With oil prices rising again and the nuclear energy industry taking it on the chin from the disaster in Japan, it’s more important than ever that executives internalize the idea that every company is an energy company. Those that attend to the long-term energy needs of their companies will gain an edge over those that don’t.
The following essay was written for Forbes by Nick Main and Joseph Stanislaw. Main is Deloitte’s Global Managing Director for Sustainability & Climate Change Services. Stanislaw is an Independent Senior Advisor to Deloitte’s Energy & Sustainability practice and is also the founder of the advisory firm JAStanislaw Group, LLC.
Every company is an energy company. And if it isn’t, it will be soon. A decade from now, a company without an energy and sustainability department could be as unusual as one without a human resources department. Or, it might be out of business.
Energy consumes a significant portion of an enterprise’s spending, accounting for 5-20 percent of a typical company’s costs. Yet, many organizations have a poor understanding of their energy consumption and how to reduce it. Their unawareness of how they consume energy is analogous to an individual paying for a grocery cart full of food at the supermarket, but without knowing what is in the cart or how much any individual item in the cart costs. This is not a successful way to operate in a period when costs for various products and services are likely to escalate.
There’s no reason for companies to wait a decade – or even a year – to move toward an energy strategy. The sooner companies begin to understand and actively manage their energy use and energy sources, including possible ways to produce their own energy, the faster they’ll see the potential for a number of advantages including significant savings, a better bottom line, greater customer loyalty, a cost-edge over competitors, lower business risk and a company-wide awareness of sustainability that can rein in resource waste across the board.
Starting over: a strategy for energy
Every company has a business strategy, a risk strategy, a strategy for growing markets, for managing human resources and so forth. But many companies do not yet have an energy strategy, let alone broader sustainability strategies to manage the use of water, land, and other resources.
The idea of energy management is not new. What is new is to include the potential to think of the company as an energy producer as well. Companies can analyze the potential to produce their own energy – from using their rooftops for solar, to land for windmills, to geothermal and to microturbines and other distributed forms of production. The potential benefits of active energy production are not just financial, though the bottom-line effect is the one that may motivate the board of directors and the management team.
Developing an energy strategy should be cast as a positive initiative that can improve the bottom line of a company and the broader community—not as a bare-minimum attempt at conservation. This is not about green-washing. Energy and sustainability strategies are about hard-core business decisions and going back to the basics of managing resources and resource use. Falling short may mean limiting profitability and could jeopardize the long-term health of the business.
The opportunities for sustainable energy strategies are everywhere, beginning with the design of buildings, to construction processes, to insulation, the HVAC system, the lights, the water, the elevators, the power and cooling for technology, the heating and cooling for people.
The post-oil era is further away than it seems – and the road will be bumpy
Cost savings, customer loyalty and sustainability all argue strongly in favor of active corporate energy and sustainability strategies. But, the most crucial spur for action may be the risk that a company’s operations could be disrupted by energy shortages, outages, or an unplanned and unmanageable rise in the price of energy.
The reasons for this are manifold, from the overextended energy distribution infrastructure in much of the Western world, to the slower-than-expected development of renewable energy technologies. But the fundamental driver straining supply will be the burgeoning demand of a global population tilting towards nine billion over the next three decades.
Today, one-and-a-half billion people on earth have no access to electricity at all, and a billion more have limited access. As these people, and generations to come, strive for a more comfortable lifestyle, they will consume vast amounts of energy. So while the world is not running out of hydrocarbons immediately, global energy demand is growing too fast to satisfy without serious price pressures and geopolitical tensions. This puts corporate and economic growth at risk.
As a result, companies and governments need to find a way to bridge the current fossil fuels era to the next era, where clean energy will become a key energy source. This will be a challenge that lasts a generation, if not two.
The efficiency epiphany
In the absence of political resolve or a great leap forward in clean energy technology, our top priority is managing the energy that we do have. This holds especially true for corporations, not only because of the potential savings they could reap, but because of the other benefits that may accrue.
Corporations are not being asked to adjust human nature to the new era of energy management. The new era is adjusting to human nature. From better management of buildings and vehicle fleets, to smarter use of technology, to tighter oversight of the entire supply chain, organizations can mobilize countless tools to help transform how they use energy and other resources.
And, companies with energy and sustainability strategies will be at the forefront of job creation, which could help them gain political advantage at a time of high unemployment. Approaching energy strategically offers a mother-lode of long-term, well-paying job opportunities. These are sustainable jobs, analogous to those in the world of IT, where companies create software and hardware applications and then establish a sustainable market for their services by constantly updating and maintaining their products. The clean energy world has the same potential.
Less is more
The world is in the midst of creating a new development model that, at the corporate level, could bestow competitive advantages and create sustainable corporate futures, while fostering more equitable global economic growth and also tackling climate change.
Individuals and companies are becoming increasingly aware of their own energy P&L and carbon footprints. The use of energy is now a conscious act – and an act of conscience. This conscious action is a key to economic solvency and sustainability. It’s not about being virtuous, it’s about being profitable, and at no additional cost, virtue is achieved.
Businesses and governments should respond to this new reality by creating the products and services that will help consumers manage their energy consumption. Corporations, meanwhile, should realize that in addition to their core business, each and every one of them is an energy company, too, with the potential to produce their own energy, and that managing their energy usage can be critical to their bottom line. Policymakers can amplify these trends by creating the rules of the game and funding the research that will position all developed countries at the cutting edge of the Clean Energy evolution.
The drive to sustainability is a drive to creativity and innovation. May the cleanest, most energy efficient corporations win.