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Risk management for enterprise CIOs

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Sustainability risk management: Beyond green IT

By Sarah Varney, Technology Editor

20 Aug 2008 | SearchCIO.com

At large U.S. companies, preserving the environment has spread beyond the data center to encompass sustainability efforts across the corporation. These organizations are moving quickly to minimize negative environmental impacts in all facets of their businesses. But they're not just embracing corporate responsibility more tightly. They're after increased profits.

Mitigating environmental risks that in turn can affect long-term profitability and growth potential has become a mandate at enterprise-sized companies. In mid-July, the Sustainable Investment Research Analyst Network (SIRAN), a nonprofit organization made up of analysts whose firms are devoted to sustainability issues, reported that 86 of the 100 largest publicly traded U.S. companies now note their sustainability efforts in their annual reports.

More than a third of these companies also include measurable goals in accordance with the Global Reporting Initiative guidelines established in 2000 by the United Nations and other NGOs.

These organizations typically employ a sustainability risk management (SRM) strategy, which targets manufacturing, product design, supply chain management, distribution, sales and marketing, and IT, to reduce the environmental impact of their operations. For example, projects for reducing water usage in production and setting goals to reduce carbon emissions can lower risks -- and lower costs simultaneously.

For example, at Coca-Cola Enterprises Inc., attaining "water neutrality" by 2010 is a goal. The company wants to reduce consumption so that it produces one liter of product for every liter of water used throughout the company (currently this ratio is 1:1.7). This effort conserves water -- a finite resource -- but also cuts costs. The company is also finding ways to make use of rooftop rainwater collection stations at bottling plants. This "grey water" is treated and used in nonproduction ways.

So, where does the CIO fit into the SRM landscape?

Right smack in the middle of it, says Adrian Bowles, principal of the newly formed Sustainability Insights Group, a Westport, Conn.-based consultancy focused on leveraging technology to boost conservation efforts in business. "The CIO is perfectly positioned to coordinate the integration of data coming from manufacturing systems, human resources systems and supply chain systems," Bowles said.

Bowles' assertion is borne out at one global petrochemical giant based in North America. There, the risk of penalties and fines for violating environmental regulations is particularly acute. The company, which requested anonymity for competitive reasons, produces 500,000 barrels of oil a day, with yearly revenue of about $15 billion. Fines are a huge concern, noted a program manager for information management services at the petroleum giant. "Simply swallowing the cost of non-compliance these days is not an option," he said. "The penalties are very large. They matter a lot."

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The company-wide SRM effort is managed by a team comprising corporate IT and the corporate environment and safety group. The company has invested about $20 million over the past two years setting up the IT infrastructure to gather and record environmental data at each business unit. Most of that money was spent on new hardware and software consulting services. The company chose IHS Inc. of Englewood, Colo., for much of the consulting work. Ongoing maintenance, training and fine-tuning also contributed to the costs.

While the company has greenhouse gas reduction goals on the corporate level, the actual numeric goals are established by the business units themselves. As part of the two-year project, IT deployed interfaces to legacy systems at the business unit level. Lab information systems, oil and gas production sites, and other business functions produce monitoring data on environmental measures at each unit. The data is aggregated at the corporate IT level and sent to regulatory agencies. "The CIO does indeed end up heading the data integration part of this," noted the petro giant's program manager.

But money and environmental sustainability are closely linked at the company. It plans to tie accounting data to the environmental modules' reporting data over the next few years. "Profitability and sustainability go hand in hand," he said.

The emergence of the SRM strategy at large companies will create great opportunities for CIOs and for third-party companies developing new software to measure sustainability efforts, according to Stephen Stokes, vice president of climate change and business at AMR Research, a Boston-based consultancy that focuses on manufacturing issues. Stokes is very enthusiastic about the strategy.

"The CIO will certainly have the responsibility for making sure that the right solutions are in place to help automate auditing against the company's sustainability goals."
French Caldwell
vice president of researchGartner, Inc.

"What CIO do you know who wouldn't want to report a giant reduction in carbon emissions or greatly reduced power costs to a board of directors?" Stokes said.

But he confirmed that the software tools for measuring these reductions against existing regulations are still emerging. "When you read that company X is the leader of the green pack compared to company Y, it doesn't mean anything right now," he said.

One software tool suite to address this gap debuted in mid-July. Equilibrium Solutions Corp., a Boston-based company dedicated to delivering sustainability measurement tools via the SaaS model, released a carbon management application. The software is targeted at very large corporations, said Peter Morgan, Equilibrium co-founder.

To create an audited Greenhouse Gas inventory for enterprise carbon management, the suite takes into account a slew of data, including data on electricity and fuel usage, refrigerants, transport information, business travel and, sometimes, accounts payable information. Taking inventory of real estate assets is also essential. "These are huge companies, and they own a ton of real estate," Morgan noted. "We need to know what they own, what they lease, what climate zone it is in, what legal jurisdiction it is in -- all of it."

A rose by any other name

Gartner, Inc.'s French Caldwell, vice president of research specializing in governance, risk management and compliance, agreed that the CIO will play an important role as SRM develops.

"The CIO will certainly have the responsibility for making sure that the right solutions are in place to help automate auditing against the company's sustainability goals," Caldwell commented. The SRM efforts definitely need to come out of IT as well. If you don't have that centralized IT role, every business unit will go out and buy its own solutions, he added.

Caldwell takes a jaundiced view of the SRM moniker itself, however. "Another term for this is being thrifty and making good use of shareholders' money."

 

Sarah Varney is Technology Editor for CIO Decisions Media. Contact her at svarney@techtarget.com

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