Sustainability in a Financial Crisis

The impact for recession has been mixed.  This was a survey that my colleagues at Booz & Company undertook.  We understood from a survey of senior executives that many of them had parked sustainability issues in general further down the priority list.  Number 11 on the 10 point list.  Let's get through the night.  Let's not worry about this stuff.  We've got more important things to deal with right here and now, like can we survive?  That's been the negative impact.  

The same time what I'm seeing simultaneously is that around some of the cost issues here, particularly some of the cost issues and the cost opportunities that are created in a carbon-constrained world, have moved right to the front of the pack.  Well maybe we're not going to deal on a broad theoretical level with the company and society and what our sustainability issues, but boy if we can cut our energy cost by 20% in the next year, we need that money now.  So a lot of that is moving right up.  

In general in recessions, people hold back on capital expenses.  They're much more likely to change the light bulbs than to actually redo the building entirely so that it's a lead gold standard building and so on and so forth.  They're going to have to be pushed in that respect.  

But it's kind of the same thing you see in the auto industry.  On the one hand, the auto industry is on the ropes, on the other hand, the Obama administration with the full agreement of the industry is saying, "Let's raise Cathay standard."  

So, we're seeing the simultaneous, the recession taketh away and the recession giveth, in terms of intensity around some of these things.  But cost is clearly the foremost driver of green initiatives at least right now.

Question: How do you measure the cost of sustainability?

The first thing you have to think about is how much energy do I use, what am I paying for it and where is it coming from?  Because as you look at the effect of a carbon-constrained world on your income statement, one issue is, are your energy costs going to go up in general?  Will my price per BTUs [British thermal units] of whatever it is go up?  

Second issue and related is, even in so far as they don't go up, will they become more volatile, when we see the kinds of spikes and crashes that we saw in oil prices in the last 12 months?  The answer to both of those questions is almost certainly yes.  The cost will go up and so with the volatility.

The second question is, will there be a change in the energy production mix?  Will I be moving from oil and hydrocarbons to renewable and solar, and so on and so forth? Will I be moving from liquid fuels to electricity or electrification, and so on and so forth?  So that's the second energy production question. 

A third question is an energy consumption question.  Will there be changes in the way in which people consume energy?  For example, will they do different things for transportation?  Will they move from cars to buses?  Will they move from airplanes to trains?  Will they move cars to bicycles?  What will the mixes in energy consumption be?  

And finally, what are the changes in the regulatory environment?  Is there going to be a capital trade system?  Is there going to be a carbon tax?  Will there be regulations?  And I don't mean just emission standards, but also green building regulations.  Will I have to do something about the real estate I occupy?  Or will there be changes in what you might call market regulations, which is my customer requirements?  Customers will not deal with me unless I am green, and that's a kind of regulation.  All of those are pretty specific ways in which you might find an impact the cost structure of your organization.  And you better think it through as you work your way through that checklist.  

The other way of looking at this is there also might be implications on the revenue side.  Think about the effects if energy prices and transportation prices go up.  I think that the company actually ought to think about every one of its major geographies, every one of its product lines and every one of its customer segments and say, will their behavior change?  And if so, is that going to affect me?

So there is a pretty systematic way in which you could really be looking at your cost/revenue drivers.  

Although companies have pushed sustainability down the priority list since the economic crisis, new cost-saving strategies are emerging to refuel the conversation. The Chief Marketing and Knowledge Officer for Booz & Company Tom Stewart explains.

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