Professional Documents
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Sustainable Return On Investment
Sustainable Return On Investment
(SROI)
CORPORATE ECO FORUM
2011 Annual Meeting - Defining Next
Practice in Corporate Sustainability
J
June
7th, 2011
Stephane Larocque:
Associate Vice-President HDR Decision Economics
Contents
1. Introduce Sustainable Return on Investment
(SROI)
2 Provide
2.
P
id Examples
E
l off Recent
R
t SROI Projects
P j t
3. Discuss SROI and Sustainability Reporting
4. Explain SROI Methodology
5. Examples
p
of SROI Results/Outputs
p
6. The Client Perspective
7 Interactive Case Study
7.
8. Wrap-Up and Questions
Company
ALeadingA&EFirminNorthAmericawithastrongEconomics
ConsultingPractice
g
Foundedin1917
>7,800professionals
7 800
f i
l
>185locationsworldwide
Completedprojectsin50statesand60countries
Architecture,Energy,Federal,PrivateLand
Architecture
Energy Federal Private Land
Development,ResourceManagement,Transportation,
andWater
3
SROI
ElementsoftheSROIprocesshavebeenusedtoevaluate
themonetaryvalueofsustainabilityprogramsand
projectsvaluedatover$10B
Only
y consider cash impacts
p
Lack transparency
What is SROI?
Its best
It
b t practice
ti in
i Cost-Benefit
C tB
fit Analysis
A l i and
d Financial
Fi
i l
Analysis over a projects entire life-cycle, augmented by:
Accounting for uncertainty using state
state-of-the-art
of the art risk analysis techniques
Engaging stakeholders directly to generate consensus and transparency
Capital
Operations &
Maintenance
Productivity
Mobility
Financial
Return
Financial
& Internal
SROI
External
Costs &
Impacts
Health &
Safety
Greenhouse
Gases
Criteria Air
Contaminant
Water,
Waste, &
Noise
Decision Metrics
Net Present
Value
(NPV)
Benefit to Cost
Ratio
(BCR)
Discounted
Payback Period
(DPP)
Internal Rate of
Return
(IRR)
Return On
Investment
(ROI)
P j
Project
DepartmentofDefence
SROIontheFortBelvoirCommunityHospital,USAG
HumphreysinKoreaandFortBlissinTexas,etc.
BNSF,CSX&UPRailroads
Provedthepublicbenefitofdozensofnewinfrastructure
projectsresultingin$200MingrantsfromTCIFand
another$500MfromTIGERandTIGERII
BostonRedevelopment
Authority
ThecityofBostonusedSROItoanalyzeitsportfolioof
ARRAfundingprojects
ChicagoAreaWaterway
Chicago
Area Waterway
System
UsingSROItohelpdeterminethemostsustainableformof
g
p
physicalbarrierbetweenthegreatLakesandMississippi
riversystem
DenverMetroWastewater
ReclamationDistrict
UsingSROItomakedesign&constructiondecisionson
Denversproposednewwastewatertreatmentfacility
JohnsHopkinsUniversity
ProvidedSROIanalysisofJHUsCampusSustainability
InitiativeprojectinordertosecureLEEDcertification
DepartmentofEnergy
SROIanalysisofenergyandwaterreductioninitiativesat
ArgonneNationalLaboratoryEnergySciencesBuildingin
Chicago
MonetizingSustainabilityReports:
IncreasingNeed
Customers
Shareholders/
Investors
Regulatory
Competition
10
TheChangingLandscape
Source:2008KPMGSurveyofSustainabilityReporting
11
TheBottomLineandSustainabilityReporting
Firstenvironmentalprofitandlossaccount:GHGsandwater
Preparationforfuturelegislativechangeinreporting
Goalisdecisionmakingintegrationintobusinessmodel
Environmentalaccountingsectioninannualreport
Segmentedbyactivity
Segmented by activity
Reportsenvironmentaloperatingandcapitalcosts
Segmentedbybusinessunits
S
t db b i
it
Linksenvironmentalperformancetocompensation
ReportssupplychainprogramsandGHGfootprint
R
t
l h i
d GHG f t i t
Discloseswaterrelatedriskinformationin10K
12
TheBottomLineandSustainabilityReporting
Shifttoasustainablebusinessmodel
Sustainabilityisaroutetoprofitability
Ceres2010winner
Integratingannualreportandsustainabilitydisclosure
Sustainabilityisaroutetoprofitability
Ceres2010runnerup
Utilize3rd partyauditors
Verifykeysustainabilityperformancedata
V if k
t i bilit
f
d t
Bestpracticeforsustainabilitycostsavingsdisclosure
p
y
g
ProvidesROIofsustainabilityinitiatives
13
Quantify&MonetizeSustainability
GHGs
Water
14
CACs
NuclearEnergy
SROI Methodology
A Four Stepp Process
15
16
17
Data
Sources
18
Median
Lower Limit
Upper
pp Limit
$20.87
$7.51
$86.50
19
Client:
Project team
Technical specialists
Financial experts
HDR:
Facilitator
Economists
Technical specialists
Outside Experts:
Costing Experts
Energy Modelers
Architects & Engineers
20
P bli A
Public
Agencies
i & Offi
Officials
i l
Green Power
Credit
Emissions
Savings
GHG
Savings
Total Benefits
Reduced Energy
C t
Costs
Cash Benefits
21
Noise Reduction
Health &
Safety
Non-Cash Benefits
SROI
Annual Value of Benefits
Energy Reduction
Water Reduction
Greenhouse Gases Savings
Air Pollutants Savings
Savings From Reduced
Water Use
Net Present Value
Return on Investment
Discounted Payback Period
Internal Rate of Return (%)
Benefit to Cost Ratio
$8,088
$13,798,340
18.0%
7.7
18 1%
18.1%
2.8
FROI
Annual Value of Benefits
Net Present Value
Return on Investment
Current Design
$554,870
$4 353 935
$4,353,935
15.9%
Alternative
$596,193
$1 391 047
$1,391,047
5.5%
22
25.0
6.8%
1.2
Notes
The total value of the benefits in one year
Cash benefit
Cash benefit
Non-cash benefit
Non-cash benefit
Non-cash benefit
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years + discounted cash flow
Discount rate making NPV = 0
PV Benefits / PV Costs
Notes
The total value of the benefits in first year
PV Benefits / PV All Costs
Average Rate of Return on Capital Investment
Time in years to + positive discounted cash
flow
Discount rate making NPV = 0
PV Benefits / PV Costs
23
SUSTAINABLE TECHNOLOGY /
DESIGN ELEMENT
IMPACT
SROI
LOAD SHIFTING TO REDUCE ELECTRICITY COST. I T SAVES
THERMAL STORAGE
C O-GENERATION
SHAVING)
SOLAR PHOTOVOLTAICS
.10
HVAC EXHAUST
WIND TURBINES
11
12
13
14
OPTION
#2
WATER CONSUMPTION
PRODUCES
ELECTRICITY
HOWEVER
INCREASES
WATER
CONSUMPTION
RECOVERY
PRODUCES ELECTRICITY
HOWEVER
INCREASES
INCREASES
HOWEVER
INCREASES
ELECTRICAL CONSUMPTION
HOWEVER
($2,768,156)
SROI
($1,423,265)
($29,128,501) $11,115,030
FROI
($2,446,650)
($34,064,372)
($14,754,989)
($
,
,
) ($
($11,599,363)
,
,
) ($
($21,409,068)
,
,
)
$5,373,148
$20,496,349
$11,402,984
$758,508
($492,549)
$2,627,693
($66,722)
$2,531,891
$532,460
$7,480,615
$3,314,412
($130,196)
($297,640)
$158,474
($215,818)
($2,658,852)
($3,240,496)
($2,531,472)
($3,776,996)
($1,375,199)
($1,936,041)
($228,491)
($1,512,578)
($1,015,939)
($1,573,125)
($658,058)
($1,857,096)
($768,573)
($3,116,302)
$1,323,187
($3,554,027)
($59,432)
($82,115)
($94,223)
($141,415)
$1,199,726
$929,241
$2,916,764
$2,354,488
$38,151,331
$73,577
$79,618,918
$276,584
WATER CONSUMPTION
ENERGY
($2,277,950)
24
15
WATER CONSUMPTION
FROI
$121,065,684 $1,966,018
$253,166,523 $4,999,118
S-Curve Diagram
25
SROI
77%
27%
100%
MEAN: 11%
MEAN: 43%
18%
57%
16%
90%
15%
14%
14%
13%
12%
12%
11%
80%
Probabilityy of Not Exceeding
FROI
70%
60%
53%
Externalities
Health &
Productivity
11%
50%
37%
30%
20%
6%
10%
43%
42%
41%
40%
39%
38%
37%
36%
10%
10%
9%
9%
8%
7%
7%
40%
51%
50%
48%
47%
46%
45%
44%
34%
31%
5%
19%
0%
0%
10%
20%
30%
40%
50%
26
60%
70%
80%
90%
Scale of Application
Facility
Campus
p
City
27
28
29
Internal
Non-Cash
Benefits
30
Employee
Health &
Safety
Diversity
Reliability
Green
House
Gases
Criteria Air
Contaminant
Landfill
Waste
Public
Acceptance
Permitting
Other
Soil Erosion
Motorist
Safety
Odor &
Water
Costs
1
Proven Performance
Adjustment
Days / Year
Cost of Freight
Transportation
Reduced Freight
Truck Miles
Increased Revenue
from Class A Biosolids
Increased Energy
Consumption
$ / Mile
Miles / Year
$ / Year
$ / MWh or MmBTU
Benefit of Reduced
Transportation O&M
Benefit of Incremental
Revenues from Biosolids
$ / Year
Y
$ / Year
Y
Incremental Capital
Costs
Cost of Increased
Energy Consumption
Other Incremental
O&M Costs
Capital Replacement
Costs
$ / Year
$ / Year
10
Discount Rate
%
FROI
32
33
Benefits
Proven Performance
Adjustment
Costs
Days / Year
Reduced Freight
Truck Miles
($/truck mile)
Miles / Year
4
GHGs: Diesel
Conversion Factor
CACs: Diesel
Conversion Factor
Reduced Diesel
Consumption
Gallons
GHGs
Conversion Factor
Incremental Energy
gy
Consumption
CACs
Conversion Factor
Tons / Year
T
Tons
/ Year
Y
Tons / Year
Tons / Year
11
10
% difference
Dt/year
$ / Year
$ / Year
$ / Ton
$ / Ton
12
Reduction in Land
Application
Benefit of
Diversification
(Reduction in GHGs)
Tons / Year
Benefit of Improved
Safety (Truck
Accidents)
Benefit of
Diversification
(Reduction in Tipping
Fees)
$ / Year
13
Social cost of CO2
$ / Ton
Benefit of Improved
Public & Stakeholder
Acceptance
$ / Year
Benefit of Reduced
Transportation O&M
$ / Year
Cost of Thermal
Drying Equipment
and O&M
Cost of GHGs
Increase
Cost of CACs
Increase
$ / Year
$ / Year
$ / Year
$ / Year
14
Discount Rate
%
GHGs
SROI
34
CACs
- Sulphur Dioxide (SO2)
- Nitrogen Oxides (NOX)
- Particulate Matter (PM)
- Volatile Organic Compounds
(VOCs)
35
36
ISROI
100%
SROI
-$129
-$113
-$136
90%
-$120
-$141
-$143
-$126
-$145
-$126
-$128
-$146
-$127
-$128
-$127
$
-$129
-$147
$
-$128
-$129
-$130
-$149
-$150
-$125
-$126
-$127
$
-$147
-$155
-$125
-$127
-$145
-$160
-$124
-$126
-$144
0%
-$130
-$131
-$136
-$140
-$135
-$130
Total NPV (Millions)
37
-$124
-$125
-$143
10%
-$123
-$125
-$142
20%
-$123
-$124
-$142
30%
-$122
-$124
-$141
40%
-$122
-$123
-$140
50%
-$121
-$123
-$140
60%
-$121
-$122
-$139
70%
-$120
-$122
-$138
80%
-$119
-$121
-$137
-$112
-$120
-$110
-$100
38
Questions?
HDR Practice Group Leader for SROI:
Stephane Larocque
Or
SROI@hdrinc.com