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How Akamai, Starbucks bridge the sustainability and financial risk gap

Three different companies, including Marsh & McLennan, find opportunities where environmental and operational risk meet.

In Shakespeare's Macbeth, three witches stand on a high road, looking into the future to divulge to the approaching, ambitious warrior his fate. They present three opportunities for him to make history — but when their advice is not heeded, these risks lead to his downfall.

Organizations are now under intense scrutiny due to the environmental pressures of resource scarcity and the transition to a low-carbon economy. Stemming from this, three corporate risk profiles present opportunities to create wealth from within, but they also present untold pitfalls to companies who look out for their short-term benefit rather than adapting to serve society at large.

According to the conversation from a GreenBiz webinar this week, the new risk profiles include stronger regulatory requirements for disclosure on sustainable practices; customer preferences cascading through supply chains (nearly instantly); and the growth of responsible investing.

Clearly, corporations must raise the profile of sustainability to guard customer reputation, engage employees, drive growth, manage risks, and keep up with financial markets. Yet they are struggling to plug quickly-changing sustainability measures into established financial modeling or enterprise risk management processes.

In order to do so, sustainability executives must build a business case for company-wide initiatives, frame sustainability opportunities and risk in the language of corporate business, and create allies with finance and risk leaders inside the company.  

A common language

“The common framework for evaluating longer-term risks exists in the corporate language,” said Alex Wittenberg, executive director of Marsh & McLennan Companies’ Global Risk Center, during the webinar panel. “Sustainability professionals should provide that context and make sure it’s not separate. They need to translate the firm’s language into the sustainability world, not the other way around.”

The company’s commitment to sustainability started at the top, with the CEO’s concern about the responsibility of a for-profit company.

A poll by risk and insurance consulting firm Marsh & McLennan shows a divide between financial and risk strategy agendas: 57 percent of finance and risk executives believe their organization has effectively integrated sustainability risk into risk management and reporting, while 72 percent of sustainability executives disagree. Meanwhile, 59 percent of finance and risk executives believe their organization’s finance and risk management teams effectively work with sustainability programs, while only 20 percent of sustainability executives agree.

When a sustainability professional links resilience issues to an organization’s KPIs and metrics,  Wittenberg said “the issues you’re championing will go much farther.” Embedding sustainability into existing operational and strategic breaks down silos of information and perspective within companies, helps long-term strategic scenario planning and helps price externalities into the budget — like planning for an internal carbon price.

One of the challenges here is that sustainability risk horizons span three to five years, as opposed to most corporate risk assessments of six to 18 months. One of the simplest ways to educate the organization about sustainability risks and opportunities, said Wittenberg, is to “talk to the people and the heads of the ERM committee about what their top risks are.”

Invest in environmental and social factors

Starbucks Treasurer Drew Wolff said that his role is to be both the “bank account and the wallet” of the global company with more than 300,000 employees and billions of dollars in market cap. He borrows and invests money, protects cash, takes care of short-term liquidity and long-term financial needs, and hedges foreign risks and commodities.  

The company’s investments consider environmental, social, and corporate governance factors, and include a robust portfolio of green and sustainability bonds.  

Akamai’s guiding principles for renewable energy procurement are they are impactful, aligned with customers’ expectations and cost effective, said David Neshat, its treasurer.

“The conventional wisdom is that excluding anything hurts returns, but you can craft sustainable portfolios with similar risks and returns to passive benchmarks,” he said. “The growing area of green and sustainable bonds are like any other. It amounts to some additional reporting, issuing debt securities to investors with an explicit use of proceeds for green or social purposes, and is governed by the ‘green bond principles’” demanded by investors and stakeholders.

The use of proceeds outside renewable energy (such as agricultural, social and educational purposes) is a broader sustainability category, but Starbucks also has broader sustainability strategies of supporting sustainable coffee economy, “green retail” in LEED-certified stores, and educational pathways for its employees.

The company’s commitment to sustainability started at the top, with the CEO’s concern about the responsibility of a for-profit company. It’s trickled down to being a key part of Starbucks’ investing portfolio.

“We talked to investors we hadn’t talked to before,” said Wolff. “We had 40 new investors involved in this $500 million, 10-year bond.” Bond proceeds expand the program. The company has received numerous internal and external benefits, showed how finance and public policy can commit to working together, fostered new internal dialogue and ideas.

Explore new financing models

The Treasurer of Akamai, one high-growth technology company with more than $2.2 billion in revenue, discussed its plans to cover 50% of electricity consumption using renewable energy by 2020 and reduce absolute Scope 2 and 3 emissions below 2015 levels.  

Akamai’s guiding principles for renewable energy procurement are they are impactful, aligned with customers’ expectations and cost effective, said David Neshat, its treasurer.

Once the risk gap was bridged in favor of investing in clean energy, “it was a no-brainer.”

Their executive process to transition to clean energy is to:

  • Estimate renewable energy procurement requirements based on regional network energy and grid renewables growth 
  • Identify and build financial models for candidate projects in key U.S. power markets where Akamai has concentrated energy usage 
  • Implement multi-year phased procurement of renewable energy in these markets
  • Present and seek approval from its board of directors
  • Monitor opportunities for non-U.S. renewable energy procurement

Akamai also turned to a “contract for differences” (CFD), 15 to 20-year agreements to purchase electricity and renewable energy certificates at a fixed price for a particular renewable energy project such as a solar farm. Generated electricity is sold into the market, and Akamai pays or receives the difference between the average monthly market price and fixed price. The company then retains the certificate.

Monthly gains or losses are accounted for, presenting as a “hedge” against rising fossil fuel electricity prices that are factored into ongoing colocation data center expenses.

“The financial impact is that there are no up-front cash flows,” said Neshat, who spoke about Akamai’s CFD program for the first time at the GreenBiz webcast. “It’s a great solution for the company; we can be impactful while managing financials as we would for our shareholders.”

“At first, as a high-tech, high-growth company, you want to be mindful of capital,” he continued. But once the risk gap was bridged in favor of investing in clean energy, “it was a no-brainer.”  

The transition to clean energy is an inevitable road driven by market forces and consumer demand. Companies are making this transition in many ways, and as the bridge between sustainability and financial risk is closed, the risks themselves turn into opportunities rich with environmental and social benefits.

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