by Jonathan Cavanagh, guest opinion
Thursday April 02, 2009, 10:14 AM
The trend toward “going green” has engulfed our political and business landscapes. While the marketing of sustainability and green commerce is well known in our lexicon, there are tangible benefits for companies that green their operations.
Aside from societal responsibility and stewardship, companies can, and are, improving corporate earnings. Customers are increasingly loyal to companies that are practicing sustainability. Even the bastion of liberal and environmental angst, Wal-Mart, has embarked on a successful sustainability campaign.
The sustainability movement has three distinct characteristics that companies can implement. First, is reporting on corporate sustainability efforts. This reporting is similar in style, albeit tailored for each company, to annual financial reporting. Second, there are tax incentives available for companies that have invested in sustainability. Finally, companies are able to cut costs by streamlining operations and eliminating waste and excess energy. As a result, companies are profiting from the sustainable movement.
Many companies are publishing annual reports, often in the same style as their annual financial reports, to boast about their corporate responsibility. Recently, the international accounting firm of KPMG produced a report on corporate responsibility reporting. The report articulated that there is a moral and a business case to be made for corporate responsibility.
The business case is that businesses perform best when they play a strong role in their community. Whereby the local community is a key element for corporate responsibility that can, and often does, lead to increased customer loyalty.
For large, international companies, corporate responsibility reporting has become commonplace. Almost seventy percent of Global Fortune 250 companies report on sustainability focusing on social, environmental, and economic concerns.
What is even more remarkable is that the main driver for corporate responsibility reports is economic considerations, followed by ethical considerations and innovation. Corporate economic interests are furthered by corporate responsibility, and it is foolish to avoid this reality of the new business environment. International Accounting Standards now require organizations to account for changes in asset values that result because of environmental factors (e.g. trading permits). The Integrated Pollution Prevention and Control Directive requires that companies in the European Union register emissions and report this data so the findings can be made public
States are encouraging companies to participate in sustainability by providing tax credits and subsidizing sustainability. In Oregon, the Business Energy Tax Credit (“BETC”) is available for trade, business, and rental property owners who pay taxes for a business site in Oregon. The BETC is available to those who invest in energy conservation, recycling, renewable energy resources, and less-polluting fuel used for transportation. The credit is 35% of eligible expenses (the incremental cost beyond standard practice) and taken over five years, 10% in the first year, and 5% for the remaining four years. But, if the eligible project costs are less than $20,000, the entire credit can be taken in the first year.
Also, an Oregon nonprofit, tribe, or public entity that partners with an Oregon business or resident is also eligible by using the pass-through option. The pass-through option for five year BETC is 25.5%, while the one year BETC is 30.5%. The scope of the BETC is large and covers projects ranging form conservation, alternative fuels, hybrid vehicles, sustainable buildings, and transportation. Loan and permit fees, along with direct costs are eligible.
With the challenging economic times, the BETC is a great way for businesses to create jobs and expand energy development in Oregon. Recently, ECONorthwest conducted a study that showed that in 2006 the BETC led to an increased economic output of $140 million, reduced energy costs by almost $50 million, and created over 1,200 new jobs.
There are energy tax incentives in the recently enacted American Recovery and Reinvestment Act of 2009. Principally, the act seeks to expand the production and development of alternative sources of energy including biomass, solar, and wind technology. The law increases the credit for alternative fuel vehicle refueling for commercial and retail stations. The credit is 30% of the cost of the property placed in service and is limited to $50,000 for 2009 and 2010. There is also a tax credit for electricity produced from renewable sources and extends the credit for wind facilities through 2012, and 2013 for other renewable sources. Further, the law expanded the energy investment credit to include small wind energy property.
By streamlining operations, companies are lowering costs while improving sustainability. Wal-Mart has established an internal sustainability program that has reduced their shipping container use by 500 units annually. This has resulted in 1,000 fewer barrels of oil and 3,800 trees while saving the company $2.4 million.
Toyota has become the leader for sustainability in the automobile manufacturer market. During 2000-2005, Toyota cut emissions by 56%, reduced its energy use by 30%, and eliminated 95% of the waste to end up in landfills. Toyota has eliminated wasteful production processes resulting in greater corporate profitability by focusing on sustainable production. By reexamining and reevaluating past production, Toyota found opportunities to reduce its carbon footprint while enriching shareholders.
There are compelling, and justifiable, reasons why companies should adopt a corporate culture that embraces sustainability that is grounded in corporate ethics. But there are also fiscal incentives for companies who embrace sustainability. Sustainable business practices lead to increased brand loyalty and good will with consumers. In Oregon, tax credits are available for companies that invest in sustainability and renewable energy development. By focusing on sustainability companies are better adept at reducing waste in the production cycle, which leads to less energy and consumption resulting in a stronger bottom line.
Jonathan Cavanagh is a CPA and a law student at the University of Oregon Law School.