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Hara Software Inc. CEO Amit Chatterjee talked with SerachCompliance.com Executive Editor Scot Petersen in a Compliance Advisor podcast about how businesses are starting to model and invest in sustainability projects just like any other initiative. A transcript of that conversation follows.
Chatterjee: Sure, I think President Obama, as he does with many organizations, is he is very focused on making sure that he has a good sense of what the industry is thinking. One of the key areas, that's obviously of note of late, with the passage of Waxman Markey [the American Clean Energy and Security Act of 2009] and some of the new discussions around energy efficiency. The president wanted to get an understanding from where the industry was looking at this, how big of an impact on the economy could energy and environment have a play. In particular, around the creation of certain elements, for example the growth in jobs, the ability to generate new innovations and the notion that we could jump start the economy through innovation became a very important topic, and, secondarily, was the notion that if we could reduce energy, you're even potentially creating an indirect reason to keep people employed because if you lower energy costs, you're not laying off people, so lay off energy, but don't lay off jobs.
The important question here with sustainability is tying it to business, and up to this point the environment has been a big topic but not to businesses, or at least not to their bottom line. Why is that?
There are a couple of reasons. No. 1 is the rise of the chief sustainability officer. I think we've seen that person move from a person who has largely been somebody who has focused on reporting, to now somebody who is focused on action. The measurement of their success is not whether or not the CSR [corporate social responsibility] report got picked up along with the annual report, but more importantly, what kind of innovative ways are they thinking about sustainability as it lends itself to the business overall.
Secondly, we're starting to see a lot more of the business plan generation around a lot of the projects, so you don't do sustainability for sustainability's sake, but now you have an imperative to tie sustainability and economics for an organization. That's happening in the Fortune 500 to a large degree, but more importantly, it's also starting to happen where cities and smaller companies are now starting to say, "Look, there's an opportunity here that if I do this right, the energy efficiency I can carry will drive a significant portion of the reductions that I'm looking for, but more importantly, drive cost savings," and that just happens to be one of the unique business transformation stories that energy has behind it, is that you can lower costs by actually doing smart energy efficiency first.
Is it possible for companies to be too focused on improving the environment and not focused enough on the economics to make it work?
Yes, and I think that that's been a little bit of where that term, greenwashing, emanated from. People were doing stuff that didn't necessarily have anything to do with their core business but advertised it as an element of their effort to be environmentally focused. I think now what they've done is, you've seen a lot of companies pare back that part of their efforts, and really start to focus on bringing sustainability focus on not just the environment, but the dual-handed economic growth opportunity through this.
Very close to what I think President Obama is also looking at, is innovation through the environment. If you can take the energy-efficiency opportunities that we have all around us and the alternative energy technologies and leverage them in an effective manner, what happens is you create an ROI that actually makes investing in this business transformation much more effective than if you had done it in a traditional era. So what that's done is, it's allowed corporations to start to tie an economic rigor, ROI model, an IRR and an NPV-type efforts attached to these new energy-efficiency places. That has now turned the dial on the evaluation of sustainability from being something that was an interesting effort for a CEO to an actual real effort for organizations that now suddenly got evaluated the same way that you evaluate expanding into a new geography or opening up a new product line.
When you talk about modeling a sustainability plan, could you explain how somebody would go about that?
There's four phrases that Hara speaks about, but there are many ways that I think the Fortune 500 thinks through this. The first is they want to always go through discover, then there's plan, there's act and then there's innovate [phases]. … Discover is the question of whether or not your problem is as big as a mouse or an elephant. In other words, how large is the magnitude and the scope of what you're doing, and do you really have an opportunity to have an auditable trail to understand where all of your data sits today.
No. 2 is plan. Once you've aggregated all that data, you want to forecast how you're expected to grow. In other words, if you're growing at 25% there's an assumption that your energy [consumption] or your environmental footprint will also scale at 25%. So you forecast that out to [year] 2015, 2020. What we then also ask customers to do is to start to try and target the next level. This is also still part of that plan level, where you're saying where you're projected to be, and where you'd like to project yourself to be, and what that does is, it creates a natural wedge between where you're expected to go and the reductions you'd like to see.
The next step that you go into in the plan phase, is you now try and fill those in. At a very effective manner, taking reductions one, two, three, four and five -- they can be anywhere from as simple as LED replacements, to as complex as a business transformation for an energy pipeline around looking at their blowing and venting capabilities. What that does then, is it now gives you a strategic area to understand what your short-term, medium-term and long-term opportunities are to actually lower your carbon footprint.
You now move into the third phase, which is called act. Act allows you to actually walk through the steps for every single effort that you're on and be able to identify a before and after measure. What we've done in Hara that makes us unique at this point, is we've added sort of a Sarbanes-Oxley tracking mechanism to this as well, which allows you to delimit, but never delete, for example. So we provide a very rigorous audit trail around the actual energy efficiency reductions. The fourth phase that we have is innovation, which is, innovate. It's where we understand what are the best practices that the organization has, what are the benchmarks for your industry or for a particular geography, what are the opportunities to see reductions for organizations above and beyond the core elements that are just inside their organizations, so they actually get to leverage some community knowledge. If this continues to be a closed loop, a virtuous cycle, you start to see the population of the strategies and the best practices for your organization become more tangible and more relevant to actually seeing earlier cost reductions sooner.
Right now, what's the area that would develop the most savings in sustainability planning? Would it be carbon footprint management, would it be energy usage?
It depends on the type of organization that you are, largely because most companies cannot swap out their energy stories as effectively. Generally, the answer is to say that energy efficiency is going to be the key area. In a conversation that I had with Steven Chu, secretary of the energy department, [we talked about the] huge opportunity for us to get 20 to 30% of the global climate change efforts and greenhouse gas reductions by focusing on energy efficiency. That type of story and that type of opportunity needs to happen because there is enough low-hanging fruit in energy efficiency.
On the other hand, however, because you may be a company that is focused on a distributed value chain, your answer may actually have to be that the carbon footprint has to be actively managed. One of the reasons that happens is because organizations that don't have control of their complete value chain are unable to necessarily directly impact energy efficiency plays. … So the question then becomes, what are some the effective areas you can look at from a carbon or greenhouse gas production opportunity that can be brought to you. This is why Hara actually focuses on both levels -- the input side, which is the energy being consumed, as well as the output side, which is the greenhouse gas, the solid waste or the water waste that's being consumed in an organization. And by impacting either. I want to reduce the outputs. I can go in one direction or if I want to reduce the input, I can then bring back some efficiency plays.
Absolutely, the Coca-Cola Company is a great example of that. They've distributed across many organizations and in fact aren't even owned, in some instances the bottlers are owned by other independent companies that the Coca-Cola Company doesn't have any direct ownership over. As a result, that collaboration around greenhouse gas emissions for energy efficiency becomes very important. Secondly, when you think about the traditional high-tech manufacturers, they have a distributed value chain from the very beginning. They work with a thousand suppliers on one end; they have several hundred transportation and logistics players they're working with, and on the back end, they have transportation logistics players to deliver to either big-box retailers, if they happen to be a consumer front-end product, or direct shipping to their customers from a warehouse. So all of those logistics when you put them all together become very, very complex and high-tech manufacturing companies have to think not only about their facility, but broadly about the impact that their supply chain and their forward chain have on the overall carbon footprint.
What kind of results has the Coca-Cola Company been able to achieve, bringing in its partners and the global supply chain?
They've been able to increase a number of things. No. 1, strong collaboration between the different organizations; No. 2, it's the value proposition of governance, the idea that carbon budgets or carbon targets can be set across multiple entities can finally occur while still having secure roles, so if they happen to be an independent bottler and they know that there's a competitive bottler that might be able to see data, Hara actually protects that data by insuring that customers can't see the data that shouldn't be shared. So when the Coca-Cola Company is managing this, they're ensuring that there are certain data sets that can be seen by all, which gives top-level guidance and allow for better governance, but at the same time allow the field, the bottlers themselves, to be able innovate on every step of the way so that they can be able to keep certain technologies and advantages themselves or publish them as they see fit. But at the end of the day, the company who controls the transformation is responsible for figuring out how they want to share the data, and it's not being forced upon them. And that's one of the reasons that this value chain is suddenly becoming a large awareness of how organizations can quickly start to begin to tackle greenhouse gasses and energy-efficiency problems on a multinational scale.
Where do we go from here?
We get better. I think, at some level we often look at what we're doing as the first written record of alternative technology. We're at the very beginning of a promising effort around energy and the environment. But what we're really looking forward to is when the breakthrough technologies occur? That we take advantage of them as they appear. And the way that companies can get ready for them is by adopting and holistically exploring all of the energy-efficiency opportunities that exist today and that are not even low-hanging fruits but fruit on the floor that they could pick up and find real cost savings today. The only effort that takes them is to start to use a system like Hara, or an effort to start to begin to deploy technologies against some of these quick wins and start to see cost reduction occurring, which then, when these breakthrough technologies come in, there's plenty of cost savings that can be applied to deploying those things in there.
So I think that you're going to see that happen. You're also going to see sustainability start to become a CFO-level topic, both from the perspective that there's this potential regulation that might happen, but more importantly because the cost savings and the opportunity to do value chain multiple levels of layering become far more important to a CFO than has traditionally been there. I think thirdly, this is becoming something where the CEO can't run it himself, and his key lieutenant for cross-company initiatives and cross-value chain initiatives will be the CFO. So we'll look at them start to take a little bit greater of a stand.