Sustainability Can Be a Generator of ROI

Measuring sustainability

Sustainability seeks to provide the best outcomes for the human and natural environments, both now and into the indefinite future, according to one definition.  For this purpose in a business, it is the ability of the business to minimize the environmental impact of operations.  The major opportunity for many businesses is to minimize the consumption of resources. Many entrepreneurs will only invest in sustainability projects where there is a return on the specific project that is being considered. This strategy usually results in missing the greater opportunities derived from overall sustainability.

There are many ways to demonstrate to your staff a positive perspective towards overall sustainability; to encourage and motivate them to save resources that will show a bottom line benefit. Companies “that start down the road of improving their environmental performance, tend to maintain it because they see the business value in doing so.” (Five Steps to a Greener Business by Mel Wilson, Associate Partner, PricewaterhouseCoopers).

The first challenge is to be in a position to measure where there is a benefit so that any rewards can be assessed and compared to the costs. After all, it is not possible to compute a return on investment (ROI) if you do not measure the benefits.  It goes without saying, that if you do not track costs and consumption factors you will not become aware of the opportunities to save on these expenses.  Measurement builds awareness and regular reporting allows staff to look at the opportunities that they may otherwise not consider.  Implementing this strategy or protocol generates a new perspective for employees – that the organization is serious about sustainability.

In order to establish a “base line,” it is important that measuring the use of resources be the first step in a project, so that any improvements can be measured.  As reporting improvements is critical to the success and ongoing support for sustainability projects, it is very detrimental if you only start measuring once the project has commenced – you may miss the first step in the benefits.  As I believe that in many cases awareness is a critical factor in motivating savings, this can miss a very significant change in consumption.

Overlooked opportunities are easy to miss if you do not have a basis to notice an unusual change in your consumption.

Example 1

Consider my client’s recent experience. Water consumption escalated dramatically due to a broken underground pipe, which literally resulted in water “pouring down the drain.” Most businesses may not notice several thousand dollars being wasted in this way until a comparison of utility bills at a much later date is conducted. My client’s sustainability exercise (of measuring water consumption on an ongoing basis) provided them with valuable data – that water consumption had spiked allowing them to find the source of wastage, fix the problem and save considerable unnecessary expenditure.

Example 2

A business had a faulty hydro meter reading resulting in tens of thousands of dollars in erroneous billings that many companies would have paid without question if they had not been monitoring their consumption.  After due investigation, the error was corrected by the utility.

As a financial type, I find that most measures that achieve a sustainable end usually involve a simple saving of consumption thereby reducing the costs of the business.  The key question is, ‘How do you change your staff’s attitude to finding small savings without branding the business owners as penny pinchers?’  The answer lies in sustainability.  In these harsh economic times, looking for small savings for the purposes of sustainability is fashionable and smart, especially when significant savings can be spent on worthwhile projects or keep more staff employed.

So what should most businesses start measuring and reporting on in order to get staff thinking about savings…oops! sustainability?  I would suggest that the following are a few that will apply to many businesses

• Hydro, gas and water – measure the volume consumed and $ cost of each;
• Gasoline for autos and/or trucks – measure the volume consumed and $ cost of each;
• Calculate the average l/100km for each of autos and delivery vehicles;
• Number of plane trips;
• Distance travelled on plane trips;
• Carbon offset expenditures;
• Total sheets of paper purchased (printed and for photocopying) and the $ cost;
• Contributions to charities, i.e., donations – by both the business and amounts raised by staff;
• Savings on employee turnover and recruitment costs (recruitment costs should be both the hard amounts spent on recruitment fees, advertising, etc. as well as the internal costs of a portion of your HR department and also a constant factor applied to account for the losses due to turnover);
• What else is significant and specific to your business?

Isolate and report all costs incurred or increased in the sustainability process, such as increased costs due to use of recycled paper, vegetable inks, use of more sustainable machinery and equipment, retrofitting facilities, branding costs, etc.

How will you encourage staff to conduct business in a more sustainable way? Will you reward ideas that contribute to the company’s sustainability?  A client, after measuring fuel consumption of drivers in its delivery fleet, introduced a competition with prizes for the drivers who reduced their average consumption. The direct savings were very significant and the image of the company as a sustainable business was significantly improved, both amongst staff and customers.

Once you’ve identified your sustainability program, it should not be difficult to compute your return on investment.  However, some benefits (and costs) are very difficult to measure, so calculate a conservative estimate.  Don’t let the difficulty of obtaining accurate data deter you from starting the exercise. Not only will your company’s bottom line benefit, but the intangible benefits – the potential team work and positive feeling that you and your staff are doing something “right for the planet”  is a great reason to begin your sustainability program right now!

About the Author: James Phillipson, Principal, Mastermind Solutions Inc.

James Phillipson is a Chartered Accountant who provides strategic financial management skills to small and medium sized businesses (SMEs). For the last twenty-five years he has helped companies use financial systems and processes to grow their business. Often that includes coaching the Accounting department staff.

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