Executive Summary Sustainability at the corporate level is becoming increasingly fundamental. Corporations are responsible for managing their carbon footprint, as well as the effects that their business processes have on people, the planet, and the profits of the company. As an audit intern employee of Deloitte & Touche, I will be conducting an individual consulting project that identifies an element of the organization that can be enhanced through sustainability. I have formulated and evaluated an initiative that will strategically strengthen the company’s impact on people, the planet, and its profits. By integrating this proposed initiative at the San Jose office, Deloitte & Touche will subsequently enhance their business processes and achieve improved sustainability. This improvement will also enhance Deloitte’s credibility with its clients, while reducing its impact on the environment. Additionally, I will utilize the “SUCCESS” strategy highlighted in Chip and Dan Heath’s bestseller, “Made to Stick” to guarantee that the newly implemented initiative will “stick” and be sustained at Deloitte & Touche. The proposed sustainability initiative will be strategically embedded at Deloitte & Touche to ensure that the initiative is long lasting and will continuously cultivate a positive impact on the company. I have proposed that light retrofitting from fluorescent lights to LED (lightemitting diodes) will enhance sustainability at Deloitte & Touche’s San Jose office. I have qualitatively examined data that sufficiently advocates this proposed initiative, as well as gathered other relevant information quantifying 1 the several benefits of lighting retrofit at Deloitte & Touche. Lighting Retrofit is the practice of replacing components in a lighting system with counterparts that make it use energy more efficiently.1 Overtime, lighting retrofit at Deloitte & Touche’s San Jose office will significantly reduce electricity costs and will eventually produce a return on investment. Deloitte & Touche will experience several benefits once lighting retrofit has been implemented. Lighting retrofit at Deloitte & Touche’s San Jose office will reduce energy and maintenance costs significantly, thus reducing operating expenses. There are numerous statistics advocating lighting retrofit. According to Energy Savings Cost Council, energy-efficient lighting upgrades represent the highest return on investment of any single technology project. With an average ROI of 45 percent, lighting retrofit will pay for itself in 2.2 years.2 While reducing costs significantly, lighting retrofit will also improve performance and productivity. Most notably, lighting retrofit will positively impact the environment and will enhance Deloitte’s social responsibility while the business continues to grow. "Light Guide: Lighting Retrofit Economics." Light Guide: Lighting Retrofit Economics. LightSearch.com, n.d. Web. 13 Nov. 2014. 2 What Are the Benefits of a Retrofit?" Graybar. N.p., n.d. Web. 13 Nov. 2014. 1 Introduction The Deloitte Network “is committed to driving societal change and promoting environmental sustainability. Working in innovative ways with government, non-profit organizations, and civil society, [they] are designing and delivering solutions that contribute to a sustainable and prosperous future for all.”3 Undoubtedly, Deloitte & Touche feels strongly towards sustainability within its company. Lighting retrofit will employ Deloitte & Touche to obtain their goals such as “driving societal change” and “promoting environmental health”. New LED retrofitted lighting will also pave the path for Deloitte & Touche to gain market leadership, as well lower its operating expenses. Lighting retrofit has numerous benefits and will positively affect Deloitte & Touche’s profits, society, and future of the planet. Deloitte & Touche’s San Jose office is currently lit by fluorescent lighting. However, there are numerous benefits to switching to LED lighting. LED (lightemitting diode) lights “consume 50% to 90% less power than conventional light builds and lasts up to 50,000 hours, as opposed to 7,000 hours for CFL’s (company fluorescent lamps).”4 Deloitte & Touche will save a significant amount of money on bulb replacements and operating costs due to LED’s longer life span and lower energy consumption. LED’s are made from recycled material and do not contain any hazardous materials such as mercury.5 This high quality light does not buzz or flicker, 3Corporate Responsibility & Sustainability | Deloitte | About Corporate Responsibility & Sustainability." Deloitte. N.p., n.d. Web. 13 Nov. 2014. 4 "The Benefits of LED Lights." LED Bulbs and Lights. N.p., n.d. Web. 13 Nov. 2014. 5 All You Need to Know about LED Lighting." Benefits of LED Lighting. N.p., n.d. Web. 13 Nov. 2014. 2 and it “converts energy to light instead of heat.”6 Therefore, LED’s produce almost no heat unlike their fluorescent counterparts. Fluorescent lights, such as T12’s, T8’s, and T5’s utilize more energy and thus cost companies more in operating expenses (See Figure 1.1). Figure 1.17 This new innovation of sustainability will provide the company with a strategic advantage over competition because sustainability drives revenue. Clients are more likely to engage in business with energy efficient companies; therefore, Deloitte & Touche must remain competitive from a sustainability standpoint. Aside from increased profits, Deloitte & Touche should choose lighting retrofit because it is the right thing to do for the advancement of society. Deloitte & Touche believes in making measurable changes in communities by committing inspirational actions and being “societal change makers.” Deloitte & Touche instills “great pride in knowing that what [they] do is best—applying [their] skills and experience to accelerate positive, societal impact.”8 All You Need to Know about LED Lighting." Benefits of LED Lighting. N.p., n.d. Web. 13 Nov. 2014. 7 TREND REPORTS." LED Tube. N.p., n.d. Web. 13 Nov. 2014. 8 Corporate Citizenship." Deloitte. N.p., n.d. Web. 13 Nov. 2014. 6 Background and Necessity 3 Currently, Deloitte & Touche is consuming about 50 percent more electric energy than it needs to be with new sustainable, technological advancements such as lighting retrofit. A switch from fluorescent office lighting to LED lighting will save the company thousands of dollars, reduce energy consumption, and reduce greenhouse gases and other pollutants. LED’s are initially more costly to purchase and install than counterparts, such as incandescent and fluorescent bulbs; however, overtime, LED’s prove to be more cost and energy efficient. Heath’s “SUCCESS” model and principles In order to ensure the success of the apply to Deloitte and Touche’s need for lighting retrofit initiative at Deloitte & LED light retrofitting in several ways. Touche, principles from Dan Heath’s First, Heath demonstrates the importance “Made to Stick: Why Some Ideas Survive of keeping ideas simple. Therefore, this and Others Die” will be utilized. “Made to proposal will only specifically address the Stick” postulates what makes an idea or lighting retrofit at the San Jose office. If concept memorable and sustainable. the proposal and its implementation are Heath creates a model that he asserts, if successful in San Jose, it can be followed properly, will make an idea introduced at other offices in the future. “sticky”. This model follows the acronym Next, Heath argues that in order for the “SUCCESS”: initiative to “stick”, it must be unexpected. The proposed initiative will grab management’s attention with its unique and innovative ideas. Through lighting retrofit Deloitte & Touche can become a leader in corporate sustainability. The initiative must also be concrete—it must not be abstract or open to interpretation. Lighting retrofit is extremely concrete and the facts and evidence in favor of LED lighting cannot be ignored. Credibility is another principle of success. Details do not lie, and lighting retrofit is undoubtedly a viable initiative. Lastly, Heath claims that every idea must appeal to emotion. People need to care in order to take action, and in the case of sustainability, Deloitte & Touche claims to possess strong consideration for the environment. Therefore, for the wellbeing of the planet and society, corporations like Deloitte & Touche need to consistently demonstrate concern for sustainable issues. Simplicity Unexpected Concrete Credible Emotional Stories 4 Cost Analysis Deloitte & Touche receives a monthly bill for its utilities, such as electricity. Like any similar corporation, Deloitte & Touche gets billed for its energy consumption, which consists of watts used multiplied by the time they are used. Energy Consumption (kWh) = Input Watts (kW) x Time (hours used)9 For purposes of lighting retrofit, we will focus on input wattage. Lighting retrofit will significantly reduce input wattage at Deloitte & Touche by replacing current office lamps with more energy efficient ones. In 2012, Ernst and Young LLP, another one of the four big accounting firms, implemented lighting retrofit in its headquarters in New York City. The large New York office is approximately 650,000 square feet, and supports roughly 5,800 Ernst and Young employees.10 We can compare Ernst and Young’s New York office to Deloitte & Touche’s San Jose office to calculate the potential savings of implementing lighting retrofit in San Jose. Ernst & Young, NY Office 650,000 square feet 5,800 employees 6.2 million kWh used annually Deloitte & Touche, SJ Office 150,000 square feet 1,300 employees 1.4 million kWh used annually Lighting retrofit Reduces kWh by 54% Ernst & Young, NY Office 650,000 square feet 5,800 employees 3.3 million kWh used annually Deloitte & Touche, SJ Office Ernst & Young now saves $1million annually 150,000 square feet Deloitte & Touche can save $230,000 annually 1,300 employees 0.76 million kWh used annually Deloitte, similarly, will significantly increase energy savings after implementing lighting retrofit at the San Jose office. According to statistics, Ernst and Young saved roughly $1 million per year after the installation of lighting retrofit. Deloitte & Touche’s San Jose office does not publicize its annual electricity costs. However, by conducting cross multiplication, we can estimate annual savings: A/B = C/D 3.3 million/0.76 million = 1 million/ D Therefore, D (Deloitte’s annual savings) = $230,000 9 Light Guide: Lighting Retrofit Economics." Light Guide: Lighting Retrofit Economics. N.p., n.d. Web. 13 Nov. 2014. http://www.ey.com/US/en/Newsroom/News-releases/Ernst-Young-LLPs-headquarters-goes-green-with-lighting-retrofit-project 10 Assessment Resources According to research conducted at the Institute of the Environment and Sustainability at the University of California at Los Angeles (UCLA), “the average cost per square foot for LED lighting upgrade is roughly $5.”11 Deloitte & Touche, San Jose is 150,000 square feet, so therefore the estimated cost of a new retrofitted lighting system in the office is $750,000. 150,000 feet x $5 = $750,000 Effectiveness The effectiveness of the lighting retrofit project can be forecasted through breakeven analysis and examining return on investment. Initially, during the first 3.3 years after the lighting retrofit has been installed, Deloitte & Touche will save about $230,000 per year, totaling $759,000. Following the breakeven point of the project, lighting retrofit will produce a return on investment of 31 percent. Therefore, Deloitte & Touche will receive a $232,500 (31 percent of the initial investment cost) annual return on investment. Return on Investment and Breakeven Analysis Investigating ROI can help a company determine if an investment is a good decision. Return on investment is expressed as a percentage and it is the relationship “between annual energy savings and the net installation cost.”12 The lighting retrofit project will “breakeven” in the amount of time (in years) that goes by before the system’s energy savings reach the net installation cost: Breakeven (years) = Installation cost (4) / Annual Energy Savings ($) Breakeven (years) = $750,000 / $230,000 Breakeven (years) = 3.3 years ROI (%) = [Annual Energy Savings ($) / Net Installation Cost ($)] x 100 ROI (%) = [$230,000 / $750,000] x 100 ROI = 31% The estimated ROI of implementing LED retrofits at Deloitte & Touche’s San Jose office is 31 percent, and the project will start generating a profit after 3.3 years. Additionally, the cost of implementing the lighting can be reduced significantly though funding. For example, Ernst & Young “reduced upfront costs for its LED retrofit by more than 13 percent through utility rebates.”13 These utility rebates are offered frequently, as well as tax incentives. There is an accelerated tax deduction that allows building owners to write-off the LED lighting upgrade in the first year it is purchased rather than depreciating it over several years.14 These tax incentives, rebates, and funding can all lower the cost of implementing retrofit lighting and thus increase the project’s overall return on investment. Comparing Retrofits: Lighting, HVAC, Windows." Comparing Retrofits: Lighting, HVAC, Windows. N.p., n.d. Web. 13 Nov. 2014. Light Guide: Lighting Retrofit Economics." Light Guide: Lighting Retrofit Economics. LightSearch.com, n.d. Web. 13 Nov. 2014. 13 Comparing Retrofits: Lighting, HVAC, Windows." Comparing Retrofits: Lighting, HVAC, Windows. N.p., n.d. Web. 13 Nov. 2014. 14 Light Guide: Lighting Retrofit Economics." Light Guide: Lighting Retrofit Economics. LightSearch.com, n.d. Web. 13 Nov. 2014. 11 12 5 Conclusion Lighting Retrofit In summary, lighting retrofit at Deloitte & Touche’s San Jose office will prove to be a highly effective, sustainable initiative. It will positively impact the environment by reducing greenhouse gases and other pollutants and will also reduce Deloitte & Touche’s carbon footprint. Additionally, lighting retrofit will reduce operating expenses overall energy consumption at the company. Finally, lighting retrofit will provide Deloitte & Touche with a significant financial return rate. A recent survey given to Deloitte employees in Netherlands showed a high correlation between the sustainability and investment, and the main driver to invest in sustainable products is to generate return on investment. 15 Implementation LED light retrofit can be implemented at the Deloitte & Touche San Jose office in a relatively short time period of just a few months and the process is an essentially simple replacement installation. In fact, Deloitte management has already made a statement concluding that existing commercial real estate that does not undergo green retrofitting will “relinquish market leadership within the Utilities, Energy &. SUSTAINABLE ENERGY- Investment Change or Climate Change?Sustainable Energy (n.d.): n. pag. Web. 6 next few years due to higher operating costs, lower productivity, declining attractiveness to workers and negative brand image.”16 Deloitte & Touche clearly already recognizes the need for further corporate sustainability. Therefore, the lighting retrofit project should be underway within the next year. Deloitte & Touche will continue to demonstrate strong social responsibility by surpassing any minimum legal requirements in how their business processes impact the environment and people. Future Implications Light retrofitting from fluorescent bulbs to LED lights will make Deloitte & Touche’s San Jose office considerably more energy efficient while reducing the company’s cost structure. Subsequently, Deloitte & Touche will set a higher precedent for corporate sustainability and continue to be a leading company in sustainability. Clients will choose to do business with Deloitte & Touche due to its excellent professional, as well as its environmentally conscientious choices. In conclusion, Deloitte & Touche, San Jose should implement the lighting retrofit initiative to enhance sustainability for people, the planet, and its profits. 15 "Resources." Green from the Ground Up: Environmental Retrofits and the LEED Process. N.p., n.d. Web. 13 Nov. 2014. 16 Appendix To: From: Date: Subject: 7 Deloitte & Touche, San Jose Employees Jacqueline Mokry November 13, 2014 Lighting Retrofit Proposal Sustainability Initiative at Deloitte As an audit intern in the San Jose office, I have recently proposed a new sustainability initiative, lighting retrofit, to be implemented at Deloitte & Touche. The San Jose office is currently lit by fluorescent light bulbs. However, technological advancements in recent decades have created a new light called LED (light-emitting diode). Although initially more expensive than fluorescent bulbs, LED’s will eventually prove to be financially advantageous for the company. This highly energy-efficient bulb has the potential to significantly lower energy consumption, as well as produce a great financial return for the company in the future. A lighting retrofit project will essentially replace every light bulb in the San Jose office with a more energy efficient, profitable counterpart. Potential Value After conducting an analysis of environmental and financial benefits of lighting retrofit at Deloitte & Touche, I have concluded that the project will breakeven in about 3 years and will yield an impressive annual return on investment of 31 percent. Thus, while improving sustainability with this conscientious retrofit, Deloitte & Touche will also positively impact its stakeholders and profits. Deloitte & Touche has a strong commitment to protect its people, the planet, and company profits. Therefore, switching from fluorescent lighting to LED lighting retrofit is an initiative that will allow Deloitte & Touche to live up to its mission of sustainability. I ask each of you for your support in the implementation of lighting retrofit at Deloitte & Touche. This initiative will substantially enhance sustainability at our company, thus driving societal chance and contributing to a sustainable and prosperous future for all.