Unlocking the benefits of energy efficiency: An executive dilemma Chris Webber Senior Editor The Economist Intelligence Unit

Unlocking the benefits of energy efficiency An executive dilemma A report from the Economist Intelligence Unit Sponsored by Ingersoll Rand

UK energy consumption affected by downturn Source: DECC

UK fuel mix evolving Source: DECC

UK and European CO2 emissions falling slightly… Source: World Bank

…but increasing rapidly in US and China Source: World Bank

UK industry share of consumption declining Source: DECC

UK energy efficiency improving significantly Source: DECC

Energy still a rising share of costs for UK companies Source: DECC

In October 2010, the Economist Intelligence Unit conducted a global survey of business managers involved in their firms’ energy efficiency initiatives The EIU survey Demographics Respondents278 total Job titles32% CEOs, presidents or managing directors 24% represented other c-suite or board member positions All respondents held management roles FunctionA range of functions IndustryA range of industries Company size51% of respondents’ firms have revenue over US$500m

Five years from now, will energy efficiency initiatives be more or less important to your company’s business strategy? Efficiency becoming more important 77% think it’s going to become more important over the next five years Only 19% think it’s going to become less important 84% of us think energy efficiency is strategically important 49% say action on energy efficiency has saved their company money in the last three years

Energy efficiency benefits Cost savings ‘Energy treasure hunts’ have saved GE $130m Estimated £1.6bn per year still being wasted in UK alone Brand value & market differentiation “Cutting carbon is a great environmental story, so customers will reward you for having low carbon credentials” Harry Morrison, Carbon Trust Standard Company Carbon emissions Cost effective way for firms to cut emissions But not a solution for overall emissions reduction

ramme? Cost savings the main benefit Question: What are the most important reasons for your organisation taking steps to improve energy efficiency? Cost savings Enhanced brand reputation Market differentiation Increased revenue Enhanced ability to hire talented workers Enhanced ability to raise capital 68% 54% 43% 32% 12% 9%

Question: how much of your company’s annual energy bill would you estimate has been saved by energy efficiency initiatives in the past three years? Reported savings 27% 42% 16% 4%

 Scarce resources Performance contracting Green Deal  Lack of expertise Audits from the public or private sectors Hire specialist staff or consultants  Split incentives Irresolvable disconnect between landlord and tenant interests? Energy efficiency challenges

Funding and ROI are the biggest concerns Question: In your opinion, what are the most important factors in helping to integrate energy efficiency initiatives into business strategy at your organisation? Proven return on investment Sufficient funding/resources Energy efficiency management External incentives Senior management support Government policies Internal incentives Employee consultation 46% 42% 40% 39% 38% 22% 21% 18%

Question: What type(s) of tactical and strategic energy efficiency initiatives has your organisation undertaken to date? More are focused on low-hanging fruit Improved lighting Government regulations Improved air conditioning Improved heating Buildings (e.g. insulation) IT department Plant and equipment 68% 53% 47% 45% 40% 35% 33%

Does your organisation do enough to integrate energy efficiency initiatives into business strategy? C-suite disconnect? C-suite Non c-suite Question: In your opinion, does your organisation do enough to integrate energy efficiency initiatives into business strategy?

Energy efficiency is a no brainer. Significant cost savings and potential brand benefit Businesses already making progress, but clearly more money to save (est. £1.6bn in UK alone) Environmental rationale questionable, but still a clear business case Scale of government support (via Green Deal) still uncertain Conclusion

Chris Webber Senior Editor Economist Intelligence Unit