Carbon Trust Advisory — the group that created the well-known carbon 'footprint' label — recently released findings that finance directors at large businesses in the UK are undervaluing the financial returns from investments in energy efficiency by more than half.
The report, The Business of Energy Efficiency, asserts UK businesses waste at least £1.6 billion every year on energy.
That's approximately $2.53 billion in potential savings if these businesses made upgrades to heating and lighting, and upgraded their energy-saving policies and staff training.
“The business case for energy efficiency is clear and compelling. Few other investments get anywhere near that rate of return,” said Hugh Jones, managing director of Carbon Trust Advisory.
“Yet our data suggests big businesses are leaving around half the investment opportunities on the table and continuing to waste billions of pounds on unnecessary energy use every year.”
The business arm of the Carbon Trust analyzed over 1,000 firms' energy efficiency investments over three years, and surveyed finance directors at 100 companies which spend at least £1 million a year on energy.
According to the report, financial directors estimate the average return on investments in energy efficiency to be less than 20%. In reality, it is closer to 48%.
Carbon Trust identified key reasons why businesses are not taking up all opportunities to cut their energy use:
The investment case for energy efficiency needs to be made more convincingly within some businesses, to improve access to capital, resources and expertise.
Energy efficiency is still regarded as a low priority in many organizations, despite its potential to boost the company’s bottom line; changing company culture and staff behavior is seen as too hard.
Misaligned incentives scupper efforts to cut energy use.
One example of these misaligned incentives is the "landlord-tenant divide," whereby landlords have little incentive to make buildings more energy efficient because tenant companies reap most of the benefits through lower energy bills.
According to Carbon Trust, however, many leading companies are findings ways around these challenges in order to fully exploit the potential for energy efficiency to deliver to the bottom line...
Take Coca-Cola Enterprises (CCE). In another form of the landlord-tenant divide, CCE is aware of the energy consumption of its coolers in retail stores throughout the United Kingdom.
While CCE owns those coolers, the operating cost is covered by the retailer.
At a glance, it seems increasing efficiency of coolers would provide little financial incentive for CCE; but according to Carbon Trust, CCE has aligned its interests with those of its customers by including its own carbon footprint and carbon reduction strategy.
According to the report:
With nearly 69% of its carbon footprint in Great Britain attributable to cold drinks equipment, CCE can only achieve its own carbon reduction target by improving the energy efficiency of its coolers. As a result, it is now undertaking a company-wide program to improve the energy efficiency of its coolers.
While a few leading companies (like CCE) are taking advantage of the substantial cost and energy-saving opportunities, energy efficiency needs to become a leading priority by organizations before the long-term benefits and savings can be enjoyed by businesses and consumers alike.
Until Next Time,