We were on a call the other day with Jim Fascetti, who’s the head of our corporate environmental responsibility team. Some of you might have seen the article that appeared in Time magazine about corporations, and how they’re going green and what’s being done. Jim alluded to the fact that Jamie Dimon, who you all might have heard of, gave him a call and said, “Jim, glad we made the list. Why are we No. 41 and not No. 1?”
It’s definitely a part of our culture. It’s very important for us that we go green. So I’m very proud and happy to be able to make these presentations today. Why is corporate environmental awareness important to J.P. Morgan Chase? First and foremost, as good corporate citizens and as citizens of the world, it is our paramount duty in order to manage our impact on the environment very closely. So we look introspectively and carefully at what we’re doing, trying very hard to make sure that we’re operating efficiently internally and working closely with our clients to help make sure that the banking practices that they’re following are efficient for the environment.
It’s very important within the financial industry that we see this not as something that’s evolutionary, but something that’s going to completely revamp the way we do financial services. There are going to be new products popping up as a result of many of the Go Green initiatives. There are also new opportunities for us to bring fresh thought around what we can do from a banking perspective that can help our clients and the environment.
Finally, we think that there’s a good business opportunity here and we can do things along with our clients to help make the world a better place. So what are we doing? As I stated initially, we’re looking introspectively. We’re taking a very close look at our operations. A company like ours, with over 200,000 employees worldwide, offices throughout the United States and over 5,000 branches, can have a very significant impact on the environment. Negative or positive.
It’s up to us to make sure that we do it right and that we’re good environmental stewards. We’re engaging closely with our clients to help them understand the benefits of going green. Going green doesn’t mean that you have to spend more money in order to do business processes. In fact, what we’re finding with most of our clients is that if they operated green, they would be more efficient. Some of the case studies that you are going to see definitely point the finger at the fact that it’s not only profitable, but it’s the right thing to do.
We’re working very closely with some of the legislative branches both at the state level and federal level. To give you a good example, federal legislation called Check 21 was enacted a few years ago. Now that we do electronic check clearing, it has dramatically affected our paper impact on the environment. It has reduced the number of trees that we’re taking down, and we don’t have to carry checks back and forth across the country anymore.
The net benefit to our organization alone has been a cost savings in the several hundreds of millions of dollars a year. If you expand that across some of the other corporate entities, we’re talking billions of dollars saved as a result of Check 21, and it’s better for the environment with no net impact to the client whatsoever.
Finally, we’re taking a look at our environmental and social factors and making sure that as we sell and create new products, they’re in the best interest of not only us and the client but the environment. So what is J.P. Morgan Chase doing specifically? The first thing we’re looking at is our energy and CO2 usage. Where are we spending money on our infrastructure? As I mentioned, we have over 5,000 branches, large commercial properties scattered throughout the country and internationally.
Best Green Strategy 2010 Transcript
We’re doing everything we can in order to make sure that those buildings are operating efficiently and that our branches are efficient. From a paper perspective, we generate about 120 million statements a year across our retail franchise and credit card franchise. We are the No. 1 customer for the United States Post Office, and obviously that has a huge economic impact as well as a drain on environmental resources. So obviously we’re working on trying to convert our clients to be green as quickly as we can. We’re working closely with our retail clients as well as our credit card clients and trying to convert them to electronic statements.
But in the cases where we can’t, we’re taking a look at things like using thinner envelopes, using thinner sheets of paper and making paper lighter so it costs less to fly it across the country. We’re looking very closely at the travel that employees are doing and making sure we’re managing it efficiently. We’ve developed teleconference sites at all our major locations, and we’re trying to encourage our employees to use teleconference whenever possible.
And of course, we’re looking at what we’re procuring and utilizing within the corporate environment. So where we have cafeterias, are we using sustainable food supplies? Are we using materials within the cafeterias that are sustainable or recyclable? As we look across our organization, we’re looking very carefully at how we’re using the environments and what we can do in order to make it a little bit more efficient.
We’re also working very closely with our clients to make it a better experience for them. I’m responsible for the Treasury Services area, and we’re primarily working with our clients on paper reduction at the moment. We’re taking a look at all those clients that are getting duplicate statements -- whether they’re getting them electronically by a SWIFT, by a pull-down PDF e-mail, however they’re getting their information -- and informing them that it’s in their own best interest to cut back on the paper statements and migrate to electronic.
We’re also working very closely with our lock group because lockboxes are very paper intensive operations. We’re working closely with them and with the clients to encourage the clients to move to an electronic process, which is best in breed.
Our retail franchise is working closely with our clients trying to get rid of those 120 million statements that we mail out on a monthly basis. We’re constantly coming up with new products, new services, new ways for clients to access their information, which is a little bit more efficient for them and a whole lot more efficient for the environment.
On the investment bank side, we’re looking at it from a slightly different approach. We’re looking at it more from what we could do from a product basis in order to make things more efficient for our clients. What can we do to help our clients go out and get green technology? We’re doing that in two different ways: 1) We’re taking a look at the commodities market and seeing where opportunities are manifesting there; and then 2) we’re looking at the lending market and seeing what we can do with our clients in order to better organize lending so that they can make economic purchases that have a longer term payoff.
In treasury services, almost two years ago now, we took a look at all the paper we were generating, and although we’re not creating 120 million statements a month like the retail franchises, we still have on the order of tens of thousands of clients that all get DDA statements, reconciliation statements, lockbox paper, stop advises, credit card statements, anything you can possibly imagine that we can produce in paper we do, and we mail it.
And we mail it with feeling because we like to mail stuff. So obviously if we can migrate our clients into an electronic utility, it makes it more efficient for the client. A lot of times the clients are doing it anyway. What we like to do is get our clients to change their mindset and move off of the paper. We started out with three products -- receivables, disbursements and DDA statements -- and we campaigned around those with a team of about eight people that Greg Long from my team is running.
We used a combination of strategies, depending on the client, how we were going to go after them and help motivate them in order to turn off the paper. In a large case, we started with the high-volume clients and we called them and said, “Look, these are other services that are available to you, and this is what we can do.” In order to be more successful with the clients we developed an eco-analysis tool. That helped them see that what they were doing not only had a profound benefit to the environment but also saved them money. And if it’s saving them money, incidentally, it’s also improving our profitability.
Best Green Strategy 2010 Transcript
It’s really a win, win, win. In order to keep this campaign going, we decided we need very strong management reporting. We worked really hard to make sure that we could count the widgets that we were saving and that we could project that up to management so they were clearly aware of what we were doing and how we were managing the effort.
And then we partnered with the clients to reduce the environmental impact of the treasury products. We worked very closely with our clients. Like I said, Greg Long’s team took the high-volume lockbox clients and the high-volume disbursement clients and they started calling them, pitching them not only the benefit of going green to the environment but the benefit to their bottom line.
What were the results of this campaign over the last two years? We’ve saved over 101 million documents, over 3 million pounds of paper, 33,000 trees, or several times the area of the City of New York, and 50 million pounds of greenhouse gases reduced. Like I said earlier, it’s win, win, win. From the environmental point of view, which of course is paramount, we’ve cut back on the amount of paper we’ve created and mailed. And we got rid of all the transportation costs associated with it.
From a client’s perspective, in almost all cases we’ve reduced their fees and been able to provide the same level of service, if not better service, electronically while saving them money. And then from a bank perspective, we’ve increased profitability on a lot of our profits because we don’t have the expense related to mailing the paper out.
For the clients, the benefits are numerous. Moving to electronic provides better business continuity, better disaster recovery, and it’s more efficient for the clients to operate. They’re getting reconciliation information earlier; they’re getting statement information earlier for their DDA statements.
From a receivables perspective, when you migrate them to electronic payment mechanisms they’re saving energy and time because they aren’t dropping deposits off at the branch. They’re getting quicker availability of their balances. So there’s a profound change to the way the clients do business with us, and as we continue this program we think that more and more clients are going to get the message.
To recap, I think from a corporate point of view it’s extremely important for J.P. Morgan Chase to manage the environment and manage our impact on the environment. We’re doing it externally, we’re doing it with our clients, and we’re doing it across our product suite. From a treasury services point of view, we’ve focused primarily on paper elimination. Within the last year and a half we’ve been phenomenally successful, and our goal is to keep this up and expand it across broader and broader aspects of not only treasury services but our security services business and investment bank.
Now for the more important part of this, I’d like to move on to the presentations. First, I’d like to give the bronze award to Laura McGhee, who’s the treasury manager at Kforce. She joined Kforce in 2002. Prior to Kforce, she worked at the Army Air Force Exchange as a senior accounting supervisor. She’s received several awards from Kforce, including Employee of the Year.
Laura McGhee, treasury manager, Kforce: Good afternoon everyone. As Iggy stated, going paperless is something that people should be more passionate about, and we would be your favorite client in that aspect. Shakespeare once asked, “To be or not to be?”, and at Kforce, we ask, “Adobe or not Adobe?” The presentation that you are about to see is so simple, so cost effective, and so easy to implement that we often wonder why we didn’t do this before.
Let me tell you a little bit about Kforce. We are a professional staffing and solutions firm based out of Tampa, Florida. We had approximately $1 billion in revenue for 2008. We have 62 offices in 41 markets across the country. We have approximately 7,000 employees right now that are out on assignment.
Why go green? First of all, cost effectiveness. Secondly, record retention and retrieval. It’s better for the environment, and we are also looking for remote working opportunities.
This is Minnie. She is our treasury specialist. If Minnie is not happy, nobody is happy. So, when we have a problem, we obviously have to find a solution.
Best Green Strategy 2010 Transcript
We started a project, “Go Green or Die,” in August of 2008, with the initial goal of being a paperless treasury department. The overall goal, however, was being able to build a replicable process that other departments in the firm would be able to use as they went forward with their go green initiatives.
We are all professionals here in finance, so the big question was, how can we do this and positively impact the bottom line? Three letters: PDF. The solution that we chose was to convert all documents to electronic form using Adobe Acrobat Standard. Essentially, we use Adobe as our printer, instead of printing to a traditional printer.
The total cost of this was $1,000. We got four licenses, $250 each. No problem at all. The savings, about $25,000 a year, that’s a payback of less than two weeks. Again, that’s really only for four people, so the more people you add to this project, the more money that you are going to save.
This is a continuous process, not stopping at the first year, because you are continually not using the paper that you would have been using. How do we get that number? Basically, we used a Six Sigma approach. We listed all the documents that we were going to have to convert, estimated the number of pages and actual paper costs, actual storage, and real estate cost.
Then we had to estimate the number of hours that our people were spending on a daily, weekly and monthly basis at the copier or at the scanner versus being able just to print them directly to Adobe. One thing we didn’t have to calculate, however, was the need for any kind of outside consultants or vendors because we were able to do everything in-house. The treasury department developed all the process flows, the training, and we also worked with all the departments to make sure that everyone was on board before we went live with the project.
It’s not that we didn’t have any issues, though. Like I said, everything had to come to and from treasury electronically. That was not just bank statements, stop payments and things we would get from the bank. It included all forms. How many forms do you guys have? We have a form for a stop payment, for a refund, gift card and anything like that. We had to make sure that all the forms, which previously needed to have signatures on them, came to us electronically.
That leads us to the next point.
Audit compliance with the physical signatures that were required. We had to work diligently with our internal as well as our external auditors to come to an agreement with what they would accept as an original signature for audit purposes and forms that they were requesting.
Old dogs, new tricks: Gaining executive compliance on the electronic approvals. We all remember when we were little and we had our little blankey that we carried around. I associate that with the pen and paper, that often times people have to see everything in front of their face. I know a lot of you in the audience are probably large offenders of this, and so, getting the executive compliance wasn’t exactly difficult. It was just getting a different mindset, and getting them trained on what was going to be needed to do in the future.
Finally, locating the electronic items in a timely fashion. We don’t want to get into the same situation we were in before, where we were searching through files. We couldn’t find anything when it was printed out, or we took a while to find it.
We had to make sure we used a common naming convention when we were saving the files so that they would be accessed easily. We accomplished our goal, with the initial results eliminating the need for onsite or offsite storage.
Original assessment said we were going to save around 100,000 pieces of paper per year, but after the project had been in place for a year we did a reassessment, and came to the conclusion it was closer to 200,000 pieces of paper. We documented 22,463 files to be exact. At an average of four pieces of paper per file, and you know some of your bank statements can be upwards of 30 pages, so…
It’s just a rough estimate, but we have literally doubled our original estimate in savings on the paper and materials. With the increase of the treasury department bandwidth of over 300 hours per year, it has really allowed for some much needed scalability.
Best Green Strategy 2010 Transcript
We really like to do acquisitions. Also, during peak times of audit, bank audit and external audit, it allows us to be able to do those items without adding headcount, which is obviously something that we are all for when it comes to spending money and saving money.
As we discussed before, something we were looking for was a work from home, or a work remote, option. That was definitely not a possibility prior to this project because everybody had to be there at their desk receiving the forms, receiving the requests to be able to process them. Now, because we do have the work from home or work remote option, flexibility in schedules leads to happier employees, and we like to use that as an employee retention tool.
There we are in sunny Tampa, Florida, when there are not hurricanes. Business continuity should be a concern of all firms, but more specifically, for those of us who are in a high risk, inclement weather area. We have a centralized treasury department in Tampa, so if something happens to us, nothing happens anywhere else. We must have a solid and flexible plan so we can just pack up and go wherever we need to, whenever we need to, and still be able to function on a daily basis.
Now that we are no longer dependent on the physical signatures, Blackberry has become a mobile solution for approvals. That leads to a quicker turnaround time on approvals and requests, which leads to improved customer service. As you said, it is a win-win for everybody.
Finally, it has allowed the platform for other departments as they gear towards the paperless environment as well. Currently we have accounting, accounts payable, payroll and corporate tax that are on board with their own go green initiatives. Next up, basically, is the rest of the firm.
It’s so simple, easy and cost effective. It is something that any firm should be able to implement into their system.
Finally, here is our team. We have treasurer Judy Genshino-Kelly with us here today. Without these people, we could not have done what we did. That’s it!
Moderator Iggy Khan: Laura, congratulations on your award. Next I’d like to bring up Kirsten Spreck for the silver award. Kirsten’s from Thrivent Financial. She’s the director of corporate real estate, with 20 years of experience in property management. She has the overall responsibility for Thrivent Financial’s corporate properties, for the national lease portfolio of field leaders offices and for subsidiary properties.
Kirsten Spreck, director of corporate real estate, Thrivent Financial for Lutherans: Thank you, good afternoon. As one of the co-leaders, I am also here representing Thrivent’s Green Team. We have a few of our other co-leaders here in the audience, as well as Thrivent’s treasurer.
Let me tell you a little about Thrivent Financial for Lutherans. We are a Fortune 500 not-for-profit membership organization. We aim to help our more than 2.5 million members achieve their financial goals and give back to their communities. We have $61.9 billion in assets under management. We operate, primarily, from out of our corporate center in Minneapolis, Minnesota, and our operations center in Appleton, Wisconsin, which is near Green Bay. So we have our Vikings-Packers thing, and now that the Vikings have Brett Favre, we’re having some fun with that. We have field leadership and financial representatives all across the country that face off with our members.
Our green strategy has really been launched with the Energy Star Program at our Minneapolis corporate center. Our Green Team really has had grassroots beginnings, with executive sponsorship reporting up through the CFO of our organization. We have a cross-functional group of more than 70 employee volunteers that participate in brainstorming and idea generation for green ideas. Our aim really is to promote, educate and initiate green ideas with positive environmental impacts and dollar savings impacts. We really are trying to allow employees who are passionate about this to be a part of it at Thrivent.
Best Green Strategy 2010 Transcript
Because commercial buildings make up about 40% of CO2 emissions, the Energy Star Program really was our initial focus. The Energy Star Program was initiated by the Environmental Protection Agency in 1992, as a voluntary market-based partnership program aimed at reducing greenhouse gas emissions. They look at buildings across the country, and on a scale of 1 to 100 they rate based on efficiency. Those buildings that achieve the Energy Star rating are those buildings that are in the top 25% of efficiency. Most people recognize the Energy Star; you see it all over appliances. Well, buildings too, can get the Energy Star rating.
At Thrivent, a few years back, we decided we were going to invest in bringing ourselves up to the Energy Star rating. We rated ourselves, and we were at 44%, so we had lots of room for improvement. We launched a program that took a few years, focused in two primary areas. The first was retro-commissioning of our existing systems, where we take what we have in the building and make sure they are operating at the optimal place. Then we looked at systems that were due for renewal, renovation and upgrade, and we made energy-efficient choices.
Here are some of the highlights: We did lighting retrofit. We did an optical??? start program, with variable frequency drives on fans and pumps. we did a lot of smart building options. The benefits exceeded what we expected. We have seen an annual energy cost savings of $600,000, which is 37% percent of our utility budget. We have increased occupant comfort, and what we are hearing is that not only do we make an impact on the environment, but we improve performance and save on the bottom line. And we have reduced CO2 emissions by 6,000 tons, which is equivalent to taking 1,100 cars off the road or lighting 2,400 Minnesota homes.
With our green strategy, we are taking this Energy Star program and using it as a springboard to launching retro-commissioning at our operations facility in Wisconsin and achieving Energy Star there.
We are also plugging away at other energy-efficient ideas. We are starting a restroom renovation project that is expected to achieve 3 million gallons of water savings each year. We are educating employees wherever we can on big and small ideas. Use of revolving doors in our corporate center is one idea that we have promoted. We are expected to save $9,000 a year in energy savings just by getting people to use the revolving doors. We are also exploring wind energy in Appleton.
For us, the important thing is to make sure that we are looking at the return on investment. Reducing our impact has to make economic sense in terms of ROI. We have explored a couple things that have not made economic sense. We did explore solar power to heat our domestic water, but economically, that didn’t make sense, so we chose to pass on that. So we are pulling together the numbers on wind, and we will see what we get there.
As we continue, this group of employee volunteers is really getting organized in several key focus areas. It’s exciting to see the education and volunteerism. We have an internal web page that links people to volunteer opportunities and resources. We have regularly scheduled lunch and learn meetings. We try to make the most of opportunities, like Earth Week, to educate and share information. We have a passionate employee-commuting group. And believe it or not, we have employees who ride their bikes to work year round In Minnesota and Wisconsin.
Some of the tools and resources that we have put into place support employees getting to work by sustainable means. In Minneapolis we have nearly 50% of the population getting to work other than by driving a car. In Appleton, our suburban location, we are nearing 10%, so we are making some headway there as well.
Recycling is another area of focus for the team. We have just been going gangbusters in the last couple of weeks. We have stopped putting any kind of food into the trash. Food that we don’t use gets donated to a local homeless food program. And food waste is going to the local livestock farmers. So we are keeping that out of the trash.
As for paper reduction and how our company is trying to be efficient, we bring laptops to meetings and have experienced a 75% reduction in printed paper.
With furniture and equipment, we are being more creative on how we repurpose, donate and sell all furniture. This year we are expecting to keep 50,000 pounds of furniture equipment out of the landfill.
In addition to that, we have got videoconference and other opportunities that we are exploring to reduce travel and other things.
In closing, we want to thank you, and we are very honored to receive this award.
Best Green Strategy 2010 Transcript
Moderator Iggy Khan: Thank you Kirsten. Finally, I’d like to have Michael Suriano, director of corporate and structured finance at Honeywell, come up to accept the gold award. Michael leads the team responsible for leasing finance, trade finance, structured finance transactions and corporate finance across Honeywell.
Michael Suriano, director of corporate and structured finance, Honeywell International: Before I begin, I want to thank the Treasury & Risk management group here for being so supportive of Honeywell over the years and also my team member, Ed Wojtowicz, who’s at the table on the right there And was very supportive in both working on the project and helping us write this submission.
So what was our project? Actually, I’m going to give you some background because after spending time with Iggy and others it became clear that this project is a little bit different than what most people think about when they think about green strategy. But it actually dovetails nicely with what the Thrivent folks have done.
Honeywell is organized into four business groups. Our aerospace group is represented in the upper right of the page by our auxiliary power units. Our transportation group is represented in the upper right by our turbo chargers for automobiles. We also had a special team materials group represented on the left hand side of the page with spray foam, advanced refrigerants and some UOP processes.
The focus of our project is our last business group, what we call our automation and control solutions business, which makes controls for both industrial applications (that’s the upper left hand corner, so that will be an oil/gas chemical plant), and we make programmable thermostats, which you would have in your home. Then the real focus of our project was the commercial side, which is in homes and buildings.
One of the things that we looked at over the last couple of years is the suite of products that Honeywell has. How much energy could those products save if we were to immediately implement those solutions? And what we learned going through the entire portfolio is that if all those solutions were implemented overnight, the Honeywell suite could save U.S. energy consumption of 15% to 20%. The question on our minds is, why hasn’t the U.S. reduced its energy consumption by those amounts?
What we learned is that there are four interconnected reasons as to why green strategies aren’t getting implemented as quickly as they could.
The first is just looking at the economic viability of the green solution versus the established technology. Some of that is in places like Green Bay or Appleton. It’s maybe not going to be economical to put solar. It may be looking at a coal-fired power plant being able to produce energy at xcents per kilowatt and comparing that to putting up a windmill that may be two or three times more. And so it’s going to be difficult to implement that solution.
Another reason is the upfront capital costs. Someone may want to implement the solution, but they may not have that $1 million worth of capital in their budget to be able to do it. They may have existing equipment that doesn’t yet need to be replaced, and while newer equipment is more efficient, it’s hard to convince someone to take out something that’s still working and replace it with something that’s more efficient.
The third is confirmation of the energy savings. Most of us have a home; you have your boiler and it may need to be replaced and someone says, “Well, look, I can sell you this boiler for $4,000. It’s 85% efficient. Or I can sell you one that’s 93% efficient, but that’s $6,000. And you’re saying, “OK, I know that I have to write a check for an additional $2,000, but how do I really know that I’m going to get that energy saving between the 85% efficiency and the 93%? How can you prove that to me?”
And the last but probably not least, because it really intertwines all three of those previous points, is the ability to use those savings to fund the upfront product costs. If someone can pull those savings forward and use that to pay for the product, no money out of pocket, there’s more of a likelihood that that solution will get implemented.
So over the years one of our business units within that automation and control solution business, what we call our home and building solutions (HBS), the finance team patented what we call an energy performance contract solution to deal with these challenges.
Best Green Strategy 2010 Transcript
So what exactly is an EPC, or energy performance contract? Honeywell will go into a facility, in this case I’ve diagrammed a governmental facility that could be something like a taxable entity, like the post office, or it could be a tax-exempt entity, like a university or a municipality. We’ll look at where we could save them energy. It may be replacing light bulbs. It may be replacing HVAC equipment. It could be putting in new boilers, etc. Things that are going to save money.
Some of them are going to be quick hits. You’ll save money quickly. Others may be over a five-, 10- or 15-year life that you’ll get a savings stream. What the home and building solution business does is look at that mix of equipment and determine how much savings per year we would be able to achieve. So it may be that we would recommend a package, let’s say, of $1 million worth of equipment. And that equipment, when installed, may save $100,000 dollars a year. Again, it’s difficult for a municipality or a governmental entity to want to put that $1 million up front.
Honeywell goes in and says “We will in essence guarantee you $100,000 of savings for some period of time. Those savings then convince the entity to install the equipment.
We also marry that energy savings contract with a financing solution. We install the equipment at the governmental agency, they agree to make a payment to us on a monthly, quarterly or annual basis equal to some percentage of the savings, and then we turn around, depending upon the entity, and either sell the equipment and/or sell the payment stream to a financing source. The finance source then pays Honeywell upfront for the equipment and everyone is happy.
The key to this process is that Honeywell measures those savings so that we do in fact convince the entity that they are getting the savings. And we put our money where our mouth is. We’re not just saying, ”You will get these savings.” We in essence guarantee those savings.
We protect ourselves as a company because we don’t guarantee energy costs. We don’t say that you’re going to save $100,000 a year in, let’s say, fuel oil costs. “We instead say, “You’re going to save x gallons of fuel oil per year.” And we further protect ourselves by putting in place in most cases some type of service contract. Over time a boiler may degrade if one doesn’t do maintenance on that boiler. So Honeywell will continually go in and make sure that boiler is operating at maximum efficiency so that the governmental entity in this case will get the savings. If you look at what we’ve been able to do here, we’ve been able to guarantee to the entities that are installing this equipment savings in excess of 20%.
So, what was really our problem that we described in our Alexander Hamilton Award Submission? We have this ongoing business. Credit crisis hits. We’re very dependent upon financing and we want to maintain both our strategy to continue to be a green company and to continue to get these kinds of products in the marketplace. And to make sure that from our shareholders’spective, we’re meeting their requirements.
So the credit crisis hits. Banks start pulling out of the market. Why do they do that? Well one, they’re capital constrained. Two, in the prior slide you saw that a number of the entities that are installing this equipment are governmental-type entities that are tax-exempt. If you’re a bank, that payment stream that you would be receiving is considered tax-exempt. And so to the extent that you’re a bank and you’re not sure if you’re going to have taxable earnings, it doesn’t make a heck of a lot of sense to buy tax-exempt paper and earn, in essence, a lower return if you otherwise are in some kind of net operating loss position.
Best Green Strategy 2010 Transcript
So what did Honeywell and the rest of the team do? We said, “Wwell, if we’re going to potentially lose financing sources, we’re going to have to find additional ones, but do everything in our power to maintain the financing sources that we have.” We spent some time focusing on some smaller regional banks that we hadn’t pursued in the past. We generally had focused in prior years on looking at the larger money center banks, but we moved down in bank size.
The other thing that we did is say to customers, “In the past we normally brought the financing source to you. But in many cases you have your own financing sources, people who are familiar with your business and your financials. They may not be familiar with our energy performance contract (EPC) concept, but it may be easier if you get your bank to understand our EPC contract than it is to try to convince a bank who has no dealings with a customer before to try to learn everything about that customer’s finance.”
So we started using more customer financial relationships.
The third thing that we did is we learned that a lot of the banks were getting somewhat concerned about rating agency independence and the ability to really understand a customer’s credit.
When someone’s an A rated company one week and then they’re rated D the next week, people are saying, “Well gee, I can’t just rely on a municipality’s credit rating anymore. I need to see more.” So we started working with municipalities to get them to understand that they needed to produce budgets. They needed to produce their annual operating plans. They needed to have their finance manager sit down with the banks and really get a good handle on what was going on within that municipality and their ability to pay back the loan.
Remember also that corporates raised a lot of 10-year and 30-year paper over the last two or three years. When the credit crisis hit, what happened was a lot of banks and even the public markets didn’t want to lend long anymore. Part of our project is looking at that energy savings stream to the extent that some of that equipment is long-lived and that the savings will come over a relatively long period of time. It may be that we’re not able to offer that kind of equipment in our equipment package anymore because the banks didn’t want to lend 20-year, 25-, 30-year money anymore.
So one of the things we did is work with the banks to get an understanding of where their sweet spot was with regard to financing tenor and then determine what we could put in the package.
Lastly, our business had historically focused on taxable entities like the Air Force or the postal service. We then, over the time, spent a lot more time with tax-exempt customers. With the issues of banks wanting to hold tax-exempt paper in the fall and winter of last year, we started to refocus the business back on taxable customers.
When we took a look at the actions that we were able to achieve here, the question was, how successful were we at the end of the day? The nice part was that we were, throughout the credit crisis, able to continue to offer our customers this package and continue to have banks that were willing to lend into this structure. And we were able to maintain the business that both our finance folks in the business were expecting and our shareholders were expecting.
Questions and Answers:
Moderator Iggy Khan: I think we had three phenomenal presentations. Does anyone in the audience have a question they want to pose to one of our panelists? [Pause.] I’ll go ahead and take a stab then. I’m curious to know after talking to the three of you and hearing your presentations today, how did you overcome any internal resistance and garner executive level support for your initiatives?
Laura McGhee, Kforce: I’ll speak to that one. We actually ran our ideas through the ROI process and figured out what our savings would be. When we could speak to the bottom line and get projects under our belts that produce real results, that garners more and more support for us.
Moderator Iggy Khan: Mike, your project was a little different.
Michael Suriano, Honeywell International: Mine is a little different, so I don’t think we had the same challenges that Kforce would have. We already had a project up and running, and so the challenge was to maintain it. It wasn’t a challenge to get executive support to maintain it.
Moderator Iggy Khan: Obviously, there was a business driver for it. How did you get executive-level support to change the business model associated with it?
Michael Suriano, Honeywell International: The business model really didn’t change that dramatically. The margins on the business, whether it’s a tax-exempt municipality, hospitals, and the like where the taxable entities isn’t that much different. That was really the only area where there was some switch in the way we went to market.
Laura McGhee, Kforce: For us, we went with the ROI process as well but, like I said, the total cost was only $1,000. There wasn’t exactly a lot of non-compliance with that. We just had to make sure that everything was in place, especially the stocks and the audit compliance issue. As long as we had everything in place, we just had to get everybody’s mindset to be changed to move forward with it.
Moderator Iggy Khan: Can you describe any ancillary benefits you’ve received from your project that you didn’t expect originally?
Laura McGhee, Kforce: I’ll start with that one. We literally doubled the savings that we had initially thought we were going to save. That was definitely a benefit for us. We had intended to create a reputable process, and we actually did it, so Other people and departments in the firm were able to use that and move forward with things that they wanted to do. So other people are using it as well.
Kirsten Spreck, Thrivent Financial: For us, we did exceed the savings we expected to see with real measurable results too on the environmental side. But I think one of the surprising things was just the moving forward with the Energy Star. All the alterations we made actually gave us much better performance in being able to maintain and meet the needs of the customers. Where before our employee population struggled to keep temperatures in the building and keep everybody happy, I think once we completed the projects we had two complaints that first year, and it was in the middle of summer, that people were cold. So we were pretty pleased with that.
Michael Suriano, Honeywell International: A very nice surprise from the Honeywell standpoint is that we did see a continuation in the demand for the product and more inquiries on other areas relating to energy savings equipment. Things like solar. Things like bio. Things like wind that a couple of years ago was not really ever part of the offering that the Honeywell building solution business would have been going out to market with.
Moderator Iggy Khan: OK, so additional revenue opportunities for you?
Michael Suriano: Yes.
Moderator Iggy Khan: Are there any other questions from the audience? OK. Thank you very much.Tom Duggan, publisher of Treasury & Risk: Thank you so much for the green strategy. If people don’t know, Treasury & Risk is part of a larger publishing company called Summit Business Media, and we actually made our own green initiative this year. We’re producing all our promotional material and our media kits on a digital platform, so we’ve made our initiative to green. Thank you to Iggy and the finalists and the winners.