Increasingly chief financial officers are vital stakeholders in generating greater company value through corporate social responsibility (CSR) initiatives like clean energy procurement.
The material impact that CSR initiatives have on corporate performance has resulted in a sea change. CSR has evolved from simple corporate giving and employee volunteer programs into comprehensive environmental, social, and governance (ESG) programs that integrate sustainability into business strategy.
Study after study shows that the financial benefits of CSR are significant. For example, an extensive study among consumer goods supply chains found companies that implemented “triple advantage” practices – where companies achieve profitability while integrating initiatives that improve ESG outcomes – realized between:
|5-20% revenue increases|
|9-16% supply chain cost reduction|
|15-30% brand value increase|
|13-22% carbon gas reductions|
That might explain why 65 percent of CFOs have become involved in sustainability initiatives according to an Ernst & Young and GreenBiz survey among corporations with revenues over $1 billion. Cost reductions (74%) and managing risks (61%) were stated as two leading drivers in the company’s sustainability agenda.
Another key factor driving CFOs into the sustainability world is the fact that institutional investors from banks and insurance companies to private equity funds are now considering the sustainability rankings of the companies in which they invest. A recent McKinsey article pointed to a Deutsche Bank study that tells us why. Deutsche Bank evaluated 56 academic studies and found:
- Companies with high ESG ratings have lower cost of debt and equity; and
- 89 percent of the studies examined show companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term.
Given this remarkable upside potential and opportunity to expand the aperture of risk management, CFOs are becoming key stakeholders that shape sustainability strategy and goals across the organization. This is particularly true when a large capital expenditure or operating expense like energy procurement is involved.
How clean energy helps CFOs sleep at night: material impact on financial performance and company reputation
Among all sustainability initiatives within an organization, energy is arguably the most impactful on corporate performance and long-term brand equity, as well as achieving sustainability goals. A move to a clean energy source such as solar, whether onsite a facility or offsite at a nearby remote location, provides CFOs with four vital areas to create greater short and long-term value:
- Financial Benefits
Organizations can save on energy costs on day one with zero capital outlay through a power purchase agreement (PPA). Or, if an organization determines asset ownership offers more value, owning a solar system can offer 8-12% returns, and a 100% payback on investment in 6-8 years. Financial benefits to explore include:
- Reduction of operating expenses with cheaper electricity
- Stable electricity pricing for predictable budgeting
- Tax credits
- Accelerated depreciation
- Lower cost of debt and capital from institutional investors that favor organizations with strong CSR ratings
- Renewable Energy Credits (RECs) — depending on state
- Risk Mitigation
In addition to protecting and enhancing corporate reputation, and thus brand equity, another critical risk that can be reduced is the price volatility for electricity. Price swings in electricity markets can cause costs to vary by millions of dollars making it difficult for companies to accurately budget and plan for electricity expenses.
Solar energy PPAs provide predictability and stability making it possible to budget with certainty. A solar PPA offers stable price contracts of 20, or even 25, years.
Solar energy directly reduces carbon emissions to make a difference and achieve corporate sustainability goals that contribute to high CSR ratings that debt and equity firms take into account when analyzing investments.
- Brand Equity
There is no shortage of surveys regarding the link between brand value and sustainability either. Customer acquisition and retention are strongly tied to an organization’s CSR initiatives and outcomes. For example, the Nielsen Global Survey on Corporate Social Responsibility polled 30,000 consumers in 60 countries* Fifty-five percent of global online consumers responded that they are willing to pay more for goods and services from companies that are committed to positive social and environmental impact: Asia-Pacific (64%), Latin America (63%) and Middle East/Africa (63%). The numbers for North America and Europe are 42 and 40 percent, respectively.
In the end, there are a number of internal stakeholders involved in the analysis and decision to procure solar energy, whether onsite or through an offsite PPA. To ensure the greatest success and value, engage the CFO and others early and often. Reach out to us anytime, we’re happy to share lessons learned and point you to resources.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last eight years, Sol Systems has delivered more than 600MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.