Coro’s Blog: On Purpose

Energy Efficiency: A boardroom and business imperative

Published on October 9, 2015

Growing trends highlight the importance of businesses investing in energy efficiency measures to address organizational risks and opportunities. Read on to learn about forces such as rising electricity prices, climate change impacts and changing regulator, investor and customer expectations, and how they can affect your organization. This will help you and your finance and procurement teams understand the opportunities ahead for improving your energy profile. Find a link to a handy guide and other resources on energy efficiency procurement below.

Rising electricity prices

Canada’s power plants are aging and no longer meet the country’s needs. Our electricity prices have historically been low – among the cheapest in the OECD – because the majority of the country’s power comes from hydroelectric plants that were built and paid off years ago. However, the National Energy Board predicts Canadian electricity prices will increase by 20% in real dollars from 2013 to 2035, reflecting the increasing cost of sourcing new generation and planned improvements to transmission systems.

Forward-looking companies are driving down energy costs and carbon emissions now, with the opportunity to reap competitive advantage in future.

Energy efficiency opportunities

Fortunately, Canada’s energy efficiency keeps improving: the latest research shows a 25 percent improvement from 1990 to 2010.

A recent study of Canadian business attitudes on energy efficiency conducted by the Canadian Energy Efficiency Alliance reveals that most businesses believe it is a high priority and have invested in energy saving measures, primarily lighting and improved heating and air equipment. Nearly two thirds have noticed energy cost increases in the last year, yet only a quarter believe they are doing all they can to save energy. Indeed, only five percent have conducted energy efficiency audits to determine opportunities for reducing energy use. So while energy efficiency presents business opportunities, Canadian business believes more can and should be done.

Growing climate change

While the increasing costs of energy are a main driver of efficiency improvements, reducing climate change is another.

Extreme weather events and failure to adapt to climate change are among the top seven long-term global risks in terms of likelihood or impact according to research conducted by the World Economic Forum. These trends are playing out in Canada, with expensive impacts from the 2013 flooding in Toronto and Alberta and the winter ice storms in Eastern Canada, to name a few loss events. The long-term financial impacts of natural catastrophes are projected to cost Canadians $5 billion per year by 2020, increasing to an estimated $21–$43 billion per year by 2050. Extreme temperatures and severe weather will impact the bottom line as organizations are forced to increase heating and cooling to compensate. Companies, governments and citizens are making the link between the increasing severity and frequency of extreme weather events, climate change and rising energy expenses.

Increasing regulation

Greater focus on climate change management is being driven by anticipated government legislation in this area. BC and Quebec have carbon pricing measures (carbon tax and cap-and-trade respectively) and Ontario is undertaking a review. The UN Climate Change Conference in Paris this fall is expected to achieve a legally binding and universal agreement on climate, which will have implications for government policy around the world.

Anticipating future carbon regulation, forward-looking companies are driving down energy costs and carbon emissions now, with the opportunity to reap competitive advantage in future.

Investor demand

Forward-looking investors are taking steps to understand the carbon dependence of their portfolios. Increasingly they can see the business benefits of emission-reducing, energy efficiency projects. Institutional investors particularly realize they must act now to reduce the long-term risks arising from climate change to protect their long-term investments. Every year, more than 800 institutional investors with nearly US$100 trillion in assets – representing nearly half of the global capital markets – request GHG and energy management information from more than 5,000 globally listed companies.

This information compiled by the CDP investor network is used to channel investment flows towards a low carbon and more sustainable economy. Many of these investors ask their portfolio companies to make annual reductions, publicly disclose their GHG emission targets and invest in ROI-positive projects. They believe proactive carbon and energy management helps companies generate positive returns and build long-term investment-worthy sustainable businesses.

Through better energy efficiency and reduced emissions companies can improve shareholder relations, reduce shareholder resolutions and increase access to, and affordability of, capital.

Customer expectations

Business customers, especially large companies, government and institutional purchasers, are increasingly adopting sustainable purchasing practices, engaging suppliers on energy and carbon management and preferring suppliers with strong environmental policies and practices.

A 2013 survey of nearly 200 buyers found that sustainability is a growing procurement concern, with nearly 70 percent of procurement professionals personally involved with integrating sustainability considerations into their company’s supply chain, up from 58 percent in 2011. The survey revealed this is a growing senior management concern as well, with half of them reporting their most senior procurement manager has explicit accountability for integrating sustainability considerations into the supply chain.

As more and more organizations assume responsibility for the carbon impacts of their supply chains, there will be rising demand placed on suppliers to provide information and data on energy use and energy efficiency efforts. B2B and B2G companies take note: one group of buyers representing more than 60 large corporations with US$1.3 trillion in procurement spend (e.g. Bank of America, L’Oreal, PepsiCo, Pfizer, The Coca Cola Company, etc.) is requesting their nearly 4,000 suppliers to disclose information on their approach to climate risks and opportunities. Buyers are asking their suppliers if they have emission reduction initiatives and if so, the amount of carbon and financial savings. They want to know the percent of energy expenditures, and how much fuel, electricity, heat, steam, and cooling the organization purchased and consumed during the year.

[idea]By exerting pressure on their suppliers, increasingly business customers are using their influence to improve the energy efficiency and GHG performance of their supply chains.[/idea]

Risks and opportunities

Rising energy prices, climate change, government regulation, and changing customer and investor expectations create business risks and opportunities for organizations. These forces combine to make energy efficiency and energy efficiency procurement a route to realizing energy efficiency benefits – an important business issue.

Check out these resources

To read more about these trends, risks and opportunities check out this short summary. To help you address them the Supply Chain Management Association’s Purchaser Power program provides finance and supply chain professionals with the tools, resources and best practices for implementing sustainable procurement practices when purchasing energy consuming equipment for Canadian organizations.

Coro Strandberg collaborated with Tim Reeve, President of Reeve Consulting, to produce an Energy Efficiency Procurement Toolkit for the Supply Chain Management Association of Canada. This is an excerpt from the toolkit, which profiles the top trends driving the need for increased energy efficiency.