Allocated funding associated with energy as part of the American Recovery and Reinvestment Act (ARRA) is $36.7 billion², and these monies will be multiplied by matching private investments.  Consider one program, the Weatherization Assistance Program (WAP), which over the last 32 years spent $5.6 billion weatherizing 6.2 million low income homes.³  With ARRA funding, WAP will receive $5 billion allowing the program to double its prior output in an accelerated timeline.⁴

So what will this movement do to our homes and offices where we live and work?

The changes will likely be considerable and broad-reaching since both new construction and existing buildings will be impacted. 

Smarter Buildings

Since the 1970s, the energy efficiency of most electrical equipment inside buildings has improved.  Everything from refrigerators to air conditioners has lower energy consumption at increased performance.  Although this trend will likely continue being led by both industry groups and government programs like EPA’s Energy Star, the next biggest opportunity for improvement will be in linking all of these energy consumers to each other and to the electrical generation and distribution system to create smarter buildings.

Smart building technology will allow building systems to react in real time to maintain comfort levels and services at minimum energy levels.  Going beyond programmable thermostats, building systems will be able to shut-down and restart entire circuits preventing losses from vampire loads and preventing appliances from operating during unoccupied periods.  Furthermore, integration with utility systems will also allow price discrimination to drive behavior as customers can choose whether or not to reduce energy use and cost.  Networking costs have significantly decreased, particularly with the advent of low cost wireless solutions, such as Zigbee, which are designed to minimize the installation material and labor costs that historically had adversely impacted retrofitting an existing facility.

Location, Location, Location

A slower change, but perhaps the largest, may be the location of buildings—or more accurately stated, the co-location of buildings.  The concept is old.  Create an integrated community where people can live, work, and play within walking distance.  Link these communities with efficient public transportation.  Location and site selection are primary elements of the US Green Building Council’s LEED certification programs including the recent creation of the LEED Neighborhoods standard.  As municipalities integrate LEED into building code and builders strive to meet customer demand for greener facilities, location will be a major driver in construction decision making.

The impact on our fuel consumption from reducing the amount of mileage driven by the average American could outweigh improvements in fuel efficiency, at a lower cost to consumers.  Every business is likely impacted by these sweeping changes, and not having a strategic plan or assuming business as usual could lead to lost opportunity.

Ali Ahmed
Deloitte Consulting LLP

1  Department of Energy, Energy Information Administration Annual Energy Outlook 2008
2 Department of Energy ARRA funding from DOE website http://www.energy.gov/recovery/index.htm
3 Weatherization Assistance Program Technical Assistance Center briefing book and website, http://www.waptac.org
4 “Weatherization Assistance Program – The American Recovery and Reinvestment Act of 2009” fact sheet from the Department of Energy

One of the biggest flaws with many green metrics programs is the focus on a select group of processes, instead of the business as a whole. Due to the asymmetry of information across the supply chain, most companies lack visibility into the environmental impact of either downstream or upstream participants. These are a couple of the major flaws that I believe could be reduced, and over time eliminated, with the use of a more consistent process for establishing green metrics.

Before embarking on the program, define the scope and goals of green metrics program by considering the who, what, when, where and why of the metrics. The answers to these questions are not typically easy to come by and require the appropriate research, interviews and due diligence to develop a clear picture of your company’s requirements for a green sourcing metrics program. The metrics program needs to be able to address both purely reporting needs, as well as managerial needs, which is the only way that the green metrics program will have potential cost and process improvement prospects.

The next step once the requirements are gathered and assessed is to understand the types of green metrics currently being measured, focusing on the people, processes and technologies involved. It’s important to understand how your current metrics align to the needs and requirements. It’s especially important to identify both gaps and overlaps between the desired state and the current state of green metrics to establish a flexible and comprehensive program.

Next, develop the strategy to achieve the desired green supply chain metrics program.  Again, it’s important here to consider the people, process and technology elements to the green sourcing program. Elements like ERP integration, frequency of reports and potential distribution channels for the reports need to be incorporated into the strategy or the final result will not likely achieve the desired goals.

Finally, it’s time to do the heavy lifting and implement the strategy. Like other large implementation projects, engaging the relevant stakeholders early and ensuring their cooperation throughout the process is essential to success. During this process, be sure to communicate the results of these efforts to supply chain partners so that they can provide any required pieces of information that are part of your company’s green metrics program.

By following the standardized process above, my belief is that over time, green metrics programs will become more similar as they are designed as a strategic response to the marketplace rather than a purely reactive measure designed to meet the requirements of regulatory bodies. Also, through the standardized process above, green metrics can be used to better understand and manage the environmental impact of the company to increase the likelihood that targets set in certain supply chain processes like sourcing or design are actually realized through the company’s operations. 

Jayanth Iyengar
Business Analyst, Deloitte Consulting LLP

Throughout the evening, two parallel diagnostics emerged:

• Business is moving ahead with sustainable measures and initiatives at an increased rate
• US carbon regulation is currently stalled and will not pass though the House until Health Care Reform has been finalized

From a carbon regulation perspective, the reform’s outcome is closely tied to the ongoing health care debate. Three alternative scenarios were discussed by the audience:

• Health Care reform quickly moves through Congress, leaving enough political capital to the Obama administration to push through another cornerstone reform such as cap and trade
• Health Care reform fails, leaving no opportunity for the administration to push through controversial legislation
• Health Care reform makes slow progress, shelving carbon regulation for a prolonged period

With the next round of international talks on carbon emissions set for later this year in Copenhagen, no US policy will have passed Congress in time and thus negotiations are expected to remain inconclusive. This will likely lead to international frustrations with the US reminiscent of the Kyoto accord negotiations.

In contrast, the business community is not waiting for federal regulations to invest in the topic. One leading retailer recently required that all its suppliers document sustainable practices so as to allow consumers and buyers to evaluate products based on their “green level”. This is leading to changes and the implementation of sustainability performance management across its 13,000 suppliers. The VP of a large food products company highlighted that his organization was expecting other vendors to follow in the footsteps of the world’s largest retailer and require their own set of green metrics.

Attendees highlighted that the business case for sustainability, not only as a cost saver but as an innovation tool is becoming the consensus in the business community and original sceptics are now defining approaches to sustainability. As a local example of such approach, the dinner was held at Taranta, winner of Boston’s Green Business Award for its innovative sustainable practices in the restaurant industry.

Vincent Barrailler
Deloitte Consulting LLP

Not surprisingly, it is clear that global business has a significant role to play in addressing sustainability, energy, carbon and climate change issues. The WBCSD represents a global presence in facilitating the dialogue amongst major business and other stakeholders: governments, non-governmental organizations (NGOs), etc.

The briefing covered a wide range of initiatives, including clean water, energy efficiency in buildings, mobility, mining & materials and others. The efforts represent a broad range of topics, and one of the most interesting aspects of the work is the wide range of companies- large and small- who are active in supporting the Council on its activities.

A membership organization, the WBCSD relies on active participation and support. One of the most interesting aspects of the WBCSD is the collaboration on many of the topics. Among the benefits are engaging in the dialogue, sharing experiences and leading practices, and being a safe forum for advancement of the thinking on these important topics.

If you haven’t seen the good work going on there, check it out: www.wbcsd.org

Chris Park
Principal, Deloitte Consulting LLP

Recognizing the need for collaboration, the Rockefeller Foundation, Acumen Fund, and B Lab initiated the Impact Reporting and Investment Standards (IRIS) effort. The goal is to create a common framework for defining, tracking, and reporting the performance of impact capital. This newly-conceived IRIS initiative will build on these sector-specific efforts to create a common language that will allow comparison and communication across the breadth of organizations, which should form the basis for enabling infrastructure and lead to transparency and credibility. The IRIS effort is an ambitious undertaking - nothing quite like it has been attempted. To be truly effective, IRIS will require acceptance and adoption from a broad group of stakeholders, eventually including governmental organizations, global investors, and traditional lenders. To address this, the IRIS team designed a process that would focus on stakeholder engagement, starting with a core group of leaders in thought and practice in measurement in impact investing. The team then expanded their outreach to include additional groups of stakeholders, culminating in the launch of a Wiki site to collect feedback, a set of webinars, presentations and consultations at the Metrics from the Ground Up conference, hosted by the Grassroots Business Fund (GBF) and Aspen Network of Development Entrepreneurs (ANDE).

Engaging hundreds of individuals representing over 50 organizations should help ensure that the framework would be applicable across sectors, a balance between the desire for metrics from investors, and the resources available to provide this data at small investee organizations. With the feedback of these stakeholders incorporated, Version 1.0 of the IRIS Taxonomy is now completed and published to the IRIS website (www.iris-standards.org). Over the next few weeks, a small group of investors will begin pilot adoption of Version 1.0, modifying their current systems for measurement and working with investees to collect data sample data that will be aggregated to populate the database.

While the public release of this framework and its adoption marks an important step in the development of this taxonomy and infrastructure to collect and communicate data and develop benchmarks and ratings, IRIS and the tools that it supports are by no means complete. The taxonomy will evolve, grow, and improve over time. Subsequent versions are expected to expand to include a more comprehensive set of indicators and metrics applicable to traditional corporations, which are under a constant barrage from investors and stakeholders to report on and improve non-financial performance. The emergence of standardized measurement, reports and ratings systems should increase the credibility and transparency across all sectors. This should, in turn, attract capital from socially responsible investors and even traditional investors looking for growth markets with a positive impact. It will no longer be satisfactory for a corporation to meet investors’ expectations for financial returns. They’ll need to demonstrate positive social and environmental returns as well to be in the mix. It seems that impact investing is at a turning point and with a little push, it may change how the world thinks about investing.

Rob Whittier
Manager, Deloitte Consulting LLP

Increased regulations and attention to environmental issues have driven many companies to undertake sustainability initiatives, including greening operations, marketing of green products and encouraging sustainable behaviors among employees. I’ve seen companies that have successfully engaged in enterprise sustainability efforts realize significant benefits, such as:

• Increased recognition as an employer of choice, particularly for Gen Y talent
• Innovative opportunities to reduce costs throughout the organization and realize long-term benefits
• Improved employee engagement and productivity through increased morale and dedication to the organization
• Ability to make a positive impact on the environment while enhancing the organization’s internal and external brand

While I believe the potential benefits of sustainability efforts are clear and considerable, risk exists in their implementation and communication. Overpromising or overselling green practices, or “greenwashing,” can be damaging to corporate reputation and difficult to undo. Increasingly green-savvy stakeholders are keenly aware of the legitimacy of green claims. Blogs, indexes and guides inform and educate consumers about greenwashing.

The opposite of greenwashing is “greenmuting,” or the under-communication of sustainability activities. Greenmuting is a lost opportunity to build reputation and gain employee and public goodwill.

Poorly assessed communications can result in diminished public and employee trust. Organizations choosing to adopt green practices should manage against the risks of greenwashing and greenmuting while realizing the value and goodwill that can be created through sustainability efforts.

Katya Levitan-Reiner
Deloitte Consulting LLP

Need an example?

Visionspring is an organization started in India, which enables small companies to sell eyeglasses from carts or kiosks. To date, Visionspring has provided employment for over 800 entrepreneurs who have, in turn, sold close to  240,000 pairs of eyeglasses in their local communities; creating jobs, income and a sense of purpose for the entrepreneurs and addressing a clear social need. Building on this success, Visionspring has announced lofty goals: Facilitating 689,000 pairs of reading glasses sold during the five year period ending 2012, bringing material social and economic benefit to end customers, their families, and Channel Partners in developing countries, delivering a greater than 30X Social Return on Investment (SROI) in the form of extended working lives and increased productivity for customers of reading glasses, while creating and enhancing livelihoods for an estimated 5,200 local entrepreneurs.

A to Z Textile Mills, which started as a small company manufacturing mosquito bed nets in Africa, has grown to a capacity of 10 million nets per year. The obvious impact is helping to alleviate malaria in areas where A to Z distributes their product, but the impact of their operations, through the creation of over 3,200 jobs in their own operations, providing for over 20,000 individuals in their families and empowering local communities, may be far greater. This sort of mission has existed for some time, but the success of leading organizations in this space in parallel with the rise of corporate social responsibility and consumer awareness may have resulted in this new paradigm for investing for both financial return and social impact. A to Z’s impressive capacity is primarily due to new 50/50 joint venture with Tokyo based Sumitomo Chemicals, a multi-national company with over $30B in assets.

So what’s the challenge?

In the last few years, a proliferation of investment dollars has been allocated to funds and enterprises seeking to generate social and/or environmental impact, as well as a financial return. This impact-investing sector has grown to over $50B in total assets and new investment in the space grew by an average of over 35% over the past 5 years until the middle of 2008. In addition, close to 150 organizations are providing approximately $4B in capital and services to small and growing businesses in developing countries. And areas like clean tech and socially responsible investing have seen double-digit growth year over year, despite challenging economic conditions. Within the next 10 years, impact investing has the potential to grow to about 1% of total managed assets, which would result in about $500B of capital channeled toward social and environmental impact.

Taken together, these statistics suggest that there will be continued growth in this relatively new capital market.  The progress of this growth may be limited, however, by a lack of transparency and credibility in how funds define, track, and report on the social and environmental performance of their capital. Even in distinct sub-sectors, like agribusiness which commonly relies on the agricultural “co-op” as a way to benefit farmers though economies of scale and shared resources, many investors and intermediaries are tracking disparate metrics and using very different definitions for common ones, like acres organically farmed.  Imagine the financial markets if each publicly traded company reported different metrics, one chose to focus on cash flows and another on revenue, and investors and ratings agencies were left to interpret this to assess performance. We believe what’s missing in impact investing is a common language that will allow effective and comparable measurement and communication of financial, social, and environmental performance. This is an essential stepping stone that can help drive increased transparency, improved credibility, and the development of enabling infrastructure, which is required for new entrants to engage in and grow the marketplace.

Is there a solution?

Rob Whittier
Manager, Deloitte Consulting LLP

The latest Deloitte event to foster a green culture was the Earth Day Event, hosted by practice offices throughout the United States. This year’s focus of our office was local, rather than global. It centered around home, garden, nature, and healthy eating, rather than climate change or pollution. Planning and organizing the event was a lot of fun for the Earth Day planning team, a group of ten dedicated employees led by a Greening Champion. The event was fairly inexpensive to implement, which could make it a worthwhile endeavor for many other companies, as well.

The Earth Day Event in our office was organized much like a trade show, with action stations in a large meeting room.

For example, there was a stand with produce from local vendors, names and addresses of local health food stores and healthy food snacks as give aways. Our information technology group presented new teleconferencing equipment, a great time- and cost-saving tool, and multi-purpose, energy-efficient office equipment, which will replace our traditional copy machines, printers, scanners, and fax machines. A slide show displayed the savings achieved by the past greening efforts of our office:  how much less paper we use by printing double-sided, how many personal digital assistants (PDAs) we recycled over the past year, how many disposable cups we are saving per month. Our creative employees made a video about proper recycling in the office - what paper goes in which bins, where do you dispose of soda cans and cell phones, etc.

To make it more interesting, we also had several outside organizations and consultants participate in the event and explain how their products and services are helping the environment:

• A home improvement store showcased energy-saving products, such as low-flow shower heads and energy saving light bulbs, organic cleaning products, and eco-friendly paints. The store manager was present to discuss and demonstrate the products’ features.

• Greening your home from the ground up: A local builder was available to talk about energy-saving ways to refurbish a home and explain the cost  benefit analysis one should complete when assessing which building materials or window designs to use
• A volunteer from a local nature center shared information about water preservation, organic lawns and gardens, the benefits of composting, and how to get started
• An Energy Commission Representative of our community was available to discuss home energy audits and the use of alternative energy

My personal favorite: A recycling station had been set up by an athletic shoe manufacturer, and employees could bring their old sneakers for recycling - a cool idea. Athletic shoes collected through this company's athletic shoe recycling program are processed into materials and used as padding under hardwood basketball floors or in new shoes.

It takes time and effort to change a company’s culture and motivate employees to “think green” and “act green.” With creative events such as the Earth Day Event, a company can start a wave that catches on and serves as sustainability catalyst.

I almost forgot: Sustainability and “greening” sometimes means that one has to be careful… so we refrained from printing colorful posters to promote our Earth Day Event.

Maria Davis
Partner, Deloitte & Touche LLP

Corporate real estate is a significant asset, productivity variable, and cost for many large companies, but most of them aren’t applying the level of rigor and analytics that they devote to other parts of their business. As a result, many companies have large, under-utilized portfolios of office spaces. As one of my colleagues put it, “In many offices you can shoot cannon balls and not hit anyone.” Advances in mobile technology and process automation of most transactional tasks have changed workforce behavior and work processes, but space planning hasn’t caught up. Offices today are built just as they were in the 1950s. Additionally, most companies have re-aligned their headcount due to the slowdown in the economy and are consequently having to deal with excess real estate capacity.

Under-utilized spaces are a huge burden on a company’s bottom line and environmental footprint. Did you know that, based on U.S. Energy Information Administration data, buildings account for 39% of U.S. energy consumption, which is more than our cars consume? The U.S. Energy Information Administration also reports that buildings consume the largest share of total energy consumed and produce the majority of greenhouse gas emissions.

Why would any company want to invest in an under-utilized asset that pollutes, drains energy, and is expensive to operate?  In my experience, real estate is often an afterthought. I’ve seen space projections off by 100% more than once. Too many managers just don’t consider flexibility in leases and space management strategies as they grow and contract. 

Given the uncertainty and unpredictability in today’s business climate, why not make accommodations for more flexibility in real estate planning and mitigate a huge financial risk?  The goal should be to decouple headcount (demand) and office space (supply). Done right, companies can save themselves a lot of money - and the environment, as well. Green is for dollars, too.

Sundar Nagarajan
Senior Manager, Deloitte Consulting LLP

While much attention is being paid to high tech frontiers such as non-polluting energy sources and smart power grids, I believe the “final frontier” is each of us.  What I mean is that our behavior, and our ability to learn in order to change it, is fundamental to our sustainable future.  No amount of high tech innovation on the supply side can transform the energy equation if the demand side that is made up of millions of behavioral “moments of truth” every day does not transform as radically. 

I raise this point based on what I learned in one of my previous careers - medicine.  When I was in medical school in the late 70’s, expenditures on health care hovered around 10%. And that seemed like an unsustainable rate of expenditure and growth. Now we are tracking at 17% of GDP, and on course to rise to 20% by the year 2017. 

The problem was not innovation on the supply side.  Scientific advances coupled with entrepreneurial business motives led to ever more technologically inventive (and expensive) curative technologies.  However, the focus on more effective technology has trumped the demand side of investing in healthy behaviors; our health care costs are burdened by simple, but highly costly, human challenges.  For example, I quickly learned as a young physician-in-training that one of my most significant challenges was compliance.  Simply put, a large percentage of patients didn’t take their medications properly.  No medications, no cure.  Other challenges had to do with the lack of methods (and time) to teach patients so they could become active collaborators in maintaining their health.

Health care has begun to confront what the green movement must, namely that designing for human beings – taking into account their needs and the nuances of their behavior - is critical to successful outcomes.  And this is hard (as designers know) because the most important human needs and motivations are often tacit, that is they are often teased out only by someone with the observational skills of an ethnographer able make inferences about what is needed.  The knowledge that counts often does not emerge through focus groups, questionnaires or the typical methods of marketers.  So, user centered design, design driven by the real-world needs and motivations of users is key.

This line of discussion leads to interesting questions.  What is a green lifestyle?  What is a green living environment?  What is a green workspace?  How do we piece together the hundreds of energy and sustainability related decisions we make each day, often in a completely unconscious manner, into a new kind of sustainable lifestyle?  How does that lifestyle vary in terms of culture and social variables?   How do we encourage people towards a sustainable lifestyle by enabling them to learn about the consequences of their choices?  Supply chain experts are dreaming of the day when we can scan a barcode on a product in a supermarket to find out the provenance of a chicken or a peach – whether grown sustainability, in what location and processed by whom, etc. The same logic could apply to our energy behavior – the carbon footprint of a particular choice, the energy source, the tradeoffs, etc.

User experience will be key to making the sustainable lifestyle a reality.  My desk is piled with business plans from “energy dashboard” ventures that are trying to give average citizens a sense of the consequences of their decisions.  At present, our decisions are made in a vacuum – we need to provide them with context, and the kind of context available at our fingertips.  We need to enable everyone to be an expert and push knowledge down to the lowest and most immediate level of use.  Imagine the metaphor of citizen as sustainability professional and think about how it might be realized.

Design is the “secret sauce” to a sustainable lifestyle because the final frontier is the intractability of human behavior.  I remember working at a local VA hospital as a medical student and seeing patients who had had radical throat surgery for cancer smoke their (unfiltered) cigarettes through a hole in their tracheotomy tubes.  Most cardiac patients can’t change their behavior even when they know that is the only thing that will prolong their life.  We don’t change even when we know it will be good for us and only education, user insight and smart design will make the difference. 

This is a core challenge we are up against and why I say that green innovation ultimately must begin with – and in - each one of us.

John Kao
Chairman, Institute for Large Scale Innovation