Are Energy Costs Relevant to Corporate Boards?
While boards cannot be involved with all aspects of an organization’s day-to-day activities, it’s reasonable to consider energy costs when overseeing a company’s operations and sustainability efforts.
Yet some boards may not think to examine this data, as energy costs can seem like a simple, relatively fixed, unavoidable expense. However, energy costs can be dynamic and factor into a company’s overall competitiveness, so boards should think about how they tie into shareholder value.
Examine Energy Costs to Improve Sustainability
About one-third of boards are involved in social responsibility or sustainability efforts and related disclosure, according to Deloitte. In order for those boards or others looking to take on sustainability oversight, energy costs are certainly relevant. That’s because having the context of corporate energy costs helps explain metrics like greenhouse gas emissions and allows companies to have a clearer picture on how to reach sustainability goals.
For example, a company might switch to a renewable fuel source to reduce GHG emissions while missing an opportunity for a larger reduction by using less energy during peak demand periods. Analyzing corporate energy costs would help reveal that the company contributes to this peaking, so then developing strategies to avoid those demand charges would have the dual effect of saving the company money while reducing GHG emissions.
Similarly, looking at sustainability energy costs would help a company best position itself to reach its energy conservation goals based on its current resources. Using 100% wind power, for instance, might sound like a good strategy, but an energy analysis might reveal that upgrading to more efficient HVAC equipment would provide the same emissions savings while leaving enough funds to implement water-saving initiatives.
Look at Energy Costs to Improve Operations
Looking into energy costs can help reveal how well a company is managing other expenses. For example, a manufacturer with malfunctioning equipment could lose money from both the repair costs, inefficient operation, and downtime from not being able to run the machine. Rising energy costs can be a warning sign that a machine is starting to break down, so if a company does not have a good handle on these sustainable energy costs, it is reasonable to assume they are not looking closely at other expenses that can add up enough to materially impact the bottom line.
The board does not necessarily need to do this analysis themselves, but they can at least ensure the company has a chief operating officer or chief sustainability officer that works on a detailed level like this in order to be able to operate efficiently and approve projects that best serve the company.
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