Sustainable plants: Survey reveals why recession hampers corporate green initiatives

The economic recession is delaying some sustainability-related corporate spending, according to a new survey from Booz & Co ., but other signs still point to the continuing focus on sustainability in the manufacturing sector.

Booz & Co., a global management consulting firm, surveyed 828 senior managers in December 2008 about their confidence in leadership moves in the face of the current economic crisis. One survey finding revealed 40 percent of respondents expect green and other corporate social responsibility (CSR) initiatives to significantly slow due to the downturn. The pullback is especially pronounced in the transportation and energy verticals, with, respectively, 51 percent and 47 percent of respondents in those sectors saying their CSR agendas will be delayed.

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In industrial goods manufacturing, 38 percent agreed the economic crisis would delay CSR progress, and in consumer goods, 40 percent agreed there are delays. In an interview with Manufacturing Business Technology , Conrad Winkler, a Booz & Co. partner based in Chicago who works with manufacturers, notes that the survey’s CSR finding was only one small part of the study, and did not delve into detailed sub-questions about green spending. But he believes the economic crisis is negatively impacting green initiatives in the manufacturing sector for three key reasons:

• A severe contraction in the building of new plants or lines to accommodate increased demand. Green projects often piggyback on capacity expansion projects, Winkler says, and with the down economy, the need for capacity expansion projects “is just absolutely getting cremated.”

• Credit from banks is harder to get or more expensive, and cash is tight at many companies, making it hard to get the green light for any project that lacks minimal cost and rapid payback.

• The significantly lower cost of gas and energy in recent months changes the payback calculation on some green initiatives.

“There are some companies for which the push [for green] is so important to their reputations—from the board room on down—delays are not happening.”— Conrad Winkler,

But even with these factors working against green projects, says Winkler, it’s notable that close to a third of companies surveyed (29 percent) don’t think the economic crisis will delay CSR projects. Winkler believes green projects tend to be higher priority for branded, consumer-facing manufacturers.

“There are some companies for which the push [for green] is so important to their reputations—from the board room on down—delays are not happening,” Winkler says. “The companies that don’t have a consumer brand that could be affected are the companies more likely to pull back.”

John Nesi, VP of market development for Rockwell Automation , a major vendor of plant automation products and solutions, agrees with the notion that delays in green spending are tied to tight spending in general, and specifically, the general drying up of capacity expansion projects. “I see people [in industry] holding back on spending period,” says Nesi.

However, Nesi points out, some sustainability-related projects do tend to proceed in a down economy—especially those that carry a process or plant safety benefit as their primary driver.

John Nesi, VP of market development, Rockwell Automation, says sustainability-related projects that carry a process or plant safety benefit as their primary driver will continue no matter what the state of the economy may be.

Other measures that tend to proceed, he says, are very low-cost conservation measures that can be indentified during energy audits, or relatively low-cost improvements such as adding a layer of monitoring or intelligence over existing equipment or control devices. But Nesi concedes, “We are in an era of Draconian cutbacks for capital expenditures.”

On the plus side, high consumer expectations around sustainability tend to buoy corporate interest in green spending, Nesi adds. In a recent consumer survey sponsored by Rockwell and conducted by Opinion Research Corp ., when considering attributes of a manufacturing company, Americans rated product safety (86 percent); employee safety (84 percent); and environmental issues as “very important” attributes—80 percent ranked “use natural resources efficiently” as very important.

By contrast, only 59 percent rated the ability of a company to keep current prices or reduce them as very important.

“The public has hit the tipping point in social consciousness about sustainability, and companies have heard that load and clear,” says Nesi. “The companies that have adopted sustainability values wholeheartedly are the consumer product companies, because frankly, their brand is on the line.”

Nesi believes when the economy begins to recover, green-related spending will be one of the first areas to surge. In the meantime, companies in resource-intensive industries such as mining continue to invest in energy- and water-reduction technologies, while other manufacturers will tend to look at smaller-scale green technologies or conservation measures.

Examples of smaller green improvements, Nesi says, could be installing variable-speed drive technology to equipment such as large ventilation fans or conveyors, or a simple tactic such as inspecting air hoses for leaks.

“Sustainability is just plain good business,” says Nesi. “It’s cost control.”

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