Why Sustainability Isn't a Bad Word in Corporate America

By Markets Fool.com

Corporate social responsibility and sustainability are popular words in corporate America these days. Companies are hiring chief sustainability officers, who report directly to the CEO, and they're incorporating social responsibility in presentations to investors and even in products to customers.

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So, it's important to understand what corporate social responsibility and sustainability mean to companies and how they look at them. For companies that do this correctly, a focus on something like sustainability can change the way they operate for the better, leading to higher profits. Let's look at one example that's being helped by some of the biggest names on the market today.

Solar panels overlook a retention pond at La Crema Winery, part of a closed loop water system.

What is a gallon of water worth?
It would be great if companies could operate with zero energy, no water, and absolutely no environmental impact. But that's not the reality of the world we live in.

Instead, companies looking at sustainability have to balance impact, investment, and financial payback. To do this, it's important to be able to measure what you're using and what the cost is. That may seem simple, but if you've ever taken a class on managerial accounting, you know it's incredibly complicated to associate overhead costs like electricity, water, sewer, etc. with specific products.

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For wineries like La Crema -- and most wineries in California -- water is something that is particularly tough to justify saving. They use wells on-site, meaning that water is essentially free, so even the drought going on today in California has very little impact on their operations. But water does have a cost. Water has to be treated, it's held in a holding pond, and there are energy costs to irrigate as well.

In the case of La Crema, after adding up all of these costs, they calculated that a gallon of "free" water actually cost them $0.03. The fact that it's three cents and not $3 is irrelevant. What matters is that there's an economic value to conservation and sustainability. From there, they can calculate the financial impact on investments to save water and make smart business decisions that help lower their environmental impact.

Another set of solar panels are accompanied by a Tesla energy storage system (white boxes in the foreground).

Taking a holistic view at energy
Concepts like valuing a gallon of water may seem abstract, but they're analogous to the challenges companies face looking at production inputs. In energy, companies know what their utility bill is every month, but how much do they know about how or where energy is consumed? Likely, not much.

This presents an incredible opportunity for companies who can help commercial energy customers understand their own energy consumption as well as add value with new innovations like on-site energy generation.

In the case of Jackson Family Wines, they brought in EnerNOC to help them understand their energy usage better. EnerNOC has developed a software platform that can make companies smarter about how they're using energy and identify areas of potential savings. For example, in La Crema Winery's case they use 40% of their energy on refrigeration. Quantifying that can potentially justify increasing insulation, replacing cooling units, or other upgrades that could save energy costs long term. Without that quantifiable data, you're making conservation investments in the dark.

To go a step further, EnerNOC brought in Tesla Motors to test energy storage at Jackson Family Wines. Tesla paid for the cost of the battery system, so it's hard to asses returns on batteries today, but they added another layer of data and provided the ability to cut peak demand, saving demand charges. This has led to a 10% reduction in energy bills at the winery.

In the hot, sunny valleys of wine country solar energy can also be very cost effective. When Jackson Family Wines looked at filling abundant rooftop space with solar panels, they calculated a 15.5% internal rate of return on buying solar panels. What manager wouldn't love that?

Here's the key takeaway from this example: Notice that things like solar energy, saving water, and lowering energy usage are all sustainable moves, which help lower the impact La Crema has had on the environment. But they're driven by economics, so they're also good business.

The changing face of sustainability
This is only one story of how a company looks at sustainability, but many companies across the country are looking into using less water, less energy, and having less impact on the environment they exploit to make profits. What investors can take away from this is that there are opportunities for companies that provide the solutions they need.

EnerNOC is helping companies understand their energy usage and bring demand response, solar, and energy storage into the mix. Tesla is clearly seeing an opportunity in this space as well, although its role is less defined at the moment.

There's a big opportunity in sustainability, especially in energy. Those who can exploit that will be great performers for investors long term.

The article Why Sustainability Isn't a Bad Word in Corporate America originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends EnerNOC and Tesla Motors. The Motley Fool owns shares of EnerNOC and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.