Archive for March 2009
These days it’s not just about following the money. More importantly, it’s also about finding the best way to find the money that’s out there while making the process more visible and transparent.
That’s a tall order for companies trying to do the right thing on the sustainability front while delving into the murky world of finance and investment for funding, which by its very nature is prone to opaqueness, complexity and secrecy.
Simply put it’s tough to reach investors even in a solid financial and economic environment. So dotting the i’s on sustainability is becoming a crucial piece of the funding puzzle.
That’s where the Global Reporting Initiative, an Amsterdam non-profit, enters the picture. It has developed a framework for disclosure on environmental, social and governance data – also known as ESG disclosures or sustainability reporting – and in a report this week says that companies that fail to link their sustainability reporting and activities to an overall corporate strategy likely will fail to connect with investors.
The report – “Reaching Investors: Communicating Value through ESG disclosures” – was written following “extensive consultation” with the finance industry.
GRI says investors have been a key driver in promoting sustainability reporting – they are increasingly asking companies for ESG information to help them make their investment decisions. Assets of more than $15 trillion – or about 15 percent of total global capital markets – are now managed by signatories to the United Nations Principles for Responsible Investment (UNPRI).
“UNPRI signatories commit to integrating ESG issues into investment analysis and to seek appropriate disclosure on ESG issues,” GRI said. The disclosure is based on the GRI reporting framework.
Sean Gilbert, Sustainability Reporting Framework Director at GRI said: “As we can see from the number of investors now actively seeking ESG information in order to help them base investment decisions, the dichotomy between sustainability and long-term business value is false.”
But the report says that for the ESG data to be useful to investors “it must be presented in a consistent way,” in a combined sustainability and annual report, for instance, or in separate documents such as CEO or board statements.
The link between a company’s performance on environmental, social and governance issues and its business strategy is crucial, the report says. “Without this link investors will have no way to gauge what the ESG disclosure might mean for the financial bottom line.”
Sustainability reporting should demonstrate “how the company’s behavior in a rapidly changing economic, environmental and social context is affecting its long-term value – for example how the company is dealing with risks and opportunities presented by climate change or how it is addressing poverty and inequalities in the communities in which it operates and thus derives its workforce and consumers.
“In this context, business has to think differently and perform differently and, as we’ve seen, investors are increasingly seeking out ESG leaders. Sustainability reporting should help investors find those companies as well as help the companies understand how they themselves are positioned in the context of sustainability,” Gilbert said.
It may be that companies and their potential investors are getting it; that a company’s green and sustainable strategy must be an integral part of the overall corporate strategy if they expect to get some greenbacks. A recent survey from the financial research firm KPMG says the majority of the Global Fortune 250 companies now issue sustainability reports.
Given recent financial history it might also help if investors were to implement some sustainable reporting, and lending, of their own.
The report can be downloaded on www.globalreporting.org
It’s scramble-mode for the ethanol producer Biofuel Energy.
The Denver startup reported that it lost $84.1 million last year on revenue of nearly $180 million, due primarily to “hedging losses” on corn contracts and significant costs associated with the startup and operation of its two dry mill ethanol facilities. It lost $12.3 million in the fourth quarter on revenue of $89 million.
It began commercial operations in June 2008 and started ethanol production at two plants, one in Wood River, NE and the other in Fairmont, MN. It “achieved project completion” of both plants last December.
The facilities can produce 230 million gallons per year of fuel grade ethanol and 720 tons of distillers grains.
From its inception the publicly traded company (Nasdaq: Biof) has worked closely with Cargill Inc., the huge agribusiness company. BioFuel has extensive contractual ties with Cargill.
The plant locations were selected primarily based on access to corn supplies, the availability of rail transportation and natural gas and Cargill’s competitive position in the area, BioFuel says. At each location, Cargill has a strong local presence and owns adjacent grain storage facilities. Cargill also provides corn procurement services, markets the ethanol and distillers grain that’s produced and provides transportation logistics for the two plants under long-term contracts. In addition, BioFeul leases grain storage and handling facilities adjacent to the plants from affiliates of Cargill. “We believe that our relationship with Cargill will provide us with a number of competitive advantages.”
It sounded like a great setup. But the economy, the collapse of the commodity market and the difficulties facing every alternative energy startup – even those with strong backing and relationships with giants such as Cargill – are pushing BioFuel to the edge. The company says its operations and cash flows are subject to fluctuations due to changes in commodity prices. In December it said it would no longer pursue construction of three more plant sites it had under evaluation, and BioFuel had to write-off development costs associated with that exercise.
It has continued to post operating losses this year “resulting from poor operating margins due to the relative prices of corn and ethanol.”
Further it’s facing the very strong possibility of defaulting on a senior credit facility.
BioFuel’s liquidity position continues to erode. Under the terms of the company’s senior debt facility with a group of lenders who financed the construction of the two plants, minimum quarterly principal payments of $3.15 million are scheduled to begin on June 30. “Based on current operating margins and the company’s liquidity position, the company may not be able to generate sufficient cash flow to make principal and interest payments when they become due during 2009,” it said.
“Failure to make these payment obligations when they become due would result in events of default under the senior debt facility, which we would have up to 3 days to cure.”
June is not far off. BioFuel is scrambling to restructure and reduce costs and it is exploring various alternatives to address its liquidity issues. Options include job cuts, “operating efficiency initiatives,” renegotiation of its supply and service agreements with Cargill, seeking forbearance or some kind of accommodation from its lenders, and seeking new capital.
However there’s no assurance that any or all of those actions will work.
The next step would be bankruptcy, or as the company told the U.S. Securities and Exchange Commission: “If we are unable to reach an agreement with our lenders to restructure our debt or are unable to raise additional capital, or are otherwise unable to generate sufficient liquidity from our operations to satisfy our debt obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern. This in turn could potentially force us to seek relief from creditors through a filing under the U.S. Bankruptcy Code.”
When a company raises the b-word in public, the reality usually soon follows.
Believe it or not, about one-half of U.S. employees who use a personal computer at work don’t shut down their computers at day’s end, wasting nearly $3 billion every year powering 108 million unused PCs.
This is according to the 2009 PC Energy Report, commissioned by 1E and the Alliance to Save Energy. The study, done by Harris Interactive says that a company with 10,000 PCs could save more than $165,000 a year in energy costs by powering down their computers each night.
In the U.S. that tab comes to $1.7 billion and about 15 million tons of CO2 emissions.
Data collected between September and October 2008 revealed that more than one-third of employees in the U.K. (38 percent), 32 percent of U.S. employees and 17 percent of German employees who use a PC at work said they either have no idea what power scheme settings are, or how to change the power settings on their PCs.
We’ve probably all worked for companies – you know who you are – that as a matter of policy don’t want employers to turn off their PCs or workstation units.
Hasn’t anyone heard of the hibernate function?
Greening the supply chain has been a buzz-phrase in the logistics and transportation sectors for some time now. The idea is that by creating sustainable supply chains long-term cost savings, environmental benefits and greater reliability will follow.
It turns out that it’s somewhat more complicated, falling squarely into the “easier-said-than-done” and “window-dressing” categories. That’s because manufacturer supply chains and the rise of global outsourcing have made their chains longer, increasingly complex and difficult to monitor along each link, from supplier to manufacturer to transport, warehousing and distribution.
Now the global recession is weakening green chain links even further, according to Accenture, the global management consulting, technology services and outsourcing firm.
Its recent research indicates that the greening the supply chain is falling prey to the necessity of maintaining revenue and profits. An Accenture survey of 250 supply chain executives found that only 10% of companies even track and model their carbon footprints and follow up with successful sustainability initiatives.
And only 20% of the top, so-called best-in-class supply chains as defined by Accenture are more likely to model their carbon footprints and sustainability projects than other supply chains. Just 9% of those not-as-best-in-class “others” are likely to be involved in that activity.
The study also found that 37% of those surveyed don’t have a clue about the level of emissions in their supply chain network. At least those responding are doing a better job at greening their warehouses, with 86% of them recycling and using natural light, lighting management systems and energy-efficient bulbs.
Accenture said 38% of supply chains have undertaken at least one green initiative in their transport fleet, such as streamlining vehicle design, adopting green fuels and vehicles with hybrid engines.
“The study findings demonstrate that the vast majority of organizations are taking steps to reduce carbon emissions,” said Jonathan Wright, senior executive in Accenture’s Supply Chain Management practice. “However, most are implementing carbon-reduction solutions without understanding their carbon footprint and are therefore unable to measure the real impact those solutions are having on their emissions.”
The logistics industry loves to survey and benchmark itself and spends a lot of time and energy in these activities each year. Exercising a more comprehensive and coordinated approach to measuring emissions and saving energy across entire supply chains would be time better spent and is long past due. And in the long run it will save their bottoms, er, bottom lines.