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adidas Group | Case Study ... How the adidas Group prioritizes investments in energy efficiency

Burgess COMMENTARY

Peter Burgess

Energy & Carbon Management About EDF Energy

How the adidas Group prioritizes investments in energy efficiency

At the adidas Group carbon reduction projects are looked at as a venture capitalist might: a portfolio of value-creating investments.

IMAGE Investments such as retrofitting low energy lighting in this Reebok store are seen as a business opportunity, delivering cash to the business.

If you’re familiar with facility management, you’ve likely seen that facilities have finite annual budgets, and demand for capital predictably exceeds supply.

Some projects like lighting controls may deliver carbon and financial savings, but quantifying these savings requires time and specialist training, two equally scarce resources.

Other projects, like replacing carpets, don’t deliver a return, but may still feel quite urgent to a facility manager. Without a trusted advisor to calculate and validate their economic and environmental benefits, energy-conserving lighting controls are stuck competing for the same funds as carpets.

Projects with attractive financial and carbon returns deserve preferential treatment. At adidas Group we set out to improve how we support facility managers and finance efficiency projects. After months of site visits, research and interviews, we established the adidas Group greenENERGY Fund, our response to this universal corporate problem. This investment fund has three goals:

• Accelerate carbon reduction in our global properties.

• Rigorously track project performance.

• Deliver a 20% plus return on capital.

As the manager of the adidas Group greenENERGY Fund, I look at carbon reduction projects as a venture capitalist might: a portfolio of value-creating investments. I rigorously scout, evaluate and invest in efficiency projects because they deliver great financial savings and reduce our greenhouse gas emissions. Green investments are therefore seen as a business opportunity, delivering cash to the business.

The adidas Group greenENERGY Fund is generating buzz because it is working beautifully, accelerating verified carbon reductions at a nice profit. It is also the first fund in the footwear and apparel industry with our unique ‘portfolio finance’ approach. Other firms, notably Johnson & Johnson and Diversey, use similar models.

These two key powers make it a keen carbon reduction tool:

• The Fund has a strict 20% annual return on capital target across the portfolio, but flexibility on the project level. This means that high financial return projects can subsidize projects with great carbon reductions but lower financial return. With a portfolio approach, I can deploy more capital – and reduce more carbon – than if I evaluated projects individually.

• If a project falls below the 20% return threshold, it competes with other projects on the basis of metric tonnes C02e reduced per dollar invested. The higher the MT CO2-e/$, the higher priority it becomes to finance. In this way, the Fund is engineered to maximize net present value and carbon reduction. adidas Group invested $2 million in the greenENERGY fund for 2013. This capital is being deployed at a net profit to a portfolio of carbon reduction projects across the globe.

In our first 11 months, the Fund financed 15 projects. This portfolio is forecast to deliver a 38% return on investment. It is also forecast to reduce C02 emissions by 33,700 MT over the projects’ lives. That’s like taking 560 cars off the road for each of the next 10 years.

The adidas Group greenENERGY Fund is becoming our central hub for energy best practices and engineering know-how. With each retrofit, we learn more about the risks and benefits of certain project types. Each investment case, including all economics, challenges and results, are summarized and shared on a central portal. Facilities can review what has been done and get ideas for their own improvements. It’s a positive feedback loop that becomes more powerful every day.

The 2013 investment prospectus is growing with great projects around the world. We are investing in retail LED upgrades, building automation, lighting controls, process improvements and much more. And working diligently to track the impacts. Efficiency is a tremendous source of value. I’ve had colleagues tell me, “I wish I could put my retirement savings in this!”

Learn more about the greenENERGY Fund and see some actual investment case studies. You can also find additional information in the adidas Group’s 2012 Sustainability Report (page 43).