Brightworks CEOBy Scott Lewis

 Brightworks CEO

Sustainability provides a rich investment opportunity for any organization – business, NGO or public agency. However, conventional approaches to comparing investment options may under-represent the value of sustainability efforts, and therefore lead to underinvestment, missed value creation opportunity and increased risk. By expanding outdated notions and definitions of the “returns” from investment options, CFOs, business leaders and managers of public or non-profit organizations can make more prudent and strategic decisions regarding sustainability opportunities.

The standard measure for the risk-adjusted opportunity of an investment is a simple equation: the benefit or “gain” of the investment divided by the initial cost – referred to as “return on investment.” Put $100 into a project, get $140 back, divide the gain ($40) by the initial investment, and voila – a 40 percent ROI.

While expected ROI is widely used by investors, our focus here is on investment decisions made by CFOs and business managers inside organizations about where to allocate their internal resources to achieve their goals.

From Conventional ROI to SROI

To illustrate the problem with the standard ROI analysis, consider the following example: You’re deciding whether to invest in an energy upgrade project that includes switching out inefficient incandescent lights with more energy efficient T-5 fluorescent lamps, replacing some overhead lighting with task lighting at workstations, and adding natural ventilation and daylighting to the space to save air conditioning and lighting costs.  Suppose the initial or “first cost” of the upgrade is $100,000, and you get $15,000 annual energy savings: a 15 percent ROI.  If that payback seems low or there is a competing use for those funds that would have an 18 percent ROI, the energy upgrade wouldn’t be worth the investment.  But is that really the whole picture?

Fluorescent Lights in an Office

Image via Renewable Energy News


The problem with the standard ROI analysis is that it overlooks some of the potential benefits of the sustainability investment, and therefore undervalues the possible outcome. The first question in doing a Sustainability ROI analysis is, “Did we really look at all the financial costs and benefits of the project?”  The first place to look for additional financial benefits is in the area of Life Cycle Cost Analysis, or LCCA.  Did your analysis take into account the fact that the new T5 lights last for 5 years, yet the incandescent lamps they were replacing only last for a year?  Did it measure the dollars spent paying maintenance staff to climb a ladder and replace each incandescent bulb each year?  Did the analysis uncover the fact that the T5’s produce considerably less heat than the incandescents?  In a building where you run air conditioning for 68 percent of the year, the cooler T5’s save you money again.

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June 7, 2012

Redefining ROI for your Existing Building

Eric Baxter, Brightworks Sustainability Advisorby Eric Baxter, Director of Existing Buildings

A recent article on FacilitiesNet.com features six steps to move a building and a team through a LEED for Existing Buildings Operations & Maintenance (LEED EBOM) certification process. If you’re a building owner or manager, I encourage you to carefully consider each step when embarking on LEED EBOM. Before you do, however, consider one other critical piece — think of it as “Step Zero.”

As consulting firm that has worked on numerous LEED EBOM projects since the first pilot rating system was introduced in 2002, Brightworks has seen many project teams successfully execute an EBOM program for their facility. We have also seen a few project teams fail. In some cases it was an inability to follow through on the six recommendations in the article.

In other cases, they had overlooked Step Zero: understanding and agreeing on their organization’s motivations and value proposition for undertaking the EBOM journey, implementing this rigorous program and seeking this type of certification.

This step is a critical part of our work with clients, and something we’ll cover at our session at the BOMA Every Building Conference and Expo in Seattle in June. Without a clear, circumspect analysis of this critical piece before starting any kind of existing building sustainability program, the project team will be challenged to focus on the proper critical path items, budget appropriate funds to move forward and get buy-in from essential team members. Falling short in any of these areas can cause a project to lose its way and ultimately fail to earn a certification.

Common LEED EBOM Motivations

Considering Step Zero gets the project on track from the start. There are many motivations for undertaking the LEED EBOM journey and submitting your building for  certification. Here are a few that might point you in the right direction:

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June 1, 2012

The Human Investment

Nate Young, Education Coordinator, Brightworksby Nate Young

Education Coordinator

The most valuable assets of a 20th-century company were its production equipment. The most valuable asset of a 21st-century institution, whether business or non-business, will be its knowledge workers and their productivity.

– Peter Drucker 1999

No company can succeed without investing in its most important assets. Yet the challenge, as Peter Drucker points out, is recognizing what’s most important. Many modern organizations hold a vast network of “human resources” that are in essence dying on the vine due to a lack of ongoing investment, especially in the area of sustainability training and development. Fortunately, as leading companies are demonstrating, engaging and investing in employees isn’t a charitable effort – it pays dividends of higher company profits and more effective sustainability programs.

Accounting for human resources

To hear Paul Herman of HIP Investor tell it, many companies avoid investing in their employees on a regular basis – possibly due, in part, to a limitation in U.S. accounting standards. You see, employees are not considered an asset, according to the Generally Accepted Accounting Principles (GAAP), the standards by which American corporations develop their financial statements. Employees only show up as salary costs (Expenses on the Income Statement) and possibly as pension costs (Liabilities on the Balance Sheet).

The GAAP requirements can be overcome (Infosys, for instance reports their human resource valuation each year), but these structures tend to reinforce management’s 20th Century views of what are “investments or assets” versus “expenses or liabilities.” Like me, you’ve probably heard the phrase “our employees are our greatest asset” more than a few times. Even if we can’t show it properly on financial statements, why don’t we act like we mean it? Clearly, investing in infrastructure is believed to pay benefits, so why don’t we feel the same about our employees?

Our employees are our greatest asset

The people have spoken…via google search.

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