Thursday, March 13, 2008

Sustainability and the Triple Bottom Line

The “triple bottom line” concept is gathering momentum especially among publicly-traded companies. In broad terms, it describes a corporate effort to focus on more than just financial results. We all understand the bottom line to mean “money,” but for a variety of reasons, businesses are forced to recognize their environmental and social impacts as well. The sustainable business model is one that optimizes financial, environmental, and social performance all at once.

As you might suspect, there are plenty of business arguments about the merits of focusing on any outcome other than the creation of wealth. Nevertheless, businesses are actively managing the scrutiny imposed by consumers, shareholders, boards of directors, and other observers who are increasingly likely to challenge business operations that impose negative social or environmental impacts. Complaints against business encompass anything from unfair labor practices through the environmental impact of industrial waste handling. When a business “does good by doing no bad,” it is minimizing certain costs while offsetting the risk of business lost due to adverse publicity. In the end, the triple bottom line still comes down to money.

Forward-thinking corporations are protecting themselves by demonstrating their social and environmental stewardship. Many companies simply offer the public a sustainable business vision statement. But at some point, words must be followed by action. The challenge to corporations is to pursue sustainability in a way that provides an economic return on the time and money that they invest in this effort.

Energy cost control is high on the list of sustainable business opportunities. Why? Because of all the measures a company can take to demonstrate its social and environmental credentials, energy improvements are best able to pay for themselves—and in the end, create more income. When a business pursues energy improvements, they will:

1. Improve the “money” bottom line. Energy consumption is reduced as waste is eliminated. This allows a company to buy less energy. Those savings translate, dollar for dollar, to operating income. At the very least, those savings can be used to generate investment income. Another option is to reinvest the savings in the business in ways that create new revenue opportunities.

2. Improve the “environmental” bottom line. As energy waste is eliminated, the emissions from fossil fuels such as coal, oil, and natural gas are reduced proportionately. While these fuels are used in many industrial processes, they are also used for space and water heating. Even if your business is not industrial, or if does not use fossil fuels, it still uses electricity. Electricity is generated from a mix of fuel sources, including fossil fuels (notably coal). By turning on a light fixture or other electric appliance, a business is ultimately causing the combustion of fossil fuels. Carbon and other emissions from fossil fuels are the focus of environmental concerns. So even though your company is not in the business of generating electricity, it still has a direct, causal link to the amount of fossil fuel emissions released during the generation of electricity.

3. Improve the “social” bottom line. Anyone who uses electricity places demands on the national power grid; anyone who avoids energy waste removes stress from that grid. The U.S. infrastructure for power generation and distribution is operating at capacity, and much of that capacity is in need of updating. The investment needed to meet future power demand is enormous. Business and industry represent a large share of power demand (and the potential for waste reduction). Reducing waste means keeping investment in electricity infrastructure to the minimum that is needed—and no more. The alternative is to live with energy waste—which means inflating investment in power capacity so that we can feed that waste. Anyone who doesn’t generate electricity in their own backyard is forced to pay for investment in the national power grid. Cutting energy waste means not only savings on your energy bill, but ensuring that society’s investment capital is not wasted on power capacity that can be avoided. How’s that for social responsibility?

Returns to the triple bottom line—economics, society, and the environment—await corporations that adopt a sustainable business model. Energy improvements can be the vanguard of that effort.



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