Climate change is unpredictable in nature, and concerns around its impact are growing. Environmental agencies warn that failure to step up climate action now could leave businesses, agriculture, and communities at risk. Consequently, eco-efficiency—the practice of improving energy efficiency and water management while reducing the levels of emissions and waste—is rapidly becoming a critical path to sustainability for corporations.
To address this challenge, we launched a multiyear initiative in 2015 that we call our eco-efficiency framework. It’s a call to action for corporations to do more than just manage old tasks more efficiently. Instead we’re asking managers to reimagine products, reconceptualize strategy, and redesign processes in ways that lead to more eco-efficient practices. With the help of our framework, we’ve sought to create a narrative that helps embed eco-efficiency at a management and corporate governance level, so that doing more with less is a consideration for every business decision.
Companies we have engaged with on very different challenges on eco-efficiency have made significant changes.
Investors, likewise, can benefit from our framework. Our integrated ESG and financial research team devised a set of questions to help uncover specific areas where eco-efficiencies may also result in cost savings—and potentially have a positive effect on financial returns. While we expect investor questions to change over time, initially we focused on how companies use energy and water, and publicly disclose their practices in sustainability reports.
Eco-efficiency in action
Nearly five years after we launched our eco-efficiency campaign we have found amazing progress. Companies we have engaged with on very different challenges on eco-efficiency have made significant changes. For example, we’ve seen one utilities company divert millions of dollars away from coal; another utilities company reduce carbon emissions in construction projects by 50%; a technology and materials company double the rate of energy productivity improvements in U.S. facilities that used the ISO 50001 framework—the global standard for energy management systems; and an industrial gas company agree to purchase 50 megawatts of renewable wind electricity, saving 1.5 million tons of carbon dioxide emissions over the term of the agreement.
Progress that companies have made toward data, analysis, and reporting goals has been particularly encouraging. This means that investors may soon be able to use actual data to gauge a company’s performance against eco-efficiency objectives—while also comparing it to peers.
Eco-efficiency framework for increasing energy productivity and reducing waste
|Sample questions we ask companies||How companies can advance eco-efficiency|
|1. Data analysis and reporting||How do you collect and manage energy and water data?||Implement energy management systems to improve productivity|
|2. Targets and goals||Have you adopted a carbon emissions reduction target, or developed energy and water efficiency goals? Are these publicly disclosed?||Adopt ambitious eco-efficiency objectives and communicate them publicly|
|3. Capital allocation||How do you allocate capital for energy and water efficiency projects?||Create a resource budget that guides capital allocation planning fairly|
|4. Governance of sustainability||Is energy and water efficiency included in your core business strategy, corporate policies, or operational guidelines?||Set a top-down strategy that aligns to eco-efficiency goals; communicate it to the entire company|
|5. Board and executive accountability||Is there board-level oversight for energy and water use, efficiency investments, and performance?||Take a long-term view of eco-efficiency investments, aligned to the responsibilities of company leaders|
What’s next for eco-efficiency?
In the next phase of our eco-efficiency engagement, we’re asking companies to take even more steps toward change. We’re encouraging companies to improve their eco-efficiency practices in measurable ways, specific to their business; more transparency and disclosures around reporting will play a key role in measuring progress toward eco-efficiency. We also plan to work with companies to refine the questions in the five areas of our framework—with the ultimate goal of compiling results that can be used by investors as a benchmark of best eco-efficiency practices across sectors.
We’re increasing our own campaign involvement as well. Recently we’ve convened industry roundtables, where investors and companies can share best practices for eco-efficiency. In our discussions, we’re looking closer at circular economy strategies—the elimination of waste and emissions—and have incorporated these formally into the questions in our framework for 2020.
Small steps, real impact
Eco-efficiency, at its core, aims to blend ecologically sound business practices with operational efficiencies and integrated design. If done right, eco-efficiency can have a significant business impact: by improving energy productivity while reducing emissions and waste, companies can enhance their resilience to climate change, meet more stringent emissions regulations, and at the same time, potentially help improve returns for investors.
Based on the progress we’ve seen so far, we’re optimistic about the future. Some companies have taken small steps with real impact on their business, while others have launched larger processes and strategic changes that are putting them squarely on a path toward more sustainable growth. To learn more about what they’ve accomplished, see our report titled “Improving Efficiency, Unlocking Returns.”