It’s no secret that for corporate energy managers, securing funding internally for energy investments can often be the biggest hurdle to advancing energy-efficiency projects. In addition, the larger and more complex a company is, the bigger that barrier can be as the C-Suite decision-makers and budget-setters become less accessible and the competition for capital becomes greater. This is especially true for retail corporate energy managers, where product development investments are more core to the business than operations. However, thanks to the merits of energy efficiency, there are ways to overcome these barriers.The Herzogenaurach, Germany-based adidas Group is home to some of the world’s most recognizable athletic brands. It operates in more than 160 countries, employs more than 55,000 people and produces more than 778 million product units every year. Annual sales consistently reside in the billions. And during the last four years, the group has invested $5.5 million in energy projects. So how did a multi-billion-dollar, multi-brand global company integrate energy-efficiency and renewable-energy projects into its day-to-day operations without breaking the bank?
adidas Group followed one of its own guiding principles and got creative. In 2012, the adidas Group, which represents adidas, Reebok and TaylorMade, established an internal venture capital fund, known as the greenENERGY Fund, to provide financing specifically for energy-efficiency and renewable-energy projects. In addition to this financial commitment, it dedicates the time and expertise needed to monitor and verify energy and cost savings, shares the results across the company and ensures the long-term success of the program.
In designing the greenENERGY Fund, the adidas Group had the following four key goals in mind:
- First, the investments would have to enhance the overall value of the business. It’s not only about the financial rate of return, but about brand reputation and the impact these changes would have on operational efficiency, consumer experience and the environment.
- Second, the fund would need to accelerate carbon reductions relative to adidas’ vision of becoming a zero-emission company.
- Third, any energy and financial savings should be measurable and verifiable.
- Lastly, the greenENERGY Fund should be a vehicle to track and share best practices across company facilities globally. With stores all over the map, the adidas Group wanted to be able to share and implement energy-efficiency strategies in multiple facilities and measure the results companywide.
Since establishing the internal venture capital fund, the adidas Group has invested $5.5 million in 49 different projects to date, and the forecasted internal rate of return (IRR) across the project portfolio currently is 33 percent.
With project lives ranging between one to 13 years, the greenENERGY Fund projects the environmental impacts of the complete portfolio through the year 2025 to yield a lifetime electricity reduction of 118,365,960 kWh, a lifetime gas reduction of 1,294,754 therms and a net carbon reduction of 37,184 MT CO2 equivalent. That is like removing 1,001 cars from the road in 2015.
The fund is structured such that strategic long-term energy projects are bundled together with those that have quick returns. The subsequent portfolio has a target IRR of 20 percent, which allows projects below that threshold to be paired with projects that exceed that threshold. This not only increases the likelihood of success for all investments, but it allows the adidas Group to take advantage of opportunities that might otherwise be too risky to invest in on its own.
Following initial implementation of an energy-efficiency project, the fund’s corporate energy team audits facilities, providing feedback and sharing best practices that can accelerate investments. The success of projects is evaluated by their expected cost savings and their carbon impact. Essentially, managers want to know how many metric tons of CO2 are reduced per dollar invested. Ultimately, after verifying energy and cost savings, the fund’s representatives share the results across the company.
By centralizing energy management, the adidas Group delivers greater savings, improved transparency and quick project turnaround technical support services for facilities.
In short, the greenENERGY Fund enables the company to overcome the aforementioned common internal financing hurdles, such as internal competition for capital, short payback horizons and a lack of time or budget on the part of facility managers.