Sustainable Businessand the

Bottom Line

By Anh H. PhanSpecial to RegScan

Presents

Sustainable Business and the Bottom Line

By Anh H. PhanSpecial to RegScan

SincetheIndustrialrevolution,thebusinesscommunityhasbeencontributingsignificantbenefitstoenhancequalityoflife.Technologicaladvancementshaveincreasedoutputmorethaneverbefore,intermsofbothproductionandofcarbonfootprint.Despitetheirbesteffortstothecontrary, business operations can directly or indirectly damage the environment, and the natural resourcestheyneedtooperatearenotunlimited.Naturalresourcessuchasoil,gasandwaterwilleventuallyfaceshortages.

Increasedenvironmentalawarenesshaspromptedmanyorganizationstostartinvestinginsustainablebusinesspractices,butmanyfirmsarewonderingwhethertheywillretainanybene-fits,specificallyprofits,fromthesesustainableinvestments.Thispaperwillexaminetherelation-shipbetweencorporateprofitsandsustainablebusinesspractices.

What is sustainability anyway?

AccordingtoOurCommonFuture,aUNpublishedbytheWorldCommissiononEn-vironmentandDevelopment(WCED)in1987,sustainabledevelopmentisdefinedas“devel-opmentwhichmeetstheneedsofthepresentwithoutcompromisingtheabilityoffuturegen-erationstomeettheirownneeds”(UN,2010).TheU.S.EnvironmentalProtectionAgencyalsodefinedsustainabilityasanacttocreateandmaintainaconditioninwhichhumanandnaturecanexistinproductiveharmonythatwillfulfillrequirementsforbothpresentandfuturegenerations(EPA,2013).

Sustainabilityisbasedonthethreepillars:economic,social,andenvironmental.TheeconomicpillarreflectstheProfitaspect,whichhighlightstheefficiencyofresourcesutilizationforthebestadvantage(Truist,2013).Theeconomicpillarensuresthatbusinesswillgeneratelongtermprofitsthroughresourceallocationwithoutcreatingsocialandenvironmentalissues.ThesocialpillarfocusesonPeopleaspectinbalancingbetweenindividualneedsandmajori-tyneeds(Truist,2013).TheenvironmentalpillarfocusesonPlanetaspectthataimstoreduceenvironmentalimpactsfromhumanactivities.Inotherwords,environmentalprotectionwillbeimplementedthroughimprovingbusinessoperationsandusingresourcesefficiently.Therefore,sustainabledevelopmentisbelievedtobetheconfluenceofthesethreeconstituencies.

Forthepurposeofthispaper,wewillonlyfocusontheeconomicpillar,whichistheprofitaspectofsustainabledevelopment. Measuring the Economic Benefits

Businesssuccess,accordingtotheUNreport,isusuallydefinedaseconomicgrowth(UN,2010).Undertheclassicaleconomicview,themaingoalofabusinessisprofitmaximiza-tion.Profitwillbeusedasafinancialresourceforfuturebusinessactivitiesandinvestments.Ifrevenueisheldconstant,thencostsmustbereducedtoincreaseoverallprofits.Tosavecosts,itisimportantforbusinessestoutilizeitsmaterials,energy,andutilitiesinanefficientwaytoproducethebestadvantages(Woods,2011). Theeconomicsustainablepillaremphasizesthismatterasthemostfundamentalfounda-tionforsustainabledevelopment.Turningofflightbulbsandwaterbeforeleavingtheroomisanexcellentexampleofsustainabledevelopmentpractice.Therearemanywaystoincreaseenergyefficiency.Insteadofcompletelybuyingelectricityfromapowerplant,partoftheelectricityneededforbusinessoperationscanbeself-generatedbyinstallingsolarpanelsorwindturbines.Withwell-organizedsustainablestrategies,businesseswillbeabletosavemoneybecausesmallcostscanadduptoaconsiderableamountovertime.Economicbenefitscanbecalculatednu-merically,producingaccurateresultsofhowmuchcanbesavedfromimplementingtheseprac-tices.

Options

AccordingtoPeterGraf,theChiefSustainabilityOfficerforGermansoftwarecompanySAP,therearethreeoptionsfortheactivelymanagingongoingenvironmentalimpactsandrigidregulatoryimplementations(Woods,2011).First,businessescanusemorehumanresourcesinresolvingenvironmentalissues,resultinginincreasedpersonnelcosts.Thosecostsdon’tincludethedemandforotherresourcestocleanupatoxicsubstancespillorcompensateforhealthandenvironmentaldamages.

Asecondoptionforbusinesses,Grafacknowledged,istoignoretheproblemcompletely(Woods,2011).Thisincreaseslegalrisk.Governmentsaroundtheworldareimposingmorerigidenvironmentallawsandregulations,resultinginhigherminimumrequirementsforcomplianceandhigherfinesforviolations.

AccordingtotheEPAannualresultforFiscalYear2000,therewere$224.6millioninfinesforbothcriminalandcivilenvironmentallegalcasesthatyear(EPA,2011).In2013,thetotalpenaltiesforcriminalcaseswere$4.5billion,withanadditional$1.1billionforcivilcases(EPA,2014a).Moreover,thefineshaverecentlybeenincreased.InDecember2013,EPAraisedthemaximumfineforviolatingtheCleanAirAct(CAA)to$320,000,upfrom$295,000(Mc-Lernon,2013).Forspillinghazardoussubstances,thefinehaselevatedform$1,100/barrelto$2,100/barrel(McLernon,2013).

AformidableexamplewasAVXCorporation,anelectroniccorporation,whichcommittedtopayover$366millioninthecaseatMassachusetts’NewBedfordHarborfortoxicpollutionin2013(EPA,2014a).ThiswasthelargestsettlementinthehistoryoftheSuperfunddedicatedtocleaningupasinglepollutedsite.Thesignificantincreaseinfinesandpenaltiescreatesmorelegalriskforcorporations.Higherlegalriskmeanshighercostsassociatedwithnoncomplianceiftheyarecaught.Additionally,profitsarenottheonlylossassociatedwithnoncompliance.Asingleincidentcannegativelyimpactabusiness’brand.

Recommended Practices

Themosteffectiveoptionistoactivelydevelopasystemtooverseeenvironmentalim-pacts,andimplementnewtechnologiestoimproveenvironmentalperformance,saidNedErtel,presidentandC.E.O.ofRegScan.Preventingaproblemfromhappeningischeaperthanfindingasolutiontofixit.Thefirststep,Ertelsaid,istocloselysupervisehowcarbon,electrical,andwaterresourcesarebeingutilized,andtheamountofwasteproduced,onadailybasis.Withupdatedinformation,businesseswillbeabletoaccessenvironmentalimpactsandthecostsandbenefitsassociatedwiththem.

Understandingthesituationwillgivebusinessesoptionswhenitcomestoplanningsus-tainabilitystrategiesandoptimizingresourcesforsavingcostsandincreasingproductivity.Theaddedbenefitofaneffectiveenvironmentalmanagementsystemistheassistanceitcanprovideintermsofcompliancewithoperationalstandards,suchasISO14001andOSHAS18001,andglobalgovernmentregulations.

“Thebestwaytoimproveenvironmentalperformanceisthroughaccuratemonitoringandreportingineveryjurisdictioninwhichyouoperate.Usinganonlineenvironmentalmanagementsystemdefinitelystreamlinesthisprocess,”saidErtel.“Notonlydoesitimprovetheefficiencyofyouroperations;italsohastheaddedbenefitofkeepingyoucompliantwithgovernmentregula-tionsandoperationalstandards.”

Ertel’scompanypublisheslegalregistersandauditprotocolsformorethan140jurisdic-tionsaroundtheglobe.IntegratingcurrentregulatorycontentintoexistingEMISsystemsisakeycomponenttoachievingsustainableoutcomes.IntheU.S.especially,stayingcurrentwithev-er-changingregulationsisvitaltoanylargeoperation,saidErtel.Infact,theObamaadministra-tionsetanewrecordlastyearwith26,417pagesofregulationspublishedintheFederalRegister(WSJ,2014).RegScan’sproductsandserviceshelpenvironmentalmanagerskeepupwithallthechanges.

NovaChemical,aclientofbothRegScanandSAP,servesasagoodexample.Chemicalfirmsareresponsibleformanytypesofmeasurementsthatmustbereported.Withtheenviron-mentalsoftwaresolutions,thecompanysaved$2millionbecauseitcouldnowreportmonthlydatafaster.Byimprovingenvironmentalperformanceandavoidingunnecessarycosts,thebusi-nesssawasignificantfinancialbenefit(Woods,2011).

Robustmonitoringsystemsareakeycomponenttounderstandinghowabusiness’energyresourcesareused.Theinformationgatheredcanhelpmanagersinnearlyeveryindustryoutlinestrategiestousertheirresourcesmostefficiently,therebyincreasingsustainabilityandreducingcosts.

Sustainable Carbon Resources

Electricityisthemostimportantsourceofenergyusedindailybasis.Fossilfuelssuchascoal,oil,andnaturalgasarethreetypesofresourcesthatareusedforpowergeneration.Fossilfuelshavemanyadvantagesoverothertypesofenergyresourcesbecauseofhighavailabilityandrelativelylowcost.AccordingtotheU.S.EnergyInformationAdministration(EIA)report,90%ofcoalusewillbeforpowergenerationatelectricalpowerplants(EIA,2014a).Oilwillberefinedintomanytypesoffuels,72%ofwhicharefortransportationpurposes(EIA,2014a).Additionally,naturalgasisgainingtractionasaviablesourceofpowergeneration.

Despitethefactthatnaturalgasisonlyaccountedfor26%oftotalUSenergyconsump-tion,accordingtoWorldEnergyOutlook(WEO),suggeststhatgaswillbeamajorresourceusedforpowergeneration.Itisseenasthe“bridgefuel”toamoresustainableenergyfuture,anditiscleanerandcheaperthanotherfossilfuels(Kirkland,2010).Additionally,theObamaadministra-tion’srecentreleaseoftougheremissionstandardsforcoal-firedpowerplantsoffersanaddition-alincentivetoswitchtonaturalgas(RegScanFederalRegisterdatabase,2014).

Intermsofcarbondioxide(CO2)emissions,naturalgascomesoutfaraheadofotherfossilfuels.AccordingtoInternationalEnergyAgency,in2010oilcontributed10.9GtCO2,whichwas36%oftotalCO2emissionsaroundtheworld,comparedwith46%forcoaland20%fornaturalgas(IEA,2012).Theemissionlevelofbituminouscoalbituminousis205.7unitsofCO2,dieselfuelsandheatingoilemit161.3units.Gasolineemits157.2unitsofCO2,whilenaturalgasemits117units(EIA,2014b).

IntheUS,theaverageCO2emissionrateofnaturalgasis1,135lbs/MWH,whileoilisat1,672lbs/MWH(EPA,2014b).Forcoal,thatnumberjumpsto2,249lbs/MWH(EPA,2014c).Higheremissionsratesmeanhigherlegalriskforbusinesses.AccordingtotheBBC,onemajorpetroleumproducerwasfined£2.8millionformisreportingtheamountofcarbondioxideemit-tedin2012(BBC,2012).Foreverytoneofmisreportedgreenhousegasemissions,businesseswillbefined€100,or£83.Replacingoilconsumptionequipmentwithsomenaturalgas-poweredcounterpartswilleventuallyreducethetotalamountofCO2emissions,henceavoidingunneces-sarylegalcosts.

Additionally,thepriceofoilisonanupwardslope.Rapidindustrialexpansiondemandsalargeamountofenergy.EmergingcountriessuchasChina,whichsurpassedtheUSasthelarg-estpetroleumandfuelsimporterin2013,raisetheworldoveralldemandforenergy(AssociatedPress,2013).Themoredemand,thehighertheoilprice.Moreover,theoilsupplycanbehighlyvulnerabletogeopoliticalcrisessuchasconflict,sanctionsandembargoes.WhenOPECplacedanembargoagainsttheUnitedStatesin1973,thepriceofoilhadincreasedfrom$3/barrelto$12/barrel(History,2014).

Thepriceofnaturalgas,however,isdeclining.TheUSmarketisenjoyingaboomindomesticnaturalgasproduction,especiallyshalegas.In2008,apriceofnaturalgaswas$8.39/gallon(PPIEnergyandChemicalsTeam,2014).Yet,in2012,thepriceplummetedto$3.47/gal-lon(PPIEnergyandChemicalsTeam,2014).Itispredictedthatnaturalgasproductionwillgrow56%from2014to2040(EIA,2013).Increasedsupplywillkeepnaturalgaspricesdowninthecomingdecades.

Naturalgasalsohasafinancialadvantageovercoal.Wright-PattersonAirForceBaseisimplementinga$25millionprojecttocoverttwocoalpowerplantsintonaturalgas(Barber,2013).Thechangewillsave$2.3millionannuallyandsignificantlyreduceemissions(Barber,2013).After15years,Wright-PattersonAirForceBasewillactuallyseepositivecashflowusinggas.

Self-Generated Power

Whilefossilfuelswillcontinuetobeaprimarysourceofpowergenerationforthefore-seeablefuture,sustainablealternativessuchassolarandwindaregainingsignificanttractioninthemarketplace.Manybusinessesareskepticalabouttheeffectivenessofinstallingrenewableenergydevices,believingthatcostswilloutweighbenefits.However,thefactscanbeverydiffer-entfromtheirperspective.

Solar energy installment might be costly, but evidence suggests they can actually save energycostsinlongterm.AccordingtotheU.S.DepartmentofEnergyresearch,thefundinginvestmentoflongtermfinancialandtechnicalinvestmentsforPhotovoltaicdevices(PV),morecommonlyreferredtoassolarpanels,reaped$18.8millionintotaleconomicbenefitbetween1975and2008(O’Connor,A.,Loomis,R.,&Braun,F,2010).Thatisa17%returnoninvest-ment.Thetotalinvestmentin2008valuewas$3.7million.Forevery$1invested,$1.83inbene-fitsaccrued.Itisestimatedthat$237.2millioninenvironmentalhealthcostsweresavedbecauseadverseincidentswereavoided(O’Connor,A.,Loomis,R.,&Braun,F,2010).

Theper-wattcostofsolarenergyisdecliningasthepanelsandinstallationcostsarecheaper.Thecostofinstallationhaddroppedto$3perwattproduced,whichisequaltothecostofconstructingacoal-firedpowerplant.Thepriceofsolarpanelshasalsofallenfrom$76.67perwatt,to$0.74today(Mearian,2013). ACaliforniafarminstalledasolarelectricalsystemataninitialcostof$615,000(Wampler,2011).Withanetpresentvalueof$360,000anda30-yearshelflife,paybackperiodis11years(Wampler,2011).Inthefuture,thecostofPVpanelwilllikelydeclinefurtherandthelifespanwillincrease,ensuringthattheeconomicbenefitsofsolarenergywillcontinuetoincrease.

DOEalsopointedoutthattheinvestmentinsolarenergybetween1975and2008avoided6.8milliontonsofCO2emissions(O’Connor,A.,Loomis,R.,&Braun,F,2010).IftheEurope-anUnionwerefindthateven10percentofthoseemissionswereimproperlyreported,thefinan-cialliabilitytoEUbusinesseswouldbe€68million.ReducingCO2emissionsdecreaseslegalrisk,henceavoidingunnecessarycosts.

Conclusion

InarecentinterviewwithEnvironmentalBusinessJournal,Ertelpointedoutthatheisseeingtheglobalharmonizationoroperationalstandards,andarealmovetowardsustainabilityatthecorporatelevel(EnvironmentalBusinessJournal2014).Businessesarestartingtocomearoundtothefactthatsustainablebusinessisgoodbusiness,andevidencepresentedherehasshownthatitisalsocosteffective.

Responsibleenergyuseandinvestinginsustainabledevelopmentarecost-effectivewaystoincreaseprofitabilitybyreducingenergycostsandmitigatinglegalrisks.Furthermore,inte-gratingregulatorycontentintoexistingEMISsystemsisakeycomponenttoachievingsustain-able–andcompliant-outcomes.Effectivemonitoringandreportingsystemscanhelpsaveevenmoremoneybyincreasingefficiencyandensuringcompliancewithgovernmentregulations,aswellasoperationalstandardssuchasISO14001andOSHAS18001.

Heidi Ruckno,MarketingCommunicationsSpecialistatRegScan,contributedtothisreport.

About the Author:AnhH.Phan,21,isenteringhissenioryearatLycomingCollegeinWillismaport,PA.HeisaninternationalstudentfromHanoi,thecapitalcityofVietnam.HehasadoublemajorinCom-municationsandBusinessAdministration,withaconcentrationinFinance.AnhhasstudiedatWestminsterUniversityinLondon,andhasinternedatRegScanandHSBCBankinHanoi.