Keynote Address by Eileen Claussen, President, Pew Center on Global Climate Change
Pew Center’s Corporate Energy Efficiency Conference: "From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency"
April 6, 2010
Hello and welcome. And thank you for being here. The Pew Center is delighted to present this conference, From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency. We are also delighted to see how much interest there is right now in the topic of energy efficiency—particularly the things that businesses can do to become more efficient, and how this will benefit the economy and the global climate.
At the Pew Center we believe it’s very important to practice what we preach. To that end, I want to let you know that you’re all part of an energy efficiency experiment. This is an idea we’ve borrowed from one of the companies that was involved in our study.
This company did something very simple and innovative to save on cooling bills in the spring and summer. It very gradually—one degree at a time—raised the temperature on the thermostat and waited to see what the reaction would be among their workforce. After the first week, no one noticed, so they raised the temperature another degree. Still no one said anything, and so at the end of that week they raised it by another degree. After one more week, still nothing, so they went a little further. Then in the fourth week someone finally complained.
So they fired that guy and raised it another degree.
But after the second person complained they decided to finally hold it steady. So if it starts feeling a little warm in here over the course of the day, you’ll know what’s going on. If it gets so bad that you feel compelled to say something about it … well, try and be the second person to do so.
With that out of the way, I thought I would open my remarks today with a light bulb joke … Where better to tell a light bulb joke than at a conference on energy efficiency?
The joke goes like this:
How many Zen Buddhists does it take to change a light bulb?
The answer is none. The light bulb has to change from within.
What we are here to talk about over these next two days is how leading companies are changing from within. This is what we found in the Pew Center’s report that inspired this conference.
As we document in our report, there is a paradigm shift occurring in how companies view and manage energy. Energy price volatility and climate concerns are forcing companies to think much harder than ever before about energy use.
They are changing from within, and yet the changes are in response to external drivers, things that are happening outside these companies’ walls.
These drivers are likely to become more pronounced in the years ahead. In the survey we did for this project, almost all of our respondents said they believe energy prices will continue to increase and that carbon regulations will take effect sometime in the near future.
Becoming more energy efficient, of course, is an ideal way to control costs and rein in emissions. This has been known for some time. What surprised us in doing this study was the number of additional benefits corporations experience when they decide to get serious about energy efficiency. These include improved corporate reputation, better worker morale, an easier time attracting and retaining employees, and broader innovation and productivity improvements as well. In other words, energy efficiency is a CEO’s dream, except for the fact that it won’t cure male-pattern baldness.
The climate issue, in particular, has driven a lot of progress in energy efficiency. Large, energy-intensive industrial companies have long focused on efficiency as a cost-control strategy, but a new emphasis on greenhouse gas emissions has driven a number of less energy-intensive companies to get involved in this work and to develop ambitious efficiency strategies of their own.
You can see this in our survey. On average, the companies we looked at spend less than 5 percent of total revenues on energy. But when they calculate their carbon footprint, they typically find that energy consumption accounts for the great majority of their greenhouse gas emissions. Suddenly, energy shifts from a small cost item to the biggest piece of their carbon footprint. Viewed from this perspective, energy efficiency becomes a sustainability imperative.
Another key finding from the survey is that for many of these companies, the bulk of their overall impact, whether you measure it in energy use or emissions, comes not from internal operations—like manufacturing facilities and office buildings—but from their supply chains and the products and services they provide. This, in turn, has driven many companies to focus their efforts on engaging with suppliers to reduce energy use, and designing or marketing new and more efficient products to consumers.
How We Put the Report Together
I want to spend a little time talking about how we put this report together, because it was a unique process, and one that we believe was very successful in achieving our goal of drawing information directly from leading corporations.
First, I want to note that the companies in the Pew Center’s Business Environmental Leadership Council (BELC) were especially helpful throughout this process. With 46 members representing nearly $2 trillion in revenues and 4 million employees, the BELC is the largest U.S.-based association of companies dedicated to business and policy solutions to climate change. Many of these companies, as well as several outside the BELC, gave very generously of their time, and I want to thank them for that.
One way we got the BELC involved was through a series of four workshops, where select companies came and presented their efficiency strategies, and then took questions from the group. We also conducted a 65-question survey, which I mentioned before, that we sent out to all our BELC companies, as well as 51 other large corporations with a demonstrated commitment to climate and energy issues. The survey helped us gather key quantitative data and identify some major trends in corporate energy efficiency.
In addition, we developed six in-depth case studies of particularly effective company programs. These are included in the report, and you also heard from representatives of those companies—Dow, IBM, UTC, Toyota, PepsiCo, and Best Buy—just moments ago.
Helping us along the way was an 11-member advisory committee of truly exceptional experts in the field. You’ll be hearing from four members of that committee—Neal Elliott, Gene Rodrigues, Kathleen Hogan and Peter Garforth—in the panel directly after lunch.
Of course, I also want to thank Bill Prindle, our report author, for synthesizing all this information and presenting it, along with his keen insights, into what I think is a very well done study.
And none of this would have been possible without the support of Toyota, which funded this work through a generous three-year grant. Toyota has been a terrific partner throughout this effort, and I want to thank the many people from Toyota who helped with this, in particular Pat Pineda, who spoke earlier today, and has been a great supporter of this work.
The Seven Habits of Highly Efficient Companies
I already noted some of the top-line findings from this work, which we share in our report. But there is so much more there, and I hope all of you will take a close look at what we learned. For right now, I want to spotlight a set of findings that we call the “Seven Habits of Highly Efficient Companies.” I do this with apologies to Stephen Covey, and with an understanding that he probably should have added an eighth item to his list of highly effective people’s habits– that habit would be plagiarism.
Seriously, the “seven habits” are our answer to the question: What makes an energy-efficient company tick? To answer this question, we took what we learned from the survey, case studies, and workshop presentations, and combined it with some work on this issue that came before us. And we came up with the following seven habits:
Habit Number One: Efficiency is a core strategy. For companies with leading strategies, energy efficiency is an integral part of corporate strategic planning and risk assessment. It is not treated like just another cost management issue, or as a sustainability “hoop” to jump through. The companies you heard from in the preceding panel are great examples of businesses that have made this work a core element of who they are.
Habit Number Two: Leadership and organizational support is real and sustained. We heard from so many of our companies that senior management support is critical, and that the best results come when that support emanates from the CEO. This support from the top means the efficiency team is properly staffed, it means resources flow into the program, and it means energy performance is part of the job reviews and career advancement paths for key people. Senior management at these companies, in speeches and other public appearances, speak eloquently and intelligently about the issue. You will get a great example of that when our next speaker, John Rowe, takes the stage.
Habit Number Three: The company has SMART energy efficiency goals. SMART in this case is an acronym meaning specific, measurable, accountable, realistic and time bound. The ways in which companies set their goals vary quite significantly and I don’t think there’s any one right way to do it. But an important characteristic of the goal-setting process is that when you meet one goal, you set a new and more ambitious target, as opposed to simply resting on your laurels.
Habit Number Four: The strategy relies on a robust tracking and performance measurement system. This is critical and we spend a fair amount of time describing issues of measurement and tracking in the report. The companies we studied prove beyond any doubt that you can only manage what you measure. One great example of this is the energy tracking system at Toyota’s Kentucky facility. There, employees can monitor up to 30,000 energy data points and even track energy use on a minute-by-minute basis. And better yet, Toyota is able to roll this data up into action plans and key performance indicators that senior management can easily digest and act on.
Habit Number Five: The organization puts substantial and sustained resources into efficiency. There’s no question money is tight these days. But the best companies—the ones that make efficiency a priority—still are able to fund projects and commit staff time to energy efficiency. In fact, during tough economic times many companies have found that by focusing on low and no-capital operational improvements they are able to achieve cost savings that make them more competitive. Some companies set up special budget processes or goals to ensure that efficiency projects compete with other corporate needs. PepsiCo, for example, sets aside 2 percent of its capital budget for environmental sustainability projects, whereas UTC set a specific $100 million spending goal on energy conservation projects over a two-year period.
Habit Number Six: The energy efficiency strategy shows results. This is, of course, critical to everything we are talking about. At the end of the day, you need to have something to show for your efforts. Success in many ways will breed more success. Impressive cost savings will grab the attention of senior management, while employees from across the company will feel energized to contribute to an initiative with such positive results. Here are three examples of the kind of results I am talking about:
o Dow Chemical estimates that its efficiency efforts have saved the company some $8.6 billion since 1994 while preventing the release of approximately 86 million tons of carbon dioxide emissions. That’s the same as taking 16 million cars off the road today.
o PepsiCo saved $100 million and prevented the release of approximately 170,000 tons of CO2 from 2006 to 2008. That’s like eliminating emissions from another ten thousand cars.
o And Best Buy estimates that the sale of ENERGY STAR products in 2008 saved its customers approximately $90 million in electricity costs.
All of these are real savings, and real results for the climate.
Last but not least, Habit Number Seven: The company communicates efficiency as one of the core stories it tells. Whether it’s GE’s ecomagination initiative or IBM’s Smarter Planet campaign, high-performing companies are finding ways to talk to consumers and the public about energy efficiency in an intelligent way.
So those are the seven habits, and I hope you will all dig into the report to find out more about what these companies are doing. These are trailblazing businesses, every one of them. And every one of them has something to teach us about energy efficiency as a business best practice.
I want to close my remarks as I opened them, with another light bulb joke – mostly because I just can’t resist. And this one goes like this:
How many free-market economists does it take to screw in a light bulb? Again the answer is none … if the light bulb needed changing the market would do the job on its own.
I am greatly encouraged by what we found in the course of working on our report. I am encouraged that so many companies are changing from within and embracing energy efficiency as the win-win solution that it is. However, I also know for a fact that relying exclusively on voluntary action, relying exclusively on the “free market,” to solve a problem as great and as consequential as climate change is simply not enough. The market needs a signal that greenhouse gas reductions are valuable; and that signal can only come from government through policies that put a price on carbon. There is no other way to spur the level of innovation and new investment we need in things like energy efficiency and other low-carbon technologies.
So while we celebrate and learn from those companies that are at the vanguard in this work, I hope we will also keep in mind that climate change demands that we act at all levels of our economy, across sectors and industries, to use energy more wisely and to achieve substantial reductions in greenhouse gas emissions. And that will require mandatory policy at the national level that puts a price on greenhouse gas emissions, so we can finally create the conditions for a low-carbon U.S. economy. Taking action in this way will deliver an array of benefits not just for the climate but also for our economic competitiveness and our national security.