Over the past decade, businesses have encountered a rising level of scrutiny over corporate Environmental, Social, and Governance (ESG) management practices. With that scrutiny comes a heightened level of praise and appreciation given to businesses that choose to pursue a more proactive role in addressing these pillars of societal concern. Environmental opportunities within the corporate sphere are an ideal undertaking for businesses that aim to bolster their image in the public eye while also benefiting fiscally. The broad scope of environmental opportunities can be split into three subcategories: clean tech, green building, and renewable energy. As time passes and new technologies are developed, the direct profitability of taking on these projects only increases, not to mention the indirect fiscal benefits businesses may see in the future that stem from an enhanced resume of environmental responsibility. With the paradigm constantly shifting towards the incorporation of ESG into corporate management, and the role it plays in the minds of socially conscious investors, the value to be realized in environmental opportunities can be immense.
The first of the three subcategories of environmental opportunities—clean technology—is one in which businesses can find measurable profitability. Clean tech refers to any process, product, or service that reduces negative environmental impacts through the application of sustainable resources, revamped energy efficiency structure, or environmental protection activities. This subcategory is predominantly reliant upon the integration of newer technologies; it is constantly growing in its range of applicability. Some examples of clean tech include sustainable electric grids, more efficient corporate energy management, and advancements in industrial processes that serve to reduce any negative environmental impact. The employment of clean tech can be something as simple as exchanging incandescent bulbs for fluorescent ones, or as complex as the incorporation of carbon capture structures into production centers. These types of projects can be evaluated in terms of potential fiscal benefits before implementation, giving businesses the assurance that the investment is worthwhile.
The second category of environmental opportunities is more abstract. The concept of green building dates back to the 1960’s and aims to cut the total carbon emission contributions of commercial (and residential) construction. There are seven components that must be satisfied in order to produce a true green building: life cycle assessment, siting and structure design efficiency, energy efficiency, water efficiency, materials efficiency, indoor environmental quality enhancement, operations and maintenance optimization, and waste reduction. Taking on a project here is a more complicated process relative to the other opportunities. That being said, there can be a significant reward in green building. In a fiscal sense, green buildings may be more expensive in their initial production, but that higher initial cost can be offset by the heightened efficiencies that the building will experience in its lifetime operation. There can also be social benefits that accompany such an investment. Given the scale of a green building project, which may also include unique or remarkable exterior features, it is likely to attract the attention of media and investors alike. The aesthetics of such a project, and its visibility in the community, can demonstrate a commitment to environmental betterment to investors.
The third subcategory of environmental opportunities consists of the integration of renewable energy into corporate processes. Renewable energy—i.e., energy sourced from naturally replenishing entities or processes—has long been discussed to promote environmental sustainability. Over time, it has grown increasingly popular and cost effective. The benefits of pursuing an opportunity here are diverse, as are the avenues one may take in transitioning to renewable energy. The four most popular options for businesses are solar and wind energy, hydropower, and geothermal energy. Depending on geographic location and environmental availabilities, one may prove easier and more beneficial than others. Proximity to large bodies of water may provide more cost-efficient and accessible potential hydropower sources, while a more open, hilly landscape may be better suited for the erection of wind turbines. Along with producing their own renewable energy, businesses have the option of converting from fossil fuels to a power grid that distributes renewable energy. The direct fiscal benefits of transitioning to renewable energy sources are dependent on how a specific business decides to go about implementing this switch: through their own production or through that of a different power grid. Transitioning from fossil fuels to renewable energy sources can also prove to be a profitable venture regardless of the methodology. Some businesses may wish to mitigate future risks accompanying the uncertainty of the oil market; investors may see this as a hedge against future availability of that energy source. Relatedly, government benefits that accompany renewable energy projects are becoming more prevalent: tax write-offs, incentives, and potential additional project funding, to name a few. Federal, state, and municipality programs can cut costs or offer rewards for taking on such a project. For example, the Federal Solar Tax Credit System offers businesses tax credits for a certain percentage of costs accrued when purchasing and installing solar power systems, and PSEG Long Island currently offers rebates for the installation of energy-efficient geothermal systems. In the eyes of investors, these projects can be a strong indicator of devotion to environmental sustainability. They can also be a facet that distinguishes a business from its competition.
To pursue any of these environmentally conscious options, it is highly recommended that a business establish an environmental management system. This can include performing a cost benefit analysis of any capital improvements or corporate undertakings, and evaluating the achievability and sustainability of any drastic changes to the fundamental machinations of the business. Not only would an environmental management system benefit a business within this facet of the environmental pillar of ESG, but it can benefit a business across the board. Apart from evaluating potential environmental opportunities, the system could be employed to keep track of and reduce emissions outputs, manage and improve the efficiency of waste disposal, and monitor and limit a business’s operational natural capital costs that may currently be unaccounted for. For more information regarding these specific subcategories of the environmental pillar and the role ESG has come to play within corporate management, feel free to consult the prior publications in this series:
Environmental opportunities are only expanding as environmental preservation issues continue to gain public momentum. The incessant rise in emphasis placed on ESG within corporate management, as well as socially conscious investing, enhances the benefits of undertaking such projects, while the pitfalls of not doing so only grow larger. As with the preceding topics mentioned in this series, this one is no different: getting ahead of the curve serves to benefit businesses both fiscally and socially, and not doing so can leave businesses open to future economic and social risks.
*The author was assisted by legal intern and University at Buffalo student Colin M. Jackson.
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