Contributed by Ron Taglieri, Global Efficiency Offer Manager, Energy & Sustainability Services, Schneider Electric
“CapEx budgets are delayed.” “Setbacks with energy efficiency installations.” “Availability of capital is limited.”
When asked in a recent survey what have been their biggest challenges during the COVID-19 pandemic, these are the things we heard from energy & sustainability professionals around the world.
Companies are facing unprecedented challenges meeting carbon neutrality goals and achieving operational savings in an uncertain business environment. But not for a lack of ambition or opportunity. In the same survey, the majority of respondents (87%) told us that they were confident in their ability to meet their sustainability goals. And assessments among industrial sites, for example, can reveal 20-30% energy savings opportunities based on our own experience.
Yet, all too often, these project opportunities end up idle and collecting dust. But why?
Decision-making delays add up quickly
In the case of one global component manufacturer, it took approximately 18-24 months from the time a vendor was engaged to implement its first projects. That’s an entire year of cost savings and carbon neutrality progress missed. Some projects failed to be implemented at all despite meeting business case requirements, which meant the service fees and staff time that went into developing the project were nothing but sunk costs. Not to mention the opportunity cost of missed energy savings and emissions reductions.
This situation is unfortunately not uncommon, especially in times of organizational changes and evolving business conditions which is the situation facing many companies today. In contrast to their stated confidence, 27% of companies reported in our survey that they were reevaluating their goals or programs, and another 14% have slowed or stopped their programs – either temporarily or indefinitely.
What’s the holdup?
Efficiency projects can be complex to develop and not only from a technical standpoint but also in securing approvals from a diverse group of stakeholders involved. Consequently, delays can occur throughout the project development process: from the initial decision, to partnering with a vendor, to deploying resources for initial evaluations, and ultimately to securing requisite approvals from stakeholders at corporate and site levels.
The most critical delays occur after initial evaluations and before implementation, such as when defining contracting structure and accounting treatment or establishing site access. At this point, because there are many moving parts, a single issue can have a domino effect, adding significant delays.
The cost of inaction is greatest for companies with time-constrained CO2 reduction or operational savings goals. Despite the added pressure, even companies with public goals or SBTs may be facing delays in project implementation. Often this can be attributed to a growing disconnect between corporate ambitions and day-to-day production realities. While corporate may set the goals and timeline, individual sites own the budget and resources for project implementation, and prioritizing energy conservation measures can be tough when faced with numerous other business priorities competing for attention.
A two-step verification streamlines decision-making
Despite the challenges described, delays are simply no longer an option. Executive-level commitments to various stakeholders have been made and any stalled progress early on creates added pressure as the deadline for publicly stated CO2 reduction goals closes in. In addition, the usual pressures to operate core business at peak level are likely even higher in these challenging times, resulting in less bandwidth and resources allocated to address carbon reduction and operational saving targets.
That is unless a better-defined process can be put in place to balance the achievement of core business priorities with set out sustainability goals. One way is to use two-step verification to streamline decision-making:
STEP 1: Establish a shared understanding among all stakeholders of the criteria needing to be achieved at the beginning (reduction goals, ROI, etc.).
STEP 2: Once the end-in-mind is agreed upon, draft a set of interim milestones to achieve targets as well as obtain soft “pre-approvals” to continue to advance project development as evaluation at sites progress.
This approach has multiple benefits:
- An established roadmap serves as a guide in the event there is turnover in corporate or site leadership and provides incoming leadership continuity.
- Defined timelines with specificity set an expectation and inform upstream activities (legal, treasury, etc.) to be ready to support.
- Gaining early commitments on approvals, conditional upon meeting pre-defined criteria, removes the problem of the “moving target.”
Businesses need to be flexible to adapt to changing conditions. The beauty of this suggested approach is that it can accommodate nimble responses or course-corrections based upon current circumstances. Designing a roadmap at the start of an organization’s sustainability journey with an end in mind is similar to any prudent travel planning – a target is set forth, timelines are established to determine if on course and all participants on the journey commit to its success.