For CFOs, Green Is the Color of Money

Finance chiefs are viewing environmental and sustainability efforts through a new prism: profiting from saving the planet.
Marie LeoneMarch 27, 2008

Sustainability issues are moving from a risk management focus to a revenue generation opportunity. That is, executives are moving away from a defensive posture, based on mitigating environmental cleanup, legal, and reputational risks, and taking the offensive, said several CFOs who addressed the topic at an industry meeting on Wednesday.

“Free trade is a prerequisite for a sustainable world,” said Dave Burritt, finance chief of Caterpillar Inc. “What should a CFO be doing differently — creating value for the planet’s need for sustainability … Think of sustainable development as a ‘show me the money’ opportunity,” noted Burritt, who spoke at “CFO2: The CFO Green Conference,” an event produced by CFO Enterprises, a sister company of this website.

Sustainability is a catch-all term used to describe the ways companies manage profits, people, and the environment to keep a business viable over the long term. Most executives will be “surprised at how quickly the tipping point has come,” added Lauralee Martin, CFO of real-estate company Jones Lang LaSalle. She emphasized that environmentally sound business practices are now a top priority of her clients, adding that, “I don’t care whether you call them clients or customers, they all represent revenue to me.”

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“Environmental stewardship is not an aside or add on,” commented Michael Monahan, CFO of Pitney Bowes Inc. “It’s part of our capital investment review … something we report on regularly to our board.” To be sure, Pitney Bowes has had a corporate responsibility committee in place, which reviews environmental and other sustainability efforts, since 1980. By Monahan’s lights, the value of sustainability efforts ripple through the company, affecting customers, the company’s operations and business results, and the mail services and technology industry as a whole.

For example, while Pitney Bowes works to reduce electricity and water consumption, and to cut down on waste production to run a more efficient operation, its consulting services unit provides tactics and strategies for improving the “carbon footprint” of its clients. Further, the company’s education campaign works to beat back misconceptions about mail and the environment. (Mail accounts for just 2 percent of the garbage in U.S. landfills, for example. And taking hot showers releases more carbon into the atmosphere than delivering the mail.)

However, it isn’t easy being green.

Martin says managing her company’s carbon footprint was a “nightmare…worse than the horrors of Sarbanes-Oxley.” A carbon footprint is the total amount of greenhouse gas emissions, such as carbon dioxide, created by an organization during a specific time period. Martin explained that, for the most part, Sarbox compliance efforts were relegated to departments that reported to her. Sarbox compliance “was our job; we used our systems, even if the rules were not in place at first.”

That’s not the case with managing the Jones Lang LaSalle’s carbon footprint because the real estate business is essentially just people and buildings, so daily operations are tied to two outsourced activities — travel and managing occupied space. Estimating, measuring, and managing a carbon footprint is difficult when basic business activities are out of the company’s direct control, said Martin.

What Jones Lang LaSalle can control, however, is generating revenue from a new product line built around sustainability. “We had to decide whether we were going to be accountants that reported on sustainability when it was all done … or whether we were going to be a finance [organization] and take a forward look,” asserted Martin.

Today, the company is in the business of green consulting, providing customers with sustainability strategies, energy management and procurement services, green property certifications, and new construction services. In 2007, Jones Lang LaSalle saved clients an aggregate $40 million in energy costs from the programs put in place to capitalize on the greening of the real estate industry. The added green revenue, which Martin categorizes as a “growth” area, has improved the business case for sustainability programs. “Green buildings are more attractive to buyers,” and therefore easier to sell, she tells investors when doing road shows. Nevertheless, Burritt and Martin maintain that investors are not driving sustainability efforts at their companies. In fact, investors are “silent” on the subject, noted Burritt.

What’s more, all three finance executives admitted they were still grappling with how to best measure the cost and time commitment invested in sustainability programs, but insisted that taking an offensive approach was the only strategy to follow. The time is over for making “apologies for the time and resources spent” on green programs, said Burritt, adding that the business case for sustainability has moved beyond corporate reputation, employee recruitment, and risk reduction, toward reward in price-to-earnings ratios. “It’s all about the money. It is a green story, a money story,” said Burritt.

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