How Adidas cashes in on lucrative energy savings and why so many other companies don’t
▶ The German company funds energy savings with a VC model ▶ “The high-return projects subsidize the low-return ones”
Replacing fluorescent lights or sodium outdoor lamps with LEDs makes sense from both a conservation and an economic standpoint. While LEDs cost more upfront, their longer life span and energy efficiency mean the initial investment can be recovered in just a few years. After that, LEDs generate a positive rate of return, freeing up cash for other expenses. Such calculations, however, don’t usually sway chief financial officers, who often view capital investments outside their core business as distractions. To help make the business case for sustainability, the Environmental Defense Fund began a program in 2008 that recruits MBA students and puts them through a week of training in which they learn to talk about energy efficiency in ways that bean counters can relate to. The
nonprofit then places its Climate Corps fellows at companies for 10- to 12-week internships. “They come in with a sense of humility and open ears,” says Liz Delaney, who runs the program. “A fresh perspective uncovers real solutions.”
Elizabeth Turnbull was one of 125 who completed the Climate Corps training in 2010. She was assigned to work at Adidas’s offices in Canton, Mass., the global headquarters for the Reebok brand. Progress was slow at first, partly because her managers didn’t give her any money to invest. So Turnbull spent her summer reading white papers on energy efficiency and talking to building managers and IT technicians to gain insight into operations. When she graduated from Yale the following year, she was hired full time by the German maker of sports footwear and apparel to find the best ways to reduce energy consumption across its many offices and 2,700 stores worldwide.
Turnbull presented her boss with seven projects involving mostly lighting retrofits and cooling systems. She got $750,000 to spend on the ones that could generate 20 percent returns. Using this venture capital model, Adidas has since funded 49 energy efficiency projects at a cost of about $5.5 million. The company now sets aside $2 million to $3 million a year for this purpose.
According to Turnbull, the internal rate of return has averaged 33 percent across the portfolio. The resulting reductions in carbon emissions are equivalent to taking a thousand cars off the road, she says. Not all projects meet the benchmark of a 20 percent return. “The high-return projects subsidize the low-return ones,” she says. “That’s a key innovation that we did. Before, someone said, ‘It’s more than a three-year payback, so I’m not gonna touch it.’ ”
In 2013, Adidas installed a fuel cell at its TaylorMade golf club fitting and testing campus in Carlsbad, Calif., which also houses an energy-intensive data center. The investment would have taken years to pay off had the company not used a leasing arrangement. A fix Adidas made at one of its largest server farms in Germany recouped its cost in just five months. There, the chillers that keep the servers from overheating weren’t nearly as efficient as they could be, so Adidas put in glass partitions to separate the exhaust heat from the incoming cool air.
The U.S. Department of Energy has been working with the Retail Industry Leaders Association (RILA) to get companies to curb their energy consumption. Several, including Best Buy and
Sprint, have already met the DOE’s prescribed goal of cutting energy use 20 percent by 2020, says Holly Carr, an energy technology specialist at the Energy Department. Although Adidas isn’t there yet, RILA and the DOE have been touting its VC-like approach to generating savings as a model for the industry. “We knew financing was a big challenge for many of our members,” says Erin Hiatt, senior manager of sustainability and compliance at RILA. “Now we can show CFOs that these investments are measurable opportunities.”
The bottom line Adidas sets aside as much as $3 million a year to fund a portfolio of energy conservation projects that deliver high returns.