Is Funding a False Barrier to Energy and Sustainability Projects?
Corporate leadership in sustainability is gaining momentum, but even the most mature firms still require a solid rationale to get project approval. For many companies, innovation in energy and sustainability remains an untapped source for improved financial and operational performance that drives business growth, profitability and brand value. With benefits like these, energy mangers are left wondering; why it is so hard to get approval and funding?
Companies frequently perceive CapEx as a hurdle to accomplishing energy and sustainability projects. However, this assumption may be misleading. A key variable to the success of all corporate energy and sustainability initiatives is building and socializing an accurate business case. Recent research suggests that developing a solid business case may be more important than the immediate availability of capital.
To learn the 4 steps to building a business case for efficiency, read this blog.
In a survey conducted by GreenBiz and Schneider Electric, more than 300 industry professionals shared their experiences about finding funding, as well as the outlook for future energy and sustainability endeavors. What we found might surprise you.
There is widespread confusion about the true barriers for project approval
Views on how to get projects approved also vary depending on past success.
The findings from the survey indicate that corporate teams that have had trouble getting projects approved in the past may want to focus more on the business case — payback and long-term, non-financial benefits — than on the capital necessary to deploy a project. If the business case is solid, it should be easier to eventually locate budget.
“Being able to show investment plans and their payback had a larger impact on leadership decision making than overwhelming them with lots of data about kilowatt hours and carbon output.” - Food Manufacturer
There are two possible explanations for the difficulty in gaining project approval
- Energy and sustainability projects may have trouble competing with other projects that yield more traditional business results.
- Individual project sponsors may have less experience securing funding when compared to others in the organization.
“We set a lower hurdle for getting capital improvement as it pertains to sustainability projects, which incentivizes plants to implement those programs.” - Food Manufacturer
Additional findings in this report explore potential solutions to these challenges.
Innovative funding models may be a solution to perceived capital barriers
The research indicates that corporations with a higher success rate of projects typically have a more diverse funding mix. For energy and sustainability projects with a demonstrable business case, there are a variety of funding models available that may further reduce the perceived capital intensity of these projects and improve the likelihood of project approval.
There is a significant spread of funding mechanisms called out in the research that are used across a diverse set of industries. In fact, each market segment has used at least five of the funding mechanisms. Industry and transportation have tried all of the above.
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Some segments appear to be leaders in adopting particular funding models. For example, Energy-as-a-Service (EaaS), an approach that allows a firm to outsource control of its entire energy portfolio, has been adopted more often by the finance industry and commercial real estate firms. No matter the funding mechanism a company uses to progress energy and sustainability initiatives, the importance of building a strong business case will always remain. Whether company executives are motivated by financial goals, sustainability targets, or resilience concerns – understanding how a project aligns with your organization’s priorities and selecting a funding model that works with those priorities is key to gaining buy in.
Click here to read the next blog in this series, where we dive deeper into how specific innovative funding models solve a variety of challenges for corporate energy and sustainability managers.