By Ajay Kasarabada, Service Area Leader for Industrial and Institutional Clients
$10 trillion dollars. If you run, work for, or are seeking to invest in a global company, this is a figure that should be top of mind. $10 trillion is larger than the annual GDP of all but two of the world’s economies. $10 trillion is nearly double the market cap of the Dow Jones Industrial Average companies. And yet, $10 trillion is just a fraction of the financial might working to transform how companies view and invest in sustainability.
While “going green” has been viewed as a reasonably sound business practice for years, since the January 1, 2016 release of the United Nations Sustainable Development Goals (SDGs), it’s become clear that the focus on corporate sustainability has increased dramatically. Coincidentally, this shift is also underway as new levels of automation and information technology (IT) integration influence business capital spending.
In an effort to explore some of the factors reshaping business, Black & Veatch recently polled hundreds of professionals in the commercial and industrial sector to identify emerging trends in resource use with a particular focus on sustainability, capital spending and energy and water management trends within their organizations.
Like their counterparts in the utility space, commercial, industrial and manufacturing companies have a consistent focus on operations. Margins will always be squeezed and globally, many manufacturing facilities are almost shockingly old with numerous plants producing cars, food products and more having long ago celebrated their 50th birthday. Over the past five years, amid a period of profound technological transformation in the energy and data management space, organizations have focused on operations and labor to maximize the profit they can generate on the actual products they make. But the outlook for the next five years reflects an interesting shift.
Future Sustainability Investments Expected to Shift
After a significant focus on investments in labor productivity, the forward-looking data reflects a projected shift in investments towards IT, data and communications infrastructure. Managing capital remains a core concern, but as labor wanes, respondents indicated plans for a commensurate boost in foundational IT infrastructure that will power greater levels of automation. We believe this is driven by anticipated performance gains and is a reflection of the trend toward reduced interest in traditional manufacturing employment.
This shift in focus from labor to IT reflects an interesting choice for leadership as investing in equipment versus people is not without its risks. If the current buoyant economy begins to slow, the traditional relationship towards labor indicates it can be easier to manage and right-size an organization through staffing adjustments than through machinery, which often require up-front capital investments.
But, the ongoing criticality of operations reflects the growing belief, particularly among larger organizations, that the path to successfully optimizing production will flow through IT, data and communications infrastructure. Enabling data analytics and automation as well as a greater embrace of the IIoT (Industrial Internet of Things) will produce torrents of information that will help inform better capital planning, capital utilization and therefore lead to increased profits.
Automation, Data Empower Sustainability Reporting
Facilitating greater automation within an organization is the key to achieving continued reductions in resource use, as well as generating essential data to empower future gains and improved sustainability reporting. Determining the scope of programs will vary by organizational size and focus. Does a company need to shift towards full automation or efforts to reduce the human interaction in a process? An analogy can be found in the automotive sector: Does an automation program need to resemble cruise control, adaptive cruise control, or complete autonomous driving? That will be the big decision for the evolving workforce, the solution providers and integrators and owners.
So how does an institutional push towards automation and IT investments dovetail with sustainability? Increasingly, the gulf between the pursuit of bottom-line operational efficiency gains and reduced energy and water use or a lower carbon footprint has closed for many companies. Power and water are significant inputs in the manufacturing of countless products and given vast industrial consumption, slight reductions can enhance financial performance as well as help build connections with customers, communities and other key stakeholders. Corporate leaders must ask how they can help make products more sustainable, with less energy and less water.
In fact, consumer purchasing decisions, often related to a growing willingness to pay premiums for “sustainable products” or B2B procurement requirements for vendors to demonstrate sustainability efforts or alignment with the SDGs, are forcing companies to evaluate whether their business processes are in line with broader societal forces. There remain significant opportunities to increase corporate efforts as respondents indicated only one-quarter have achieved more than 70 percent of their sustainability goals.
Getting Started Early Can Improve ROI
There remain significant opportunities for many companies to move along their journey as the vast majority are still in the early phase, and many goals remain modest. But, it is important to note that many of the early steps are generally easy and have low budget impacts. Building the business case for larger, higher impact sustainability initiatives remains a challenge and must go beyond goodwill to address how to monetize the investment. In short, the age-old balance of return on investment (ROI) matters.
Through this lens, advances in technology, consumer behavior and the broader sustainability movement indicate that now is the ideal time for commercial and industrial organizations to look at optimizing power and water use as a means of strengthening their businesses and developing deeper customer relationships. Identifying opportunities to implement appropriate types of automation will also play a key role in determining the next round of corporate winners and losers. This is especially true globally, as changes in government policy, elections and purchasing decisions across the value chain are competing with and overcoming traditional barriers to sustainability programs.
About the Author
Ajay Kasarabada is Service Area Leader for Industrial and Institutional Clients within the Power Division of Black & Veatch with work experience as a seller (business development, sales strategy and marketing) and as a doer (managing consulting engineering projects for clients in the power sector, renewable energy, energy intensive industries and distributed generation). Kasarabada has been with Black & Veatch for 20 years. Prior to joining Black & Veatch, he worked for the Missouri Air Pollution Control Program. Kasarabada has a Bachelors in Chemical Engineering from National Institute of Technology, Trichy, India and a Masters in Environmental Engineering from Michigan State University. He is a registered PE in Michigan and Massachusetts.