From risk mitigation and brand reputation to performance and business diversification, there are diverse interests that drive sustainability efforts. Mostly, companies are adopting sustainable practices that make business sense such as cost savings strategies through energy efficiency measures. In this post, we address some of the challenges that companies face when adopting energy efficiency as part of a corporate sustainability strategy.

Due to increases in energy prices, energy is being considered less a cost and more a strategic component of business. As part of sustainability efforts, the efficient use of natural resources, specifically of energy, is becoming a priority for businesses.

Although energy efficiency can be considered a low hanging fruit among sustainability practices, its adoption is not an easy task. Considerable investments are required to transform a company’s operations towards energy efficiency. In the 2011 Survey on Energy Efficiency prepared by the Economist Intelligence Unit, lack of funding was identified as a major obstacle in the implementation of energy efficiency. Most survey respondents believe energy efficiency will play a more important role in their business in the future; however, only large companies are taking aggressive steps to tackle energy use, as they are able to capitalize on economies of scale. In response to funding challenges, governments and other institutions such as energy service companies (ESCOs) are offering incentives and financing schemes to trigger public-private investments towards energy efficiency.

Besides funding, the survey reports proven return on investment as the most important obstacle for integrating energy efficiency initiatives into business strategies. While companies appear to embrace the benefits of energy efficiency, they are still struggling with how to implement energy saving measures. Skepticism and long payback periods – the period it takes for the project to recuperate the investment through savings – around these initiatives is keeping companies from going further than improving lightning or air-conditioning systems. Regarding payback, expectations tend to be for a 1 to 3 year payback timeframe. For energy efficiency projects, depending on the scale of investment, this may not be a feasible time frame.

Strategies on energy efficiency need to be tailored according to corporations’ energy demands. Companies in energy intensive industries such as steel, chemicals, refining or metals require the overall transformation of their processes and equipment. In the same way, corporations in manufacturing and retail incur in considerable investments to renovate supply and distribution chains. However, low energy intensive sectors and services can undertake gradual improvements without compromising a company’s financial situation. Changing habits and adjusting systems, supported by senior management and employee involvement, represent viable options that translate into significant savings.  Even turning off computers at night represent a 10% reduction in energy bills, according to the Carbon Trust.

Besides cost reduction, energy efficiency presents other tangible benefits related to brand value, performance and carbon emission controls. “Cutting carbon is a great environmental story, so customers will reward you for having proven low-carbon credentials”, says Harry Morrison, manager at Carbon Trust Standard Company. The carbon footprint also matters to investors in a company. The disclosure of information on carbon emissions and energy use is taking an increasingly central role in investment decisions by investors and shareholders.

There are still considerable barriers that stand in the way of fully adopting energy efficiency measures, and there is a long way to go. Efforts in measuring and monitoring energy usage, promoting energy benchmarking and auditing as well as disclosure on savings will certainly incentivize the adoption of energy efficiency in business decisions.