Yes, Carbon Neutrality Can Drive Profitability

Article

November 21, 2023

Saving the Planet and Increasing Corporate Profits Simultaneously

“We’re Proudly Committing to Net Zero Carbon Emissions by 2035”, reads the headline.

Such long-term, carbon-neutral goals have become fashionable announcements for companies and ownership groups. They increasingly seem to be downright mandatory for consumer brands, otherwise risking enouncement by a “climate cancel-culture.”

Don’t ask for those gritty details underneath the decade-plus goal to reach carbon neutrality; exact plans can be a tad fleeting. Behind-the-scenes boardroom conversations can quickly devolve into how much profit “are we willing to invest” – e.g., forego – to march mission-focused towards a zero-carbon footprint.

After all, making changes to drive to carbon neutrality has to increase costs, right?

Corporate leaders have generally considered carbon-neutrality programs as a cost center. Sustainability and profitability are thought of as at-odds with each other. The big news for many organizations is that it no longer has to be that way.

Times have changed. Economics driving carbon reduction have dramatically improved, our national electric grid has suffered degradation and outages, peak electricity charges from utilities have worsened (ask your Californian friends) and, then somewhat dramatically, our federal government signed the Inflation Reduction Act (“IRA of 2022”) into law six months ago, radically changing the incentive structures for everyone around the future of energy.

Yes, quite suddenly our national economic model for renewable energy and decarbonization has flipped.

At Cherry Bekaert, 2,000 mostly middle-market Industrial businesses look for advice on how to improve profits, reduce taxes and take advantage of government incentive programs like the IRA of 2022, among other traditional finance functions. Almost all of these organizations depend on our national electricity grid, which can be a leading cost line item for them, especially for automated factories.

What if a standard American manufacturing company can reduce dependence on an unstable grid, help save the planet and reduce electricity costs while driving profitability? It seems too good to be true. But by taking advantage of today’s cheaper solar infrastructure, static energy storage and the IRA of 2022 tax benefits and incentives, it is possible. As a caveat, backlogged solar supply chains are making the timelines here lengthier, but the long-term vision is optimistic.

Recently, we discussed with clients the basics of how this can be done. We offer it broadly today to help spread the big news: many companies can absolutely drive profitability while contributing to the reduction of fossil-fuel emissions. Corporate profit success and carbon reduction can live in harmony.

For an average manufacturer, setting up an on-site solar array with battery storage can yield cash incentives of close to 80% of the initial purchase price within the first few years in the form of direct pay credits and accelerated tax benefits. Moving forward, raw energy savings using solar will be about 75% of the aforementioned grid costs, and the battery storage of solar energy will allow the manufacturer to “turn off the grid” when the sun isn’t shining, and the utility is charging peak surcharges several times over the typical electricity grid charge.

The payback period on the investment can be as quickly as two to three years and the solar energy savings can last over 20 years – a typical solar farm life.

So, can we pursue carbon neutrality and drive profitability at the same time? Yes, we can!

To learn more, please watch our case study on how to bring together the electricity savings, IRA of 2022 benefits and save the planet, all at the same time. Our example assumes an average manufacturer that is profitable and therefore eligible to capture tax-incentive cash savings. While our example uses solar electrification, other major forms of renewable energy have been covered by the IRA of 2022, as well.

How We Can Help

At Cherry Bekaert, we believe, consult and advise on the practical approach to sustainability, supporting the strategic and transformational initiatives of our clients’ organizations without negatively impacting value. We deliver a holistic approach to accurate and measurable reporting−our methodology is designed to help organizations cost-effectively enhance value through an entity-wide approach to the identification, quantification and management of the enterprise’s essential portfolio.

Our teams assist companies in capturing savings and tax credits, while also meeting their carbon accounting and reporting needs. We can help companies set up their reporting process to measure, track and report their carbon emissions to follow new laws on greenhouse gases. We help companies understand the financial risks of climate change and suggest ways to reduce these risks.