By Lee Tolbert
As the environmental, social, and governance (ESG) landscape changes, making headway on corporate sustainability is becoming increasingly important. Deadlines to meet energy efficiency and net zero targets that once seemed far off are rapidly approaching—creating pressure to make progress. Organizations must weigh options to fund projects key stakeholders care about most.
The discussion typically centers around two approaches: site-by-site and portfolio budgeting. Let’s explore how each works, including the financial and operational benefits and drawbacks, and how to find the budgeting approach that suits your needs.
Site-by-Site Approach Vs. Portfolio Approach
Should sustainability initiatives like lighting upgrades or solar installations happen individually or in lockstep across locations? Site-by-site and portfolio-based approaches are the prevailing sustainability budgeting methodologies, but they represent two sides of the same coin.
Taking a site-by-site approach to budgeting is very localized, wherein organizations entrust engineering managers to spearhead energy and sustainability projects individually at each site. A company with 50 different locations may see energy management handled in just as many ways, with decentralized decision-making putting a damper on implementing broad corporate sustainability or energy programs.
A portfolio budgeting approach led by a corporate energy or sustainability manager fills the gaps. Centralizing decision-making and project management ensures that every property across the portfolio approaches sustainability the same way.
Budgeting For Sustainability
The ideal budgeting approach may vary based on an organization’s unique goals. If a company has an overall sustainability goal—carbon reduction, for example—a site-by-site approach may require asking individual sites to find projects that meet specific payback requirements.
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The struggle is that every site may qualify for different payback terms, making them unable to proceed across locations. However, a portfolio approach allows you to blend projects—such as mixing lighting retrofits with HVAC upgrades—to meet overall requirements and leverage buying power for better pricing on sustainability projects.
Transitioning To Portfolio-Wide Sustainability Initiatives
One of the most pronounced sustainability shifts has been the elevated emphasis on corporate hard targets for ESG goals. Many commercial and industrial (C&I) companies now have firm targets for emissions reductions, which are difficult to achieve at individual sites.
Considering broader strategies allows businesses to address multiple projects across many sites. This holistic portfolio view makes it possible to achieve near-term goals—such as a 30% reduction in Scope 1 by 2025—using a third party to manage projects.
Keys To Adjusting To A Portfolio Approach
Successfully transitioning from a site-by-site model to a portfolio approach hinges on changing internal decision-making and budgeting processes. This may mean pulling energy budgeting to a corporate level or implementing corporate-sponsored programs for site-level individuals to voluntarily opt into.
And it’s OK to take a walk-before-you-run approach, too. Your organization can move to centralized decision-making regionally before the portfolio approach trickles down to become fully corporate, so long as that’s the end goal.
Barriers To Transition
Many companies are used to managing individual profit and loss (P&L) statements and are hesitant to transfer that authority to a corporate level. Shifting from a local to a centralized mindset can disrupt what they’ve known to be true and the processes necessary for project completion.
On top of this, challenges surrounding capital resources and general knowledge make the change all the more difficult. Older companies are accustomed to managing tangible issues like equipment functionality at the site level, avoiding portfolio-scale thinking that can lead to better returns. Unfortunately for organizations that lag behind, many projects require additional depth and expertise, so a portfolio approach has become even more necessary.
Companies That Benefit From Portfolio Budgeting
So which approach is right for your organization? A portfolio approach makes sense for everyone, but can also depend on your industry.
Retail companies with a high volume of similar locations benefit significantly. This is because banks, fast-food chains, and other retail businesses are more uniform and easier to manage. The industry that struggles most to adapt? Manufacturing, with companies operating in complex and diverse locations. However, by devoting time and resources to the effort, organizations in any industry can shift from a site-to-site to a portfolio approach and progress more quickly toward their sustainability goals.
Make Widespread Sustainability Improvements With A New Approach
Tired of staring at lofty sustainability targets without knowing how to reach them? Speed to scale is crucial. Many companies waste valuable time and money with short-term, site-by-site thinking. A portfolio approach to budgeting streamlines your efforts across all properties while offering better pricing in pursuit of your ESG goals. Make your move and achieve lasting improvements with portfolio budgeting.
Tolbert joined Redaptive in 2018, and he currently serves as Vice President of Program Delivery and is responsible for deal development and pricing. He is a highly motivated and collaborative leader with a track record of building structured portfolio programs and fostering lasting relationships with his customers, including many of Redaptive’s Fortune 500 customers. Prior to Redaptive, Lee served as a Senior Manager with RevGen Partners and Hitachi Consulting, where he led numerous engagements for Fortune 500 customers as a delivery leader.