Risk Management

Staples CFO: Going Green Means Saving Green

Switching from using three-amp to two-amp lightbulbs, for instance, adds $4.2 million to the company's bottom line.
David McCannApril 1, 2009

Companies that have not done much work on “green” initiatives will likely get going now because of their declining business fortunes. So said John Mahoney, finance chief of Staples, at the CFO Green Conference yesterday in New York.

Do sustainability efforts save money? The question of whether that’s the case or whether such practices cost more than they’re worth has long been answered, conference speakers asserted. “We’ve seen over and over again that companies can find ways to benefit both the environment and their bottom lines,” said Gwen Ruta, vice president of corporate partnerships for the Environmental Defense Fund.

A vast assortment of green practices have had a clear impact on the financial performance at Staples, according to Mahoney.

“While the economy is reeling today, we can afford to maintain our sustainability programs because of their measurable impact on our financial performance,” he said. “I think the economic environment is going to really represent a turning point for many companies in thinking about how sustainability works.”

Staples, though, does not know exactly how much money it saves by being green, Mahoney said in response to a CFO.com question following his session. The company has an environmental department led by a senior executive, and it must deliver measurable benefits that are a multiple of the department’s cost. But the company does not track all the activities at its 2,000-plus stores. “That is difficult to measure, and it’s just part of [the store managers’] jobs,” he said.

He did, during the session, provide several examples of measured cost savings. In 2008, the company switched from using three-amp lightbulbs to two-amp bulbs. That single change was the key factor in a $6.2 million reduction in energy costs, $4.2 million of which fell to the bottom line after subtracting the costs of running the program.

(Not everyone was in tune with the program. One store manager, after receiving the new energy-efficient bulbs, “put them on an endcap and sold them,” Mahoney said, referring to the display hub at the end of a store aisle.)

Staples also is saving 540,000 gallons of diesel fuel per year after modifying its trucks so that they can’t go more than 60 miles per hour. That saves $1.5 million. “When diesel prices spiked we were able to offset about 80% of the increase just through this program,” Mahoney said.

And the company has 24 rooftop solar panels that collectively save “hundreds of thousands of dollars” with virtually no capital investment by Staples, thanks to tax credits for such installations.

Mahoney also mentioned some large-scale programs that would seem to have significant savings attached, though he did not quantify them.

An effort to get customers to recycle printer and toner ink cartridges began in 2005, when customers turned in 5 million such items to be refilled for sale. The carrot was $1 per item, paid in Staples Rewards points. In 2007, 22 million cartridges were recycled. This  January Staples hiked the payout to $3 per cartridge, and is on a pace to recycle more than 50 million of them in 2009, according to Mahoney.

Interestingly, that program originated in an initiative by a store manager in Oklahoma, who was looking to make some money to donate to local schools systems with budget shortfalls, and not specifically to help the environment. The energy-reduction program also began, Mahoney said, as a cost-cutting initiative rather than a green one. “One by one people started to see that the two could go hand in hand,” he said.

A cornerstone of Staples’s environmental program is selling paper products containing a high amount of recycled material, which also are used in the company’s 1,400 copy and print centers. This began with an intense lobbying effort by a group of non-governmental organizations back in 2000. In fact, they did more than lobby; for two years, while the company took its time figuring out how to respond, activists chained themselves to racks in Staples stores and the NGOs did things like issue baseball cards showing the company’s CEO with the moniker “MVP of Forest Destruction.”

Today Staples sells more than 2,200 paper products with recycled content, and the effort does not end with paper. For example, Staples-branded office furniture includes recycled steel, and binders and organizers use recycled plastic.

These products not only are cost-efficient and green, they also stimulate customer loyalty, Mahoney claimed. “We find that when these products are made with high quality and priced right, [their environmental friendliness] becomes the tipping point for customers in deciding what they’re going to buy,” he said.

Few customers, though, will buy products solely for their green impact. When Staples first opened stores in Seattle, it figured that the city’s youngish, famously hip population would “go for green products like crazy,” Mahoney said. “But we found that they didn’t buy them more than anybody else in the country. The market for people who either are willing to pay more for or absolutely demand green products, just because of the sustainability issue, is very small.”

Green Partnerships

Ruta, meanwhile, gave a rundown of cost-saving measures by some of the companies that the Environmental Defense Fund has worked with on green initiatives.

One of the organization’s newest partnerships is with Kohlberg Kravis Roberts & Co., the big private equity firm. “Nobody is as focused on cost savings as KKR, and yet without hard looking we were able to find some savings, and they’re excited and in search of others,” Ruta said.

The pilot phase of the partnership, results of which were announced in Februrary, involved making just a few changes at a few of KKR’s portfolio companies. These produced savings of 25,000 metric tons of greenhouse gas emission reductions and 650 tons of solid waste, which generated a $16 million reduction in operating costs. “It was enough to get the attention of portfolio managers at KKR, and now we have a schedule of bringing three or four companies into the program each quarter,” Ruta said.

One of the fund’s most successful partnerships has been with Wal-Mart. One recently completed initiative involved switching from diluted laundry detergent — a little soap and a lot of water in a big jug — to a more concentrated product in a much smaller container. This single change, according to Ruta, produced savings of $30 million in labor costs, 150 million gallons of water, 7 million gallons of fuel, and 30 million pounds of plastic resin, as well as a 50% out-of-stock reduction.

Such large savings are a result, of course, of Wal-Mart’s size. But there’s also a spillover effect to other businesses. Wal-Mart sells more detergent in the United States by far than any other company, so detergent manufacturers acceded to its demand for the new production specifications, and are now distributing the smaller soap containers throughout the whole retail industry.

Another Wal-Mart program involved Minute Maid orange juice. The juice formerly was made at a factory in Florida, shipped to Minute Maid warehouses around the country, then to Wal-Mart distribution centers, and from there to Wal-Mart stores. The companies agreed to skip the stopover at the juice company’s warehouses and ship the product directly to the retailer’s distribution centers. That change took a million miles off the total shipping distance traveled, saving 140,000 gallons of fuel and reducing carbon dioxide emissions by 1,500 tons.

Ruta also told of a fleet management program in which Owens Corning eliminated its least-efficient vehicles, right-sized its SUVs and trucks, and incorporated more four-cylinder vehicles into the fleet. These changes cut greenhouse gas emissions by 16%, boosted fleet fuel economy by 18%, and decreased fleet operating costs by 8%.

The Environmental Defense Fund, meanwhile, last summer started Climate Corps, an internship program for MBA students between their first and second years. They get “boot camp training in building energy efficiency and financial analysis,” and are placed in companies to help develop energy-savings programs. In the first year the seven students in the program generated an aggregate $35 million in operational savings that will be spread over the next five years, and saved 120 million kilowatt hours (enough to power 10,000 homes for a year) and 57,000 tons of greenhouse gas emissions (equal to taking 7,000 SUVs off the road). For this year, EDF expects to increase the program to 20 students.

“This was all done in California, which has already done more than any other state in energy efficiency,” Ruta said, adding that companies that have implemented energy-reduction programs and other green initiatives should take second, third, and fourth looks at savings possibilities.

“There’s always more you can find,” she said. “We’re even continuing to find improvements in our own operations” at the Environmental Defense Fund. “It’s not rocket science — it is looking at your operations through a new lens, finding efficiencies, and keeping track of the cost benefits.”