The State of Green Business: What does it mean for fleets?

Posted by GreenKey - 25/02/11 at 11:02 am

With the release of the “State of Green Business Report 2011” GreenBiz provides an invaluable tool to help corporate fleets understand the current sustainability landscape. When looked at in conjunction with recent releases by McKinsey & Company and Cisco relating to the electric vehicle market, we see emerging changes on the horizon for the future of alternative fuel vehicles. Ford Motor Company’s partnership with ROUSH to design and build propane fueled vehicles, Nissan’s release of the fully electric Leaf, and General Motor’s release of the Chevrolet Volt, hydrogen fuel cells, and compressed natural gas (CNG) cargo vans are driving the near-term opportunities in this arena. However, trends speak to longer-term needs in this area.

So what is the state of green business?

In spite of the recent recession there has been a noticeable shift in corporate attitudes toward sustainability. Many organizations are foregoing their “incremental, short-term mindset” and adopting broader, longer-term strategies to address environmental and sustainability issues1. Increasing investments in clean technologies and continued green innovation points to greater competitive emphasis on sustainability as a market differentiator. Efforts to green the workplace through more sustainable IT practices, green buildings, smarter energy use, and the recycling of waste products show how companies have shifted to look at sustainability as a means to increase efficiency and reduce costs. The areas where fleets may make the most impact may not be as prevalent right now, but there are signs of significant changes to the way business is done coming in the not-so-distant future.

Many of the leading consumer packaged goods companies, like Kraft, Proctor & Gamble, and SC Johnson, are beginning to focus on sustainable practices and are turning toward their suppliers to follow suit. Walmart − with its enormous retail influence − is using its market strength to push suppliers toward more environmentally friendly activities2. In a business-to-business sales environment, organizations that have not yet encountered partners and potential partners adding sustainable practices as a prerequisite of business relationships should expect to see this more frequently as 2011 unfolds.

Moreover, while sustainability measurement and accounting is still in a developmental stage, greenhouse gas emissions (GHG) accounting has become an expected practice for large companies. Stakeholders and customers are applying pressure to organizations to measure, manage, and track the full environmental impacts of their businesses. A report by PricewaterhouseCoopers found that environmental reporting has “become critical to a company’s credibility, transparency, and endurance,” and the number of firms on the Standard & Poor’s 500 index publishing non-financial environmental reports increased by 17 percent over 2009, to 46 percent3. As companies implement these reporting procedures many find that sustainability information can be a valuable management tool to make sound business decisions and improve performance.

Within corporate fleets these trends continue to develop. Fleets have continued their move away from SUVs and large sedans to more fuel efficient four cylinder vehicles and more fleet organizations continue to look for ways to accurately report their emissions. These changes are encouraging, and more opportunities exist now than there were only a year ago. Through the Clinton Global Initiative, Fleets for Change—a collaboration between Environmental Defense Fund and Donlen to reduce corporate fleet GHG across the commercial fleet sector by 20 percent over the next five years—creates a structured and independent process to encourage more fleets to measure and track their emissions contributions.4 When looking at these trends in light of recent developments in the alternative fuel vehicle market there are indications that opportunities for fleets to truly drive change are opening up rapidly.

A consumer-focused approach to driving green vehicle technology

While 2010 will surely be remembered as the year of the electric car, there are more revealing signals about how quickly alternative fuel vehicles will enter the mainstream of fleet conversations and what is going to get them there. With many of these technologies still in their nascent state many fleets are hesitant to seriously consider alternative fuel vehicles until there is more supporting data. Some fleets are pushing early adoption for a variety of reason not unlike those driving the larger trends in sustainable business; however, these organizations can’t pull this new technology into the mainstream alone. The key will be to get these technologies into the retail mainstream to begin reducing the cost of production and mitigate the risk that fleet managers see in unproven technologies.

Across alternative fuel vehicle technology the lack of refueling or recharging infrastructure has been seen as the greatest stumbling blocks to a dynamic market. There are signs that this conventional wisdom may not entirely bear out and that companies have found innovative ways around these hurdles. For each of the alternative vehicle types—electric, CNG, and propane—to enter the mainstream each one has to represent about 10 percent of vehicles on the road.5 Natural Gas vehicles will require a newly developed refueling infrastructure before that can become a reality, but a basic charging infrastructure already exists for electrics that can provide a starting point. The main concern is whether or not the existing electric grid can handle the demand and optimizing charging times is the key.

Recently, networking technology giant Cisco announced plans to address these concerns. A partnership between ECOtality and Cisco establishes the technology for electric vehicle chargers to “communicate directly with utilities to determine off-peak and low-cost charging times” allowing consumers to “maximize energy usage and reduce costs.”6 By creating systems to optimize charging times, these systems will allow electric vehicle drivers to get the most out of the existing power grid for the lowest cost possible making these vehicles even more attractive to retail buyers.

The conventional wisdom, however, may not be entirely true. Research by McKinsey & Company has recently shown that there are clusters of potential buyers in large urban markets that didn’t see a dense public charging infrastructure as a prerequisite for purchasing electric vehicles. These buyers are swayed by the status of being on the cutting edge of technology and having a vehicle that fits their particular driving needs. Based on these projections, potential buyers in New York City alone could make up the almost one percent of the annual sales of electric vehicles needed for EVs to enter the mainstream.7

These trends, along with the strategies that are currently underway focusing alternative vehicle design to specific driving missions can open the doors for a more rapid adoption of alternative fuel vehicles in the mainstream market. As the recent announcement by Hyundai to publicly release the fleet average fuel economy for all vehicle sold each month shows there will be pressure on the Big Three automakers to push the development of their green vehicles. Hyundai’s results for January of this year already exceed the 34.1 MPG corporate average fuel economy standard set to be achieved by 20168. By targeting specific driving applications, like CNG and propane service vehicles operating in a hub-and-spoke system, or small electric vehicles intended for short inner city trips, manufacturers can reap the rewards of a focused strategy and prove to fleets that these vehicles are not only viable solutions, but can significantly reduce their costs with little risk of buying vehicles that don’t have sustainable economics9. That will truly drive the integration of alternative fuel vehicles into fleet usage.

Within our own customer base at Donlen we are seeing more and more fleets testing the waters of alternative fuel vehicles. Clients have initiated pilot programs to understand the feasibility and costs of propane and CNG trucks and several organizations with strong corporate sustainability initiatives have looked at ways to add electric vehicles like the Volt and Leaf to their fleets. There are still a lot of questions out there that fleet managers have about how these vehicles will perform, what do these alternative systems mean for maintenance and repair, what can they really expect to get in terms of driving range, and how do these vehicles fit into existing fleet applications.

These are all important questions to answer, but the challenge will be for fleets to prepare for the fast approaching reality of a changed fleet vehicle landscape without getting caught up trying to address these questions on their own. Donlen’s environmental and Strategic Consulting resources can help fleet managers understand the costs of these vehicles, where they fit into their fleets, and how to lead in a future where sustainability and environmental stewardship is a critical business initiative across all functions of the organization, including fleet.

1 Makower, et al. “Top Sustainable Business Trends of 2011”, State of Green Business 2011, GreenBiz Group, February 2011
2 Makower, et al. “Consumer Giants Awaken to Green”, State of Green Business 2011, GreenBiz Group, February 2011
3 Craib Design & Communications, PricewaterhouseCoopers LLP, CSR Trends 2010: Stacking Up the Results, Craib Design & Communications, 2010
4 Makower, et al. “Fleet Impacts: More Hybrids and EVs are Around the Corner”, State of Green Business 2011, GreenBiz Group, February 2011
5 Hensley, Knupfer, and Pinner, “Electrifying cars: How three industries will evolve”, McKinsey Quarterly, 2009 vol. 3
6 Shankelman, “Cisco Drives into EV Market with ECOtality Deal”, Source URL: http://www.greenbiz.com/news/2011/02/02/cisco-drives-ev-market-ecotality-deal
7 Hensley, Knupfer, and Krieger, “The fast lane to the adoption of electric cars”, McKinsey Quarterly, February 2011.
8 Source URL: http://www.greenbiz.com/blog/2011/02/04/hyundai-heating-competition-fuel-efficiency
9 Hodson and Newman, “A new segmentation for electric vehicles”, McKinsey Quarterly, November 2009

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