By Andre de Fontaine
September 29, 2009
This article first appeared in GreenBiz.com .
With unprecedented energy price volatility and looming climate regulations, businesses face a new and complex energy paradigm that few are fully prepared to manage. While individual approaches will vary by sector and company, new research  from the Pew Center on Global Climate Change shows a growing number of companies recognize that energy efficiency must form the backbone of any corporate strategy to address the new energy frontier.
Properly executed, a robust corporate energy efficiency strategy can reduce costs, manage risks, ease environmental compliance, boost employee morale, and open doors to greater innovation and productivity. Most of these benefits have been well understood for some time, yet energy efficiency performance continues to be highly uneven throughout the corporate community. In short, some companies clearly outclass others when it comes to energy management.
Over the last 14 months, the Pew Center has closely studied leading companies to try to identify key attributes that separate the most efficient companies from the rest of the pack. The research effort aims to document best practices in internal operations, the supply chain, products and services, and cross-cutting issues that can be emulated by other companies seeking to develop new and stronger efficiency strategies. A final report will be published in March 2010, but this week Pew launched a web portal that highlights preliminary findings, and provides links to a host of additional corporate energy efficiency resources. The portal also features a comprehensive, searchable database of energy efficiency measures  undertaken by the companies in the Pew Center’s Business Environmental Leadership Council.
This is not the first, nor will it be the last, project calling for a greater emphasis on energy efficiency. Earlier this year, McKinsey & Co. released a detailed analysis making the case that an aggressive national energy efficiency campaign could shave 23 percent off of 2020’s projected energy demand, with the added benefit of creating hundreds of billions of dollars of net savings. Groups such as the American Council for an Energy Efficiency Economy have for many years illustrated the wide societal benefits of improving energy efficiency. And the U.S. Environmental Protection Agency’s Energy Star program has developed a set of energy management guidelines that are particularly useful for firms seeking to develop energy efficiency strategies.
The Pew Center study builds on this and other work, but takes a different approach by drawing directly from company experiences in an attempt to tell the story -- in as much detail as possible -- of how leading companies achieved significant gains in energy efficiency. To do this, Pew distributed a 65-question survey to 95 major corporations, held four workshops where over two dozen company representatives and efficiency experts shared insights, developed six, in-depth case studies of particularly unique and effective company programs, and assembled an 11-member expert advisory committee to help guide the process. (Workshop presentations, survey results, and advisory committee member names and bios are available on Pew’s efficiency web portal). The Pew Center enlisted William R. Prindle, a Vice President at ICF International, to serve as the principal investigator and lead author of the report. The project is being funded by a three-year, $1.4 million grant from Toyota.
While analysis of the information generated by these various streams continues, some preliminary insights, drawn primarily from the survey, include:
Firms recognize the energy paradigm is changing rapidly. Over 50 percent of the survey respondents expect energy prices will exceed the equivalent of $100 per barrel of oil by 2014. Additionally, almost all respondents project that Congress will soon pass national climate legislation that mandates carbon reductions; 57 percent believe such legislation will pass before 2010.
Companies are responding by establishing corporate-wide energy efficiency targets. Voluntary goals have proliferated over the last decade, and while different companies use different metrics and timelines, the average target among our sample was an annual 2.2 percent improvement in energy intensity. Primary motivations for pursuing efficiency strategies were somewhat split between environmental concerns and cost control reasons, although many companies cited both drivers.
Senior management support is critical in the development and implementation of energy efficiency programs. The CEO and senior management team were most frequently identified as the key champions of corporate efficiency programs, ranking higher than facility managers, and environmental health and safety staff.
The most common challenge companies face in pursuing efficiency gains are resource constraints, especially limits on capital. Companies have overcome this hurdle by focusing on low-cost operational improvements, and in some cases, giving privileged status to energy efficiency investments. Examples include setting aside special pools of capital, relaxing payback requirements for projects that accomplish sustainability goals, and factoring in some of the less tangible co-benefits of energy efficiency investments, such as enhanced corporate reputation, improved employee morale, and higher worker productivity.
Employee engagement is an effective, but possibly underutilized strategy for improving energy efficiency. Energy is pervasive within a corporation; almost every employee has the ability to make an impact to reduce its use. Recognizing this, many companies have launched programs to educate and engage employees in energy saving programs. Some have established innovative programs that reward employees for energy savings, and others have made progress toward efficiency goals a standard component of their employee review process. Still, while our survey respondents noted that these programs often yield surprisingly positive responses, they also reported that employee engagement receives the least financial and staff resources relative to other efficiency program elements.
Energy efficiency can be a gateway to wider business innovation. Ambitious energy efficiency goals can drive change within organizations by challenging employees to reexamine existing processes and systems. This reexamination can lead to business improvements that, while unrelated to energy efficiency, would have never materialized were it not for the initial focus on energy.
Case Studies of Efficient, and Successful, Green Leaders
The broad trends identified through the survey will be augmented in the final report by more detailed descriptions of six unique company programs, three of which examine integrated approaches to achieving superior corporation-wide energy performance and another three that look at specific initiatives targeting products and services, the supply chain, and internal operations.
Built through a combination of site visits, phone interviews, and email data requests, these in-depth case studies will offer fuller explanations of how the six companies developed and implemented outstanding energy efficiency strategies. The case study subjects are:
The Dow Chemical Company (integrated approaches): One of the world’s leading chemical manufacturers, Dow uses approximately the same amount of energy on an annual basis as Australia. Having felt deeply the effects of rising energy prices, Dow views energy efficiency as an important risk management strategy.
IBM (integrated approaches): A high technology company, IBM developed a robust energy efficiency strategy that has allowed it to exceed its 3.5 percent annual energy conservation target. IBM has also been able to parlay its internal efficiency expertise into a profitable client offering, including in the area of data center efficiency.
United Technologies Corporation (integrated approaches): UTC is a highly decentralized company that uses a sophisticated data management system to keep its disparate business units pulling in the same direction on energy efficiency. UTC’s efficiency strategy stems from its former CEO’s commitment to root out waste in all forms throughout the company.
Best Buy (products and services): A consumer facing company, Best Buy works hard with its sales staff and external partners to promote energy-efficient products. Best Buy estimates that in 2007 its sales of EPA Energy Star labeled products saved its customers over $100 million in electric utility bills.
PepsiCo (supply chain): PepsiCo has made great strides in helping its suppliers become more energy efficient. It has conducted comprehensive analyses of its products’ full life cycle carbon footprint, and shares energy savings resources, tools and goals with its suppliers. PepsiCo is also at the leading edge of a growing number of companies that are beginning to link energy efficiency and water efficiency strategies.
Toyota (internal operations): Toyota’s commitment to continuous improvement has allowed it to become one of the most energy efficient car companies in the world. Its “treasure hunt” process, in which teams of employees and sometimes senior executives comb through a plant searching for energy efficiency opportunities has been emulated by dozens of leading manufacturers.
Through this research, we have learned that most companies understand that the energy paradigm is changing. Price volatility and climate change legislation will likely make the business environment more challenging for almost all companies. Energy efficiency should be the foundation of any corporate strategy designed to navigate this new business reality. By highlighting the successes, challenges, and lessons learned from companies that have developed effective corporate energy efficiency strategies, we hope to provide insights to other companies seeking to travel further down this road. Please continue to check our website at www.c2es.org/energy-efficiency  for updates and new information about this project.
Andre de Fontaine is a Markets and Business Strategy Fellow with the Pew Center on Global Climate Change .