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Do Green Projects Need an ROI?

Wanna be green? Who doesn’t? But the reality of acting green sometimes runs into a hard economic wall. Projects that on the surface make perfect sense get stalled when the accountants get involved.

Alternative Fuel VehicleCase in point: alternative fuel vehicles. We’d love to have 100% alternative fuel vehicles in our fleet of package cars. But the reality is that the math doesn’t work. Most alt fuel choices cost 30-100% more than traditional diesel. The fuel savings usually doesn’t equal the extra costs, even over a decade.

That doesn’t account for the operational shortfalls of the new alt fuel technology: some don’t work well in cold weather; some have higher maintenance costs; others have limited mileage ranges; others haven’t proved to be reliable. And in many parts of the country, the fueling infrastructure isn’t even available. That would require a major capital expenditure.

Then there’s the risk of obsolescence to think about: if you planned to keep your vehicle for 20 years (UPS does), which technology would you choose. Propane, CNG, electric, electric hybrid, hydraulic hybrid? We have all of those today. And then, you have to compare each to diesel vehicles with advances in fuel efficiency and emissions that are quickly closing the gap between the alternatives.

Nevertheless, UPS still has the largest private alternative fuel/advanced technology fleet in the shipping industry (1,200+ package cars) deployed around the world. And compared to our competitors, no one has the diversity of advanced technology we are operating today.

We’ve decided it’s worth the investment to help us plan for the future and test the viability of these emerging technologies on real-life road conditions. In fact, after testing CNG vehicles, for example, we bought 300 last year. And we were the first in the industry to buy hydraulic hybrids.

But will UPS have a 100% Green Fleet anytime soon? Not if we stick with our philosophy of balancing the social, economic and environmental aspects of our business. And not until the technology is reliable AND the cost of the vehicles shows a good ROI. As Kermit says, it’s not easy being green.

What kinds of green projects would you like to do…but find the economics just don’t work?

Edit: This entry was reposted on the Boston College Center for Corporate Citizenship blog.

Category: Sustainability
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    Comments [25]

  1. We take great pride in our clients’ achievements! Another great example of what brown does for us.

  2. Nancy, do you work for UPS or their agency that produces this stuff? Come on.

  3. UPS really needs to step it up with the use of Hybrids and Electric Vehicles. The hydraulic hybrids have proven to work and electric vehicles have been around for a 100 years. Does doing the right thing have a cost? Yes it does and the future will be electric vehicles. Its about time UPS becomes a leader and starts putting more of these on the street.

  4. If you say “…the economics just don’t work”, then it could be the economic axioms that need to be changed. We don’t have to keep marching to the same old drummer toward the edge of the cliff.

    We can’t continue to pretend that “growth” and “progress” are realistically defined by how fast we can dig raw stuff out of the ground and burn it up.

    I believe UPS will be a very different company in 20 years. The airline will eventually give up most of its business to water-shipping because it’s much more fuel efficient. The ground business will be steady because it’s more efficient to consolidate shipping than to have each purchase be made in person at a shopping center using a personal vehicle.

  5. Thanks for the stimulating commentary. Twenty years is a long time..what vehicle would you buy if you knew you had to have it 20 years from now? All-electric with its 100-mile battery limitations? Hybrid-hydraulics which are now in their first-generation? Low-emission diesel which is the most economical choice, in terms of technologies? What about the advent of socially-responsible biofuel technology in the next twenty years — algae-based for example…will that change the selection criteria? As for water-shipping replacing air shipping – I dont think critical parts or emergency medical supplies will be taking the “slow boat” even when gas is $10 a gallon. Still, you are right that we do need to look at different scenarios and technologies…invest in a different kind of future. Remember a passenger car is different than a heavy duty delivery vehicle for tractor trailer that carries thousands of pounds of packages. The performance of today’s passenger hybrids aren’t really comparable to the Prius’s on the road today. It’s still the early days for commercial vehicles.. What do you think is a reasonable premium to pay for experimental
    technology? How much of the fleet should we allocate percentage wise to the fleet? (Note to John above: all-electric batteries only go 100 miles uncharged so we cant use those everywhere…just urban areas).

    I dont want to sound defensive on this. I wish we could have 100% and I’m pushing to get more…your ideas and comments are great to take back to the sustainability dept and automotive.

  6. It’s not any company’s responsibility to change the world or its environment. When any company does so, it is because they see it in their own best interests based on the realities in the market place (i.e. it reduces operating costs or it increases revenue because its customers find it appealing). A company does the greatest good for society every day by remaining profitable:by providing goods and services that benefit the people within that society, and by providing jobs which give people within that society their livelihoods. Anything the company does beyond that in terms of “Corporate Social Responsibility” is gratis. It may sound cynical to talk about socially responsible investments in terms of ROI, but you have to remember that “the company” does spend or invest its own money: that money belongs to the shareholders and it is the responsibility of the company to spend and invest that money wisely. That means showing sound financial justification to its share owners for how it spends/invests their resources.

  7. Couldn’t agree with you more. However, UPS can’t make a profit or grow our business where communities aren’t healthy. Employers, entrepreneurs and companies don’t want to locate where air and water is polluted, where schools are underfunded, or where social issues aren’t being addressed. So limiting corporate engagement to just the business is also shortsighted if you want to grow –both here in the US and beyond.

  8. Lynnette,

    I agree. Which is why the marketplace signals to the firm that growth in revenue and profits will require the development of sound CSR policies. It is still a dollars and cents decision, and not doing good simply for the sake of doing good. There is still a cost/benefit (or ROI) that must be considered when implementing green projects, just as there is with any other project. That is simply practicing due diligence in spending/investing the shareowner’s resources; a must for any firm that wishes to remain profitable and viable, and to continue “doing good”. Indiscriminate spending on social improvement policies, without regard to the effectiveness of the economic or social impact of those policies, has always been and continues to be, best done by the government. :)

  9. Darryl, You are wrong. While a company has a responsibility to create profits for shareholders, they
    also have a moral responsibility, and some may argue, legal responsibility to protecting the environment. UPS
    burns lots of fuel and in turn pollutes the air everywhere. Each day this increases. Do they have the exclusive property rights to the air? Or, does society have property rights to clean air to breathe? While UPS needs to compete in the market, and generally on price since they really have no differentiating value proposition against FedEx (and vice versa), they choose to focus on the “economics” of their fleet and decisions and not face the moral fact that they contribute to pollution. As a society we need to regulate these firms to have a fair playing field, since they won’t do it on their own. Sure they may have a few deisel trucks, but come on, does that reflect reality?

  10. Whenever someone mentions “moral responsibility”, I know the discussion is about to shift from the logical to the religous/fanatical. Based on whose morals? What is the optimal level of pollution? Not zero, because that would mean that you and I would have to cease to exist. You and I pollute every time we exhale. Should we be “regulated” accordingly? If you exercise (and therefore exhale more CO2) and I do not, should you be taxed or regulated differently? Companies (UPS included) do the right thing and practice environmental sustainability when it makes sense for them to do so (i.e. consumer demand dictates that it is the profitable thing to do) and they are doing it WITHOUT government regulation imposing unncessary restrictions on their ability to operate in the market place. Why should firms – which give people their livelihoods and bring products and services to markets which make our lives better – have to endure regulations that we would never dream of placing on individuals. Your statement reveals a flawed logic and a strong anti-business bias.

  11. Darryl, You can say morals are individualistic, or you can believe in moral/ethical theory like Utilitarianism. It seems you choose the individualistic approach which is ok, but ignores the rights of society or others. This isn’t religious or fanatical, it is what it is.

    To compare the CO2 released by humans through respiratory function and the CO2 emissions through burning of fossil fuels is pretty comical. It’s also unfortunate that you view environmental sustainability as “that which makes the most profit”.

    Don’t get me wrong, I’m not anti-business. I’m a marketing manager with an MBA, so I try and look at my
    business in the framework of being a part of this Earth, and not the Earth being a part of my business, which
    appears to be the “thinking” you choose to use. Do you feel no moral responsibility for future generations? Do
    you honestly believe that there is nothing that firms can do to diminish their impact on the environment, and that
    they are efficiently operating in this space?

    Your Bush administration chose to ignore worldwide agreements for hydrocarbon impact, and I hope the current
    administration will at least put it on their agenda. I applaud UPS for at least starting the dialogue for impact and sustainability, and hope they will continue to push the envelope for industry wide environmental adoption.

    You however, seem to want to take the far right stance of “we’ve got the right”, which implies others to not, to pollute to a level that keeps us in business. It’s a shame.

  12. Joe,
    Not sure where to start. I’ll try to keep it on point:

    1. “You can say morals are individualistic, or you can believe in moral/ethical theory like Utilitarianism.” Response: Morality can be divided into either deontological and consequentialist thinking. Do you believe that it’s ALWAYS wrong to pollute? Or is a little bit of pollution ok, if it means that poor people can make a living wage and children don’t go hungry. To suggest mitigating pollution entirely without regard to economic outcomes (i.e. being subjected to CBA or ROI) means that you are either a deontologist, are heartless and unfeeling towards the poor in society, or your MBA included absolutely no quantitative or economics instruction. When it comes to mathematics, we can all agree that 1 + 1 is 2. When it comes to “morality”, there is a far greater disparity in what we agree and disagree upon. It’s hard, therefore, to form sound policy on morality.

    2. “Your Bush administration chose to ignore worldwide agreements for hydrocarbon impact.” Response: Not sure how it somehow became MY Bush administration, so I’ll let this one go.

    3. “You however, seem to want to take the far right stance of “we’ve got the right”, which implies others to not, to
    pollute to a level that keeps us in business.” Response: This is not a right/left argument, but about considering normative vs. positive conditions objectively, and determining which projects and policies yield the optimal outcomes for all stakeholders. Firms which spend indiscrimately on CSR, without regard to their shareholders, will soon find their shareholders diversting their resources and shifting them to vehicles that yield a higher return (maybe in your MBA you took a Finance course and you know what I am talking about). This of course, decreases the value of the firm, prompting cost containment and layoffs (by the way – the low – skilled, low wage earners are the most vulnerable to these types of decisions and therefore, tend to suffer the most). So I say again, the need to invest in CSR must be weighed against the interests of all of the firm’s stakeholders (i.e. quantified vis a vis ROI or CBA), and those projects which make the most sense to the firm and its stakeholders selected.

  13. Wow. This conversation has a lot of provocative thoughts in it. It leads to the broader discussion of the intersection between businesses, government and the nonprofit sector. What is businesses’ role in society? One of the things UPS has been doing a lot of is donating knowledge skills like supply chain expertise. An example is the logisticians that we’ve sent to disaster areas (both before and during) to make the delivery of emergency goods more efficient. Is that an appropriate role for business?

  14. UPS does a wonderful job, both through its UPS Foundation grants and it participation through United Way at community involvment and practicing good Corp Social Responsibility. It, and other companies with similar commitments, improve social welfare without being coerced into doing so by government regulation. As a result, consumers in general view UPS very positively and are more likely to do business with a company that demonstrates these kinds of corporate values. I think this is the model that all private businesses should adopt.

  15. Lynn,

    I deliver for UPS in Portland Oregon, I average 40 miles a day so an electric truck
    would work great for me. Oregon is one of the greenest states yet we don’t have any
    alternative vehicles here. WIth the recent Federal Tax Credits and state credits
    Oregon offers doesn’t that dramatically reduce the cost of adding these to our fleets.
    Just hoping that someday I will be driving an electric package car breathing the clean
    air that an electric car provides and not choking on the exhaust of the vehicle I
    currently drive.

  16. Lynette – Interesting topic, thank you for bringing it up. I’m interested in your
    question about the role of business in society. If, for example, UPS determines that
    a 100% carbon neutral fleet is in its best economic interest, then would UPS be
    eligible for Obama’s green business incentives? Or rather, does it have the right to
    be eligible? Should only new businesses be eligible for these types of incentives?

    I’ve been hearing the term ‘social enterprise’ quite often lately and I am a proponent
    of NPOs structured as for profits to drive social aims. But how does it work in the
    opposite direction for a 100 year old organization like UPS? I wonder if Joe Reality
    believes that companies should become profit neutral by redirecting profits toward
    social goals – how does it help the community? Can organizations set goals and
    champion the best outcomes for communities when there’s no economic interest to
    the shareholders?

    BTW, I didn’t see Joe Reality’s signature on the MBA Oath: http://mbaoath.org/take-
    the-oath/

  17. Right now, state and federal incentives are extremely varied even by technology — and
    some arent even on the radar yet, like our hydraulic hybrid. Thats part of the problem
    because sometimes the incentive periods are shorter than the life of our vehicles and
    we dont know if those incentives will continue. As for whether companies SHOULD take
    incentives, here’s my view. The sooner we have vehicles on the road, the sooner
    companies will be willing to buy significant numbers of them…and once you have
    volume for production, the cost is going to fall. Therefore the need for incentives will
    go away. So incentives are just a temporary bridge to commercial viability. Does that
    answer the question, Bridget?

  18. Lynette-
    I am a logistics consultant, and one of our areas of expertise is green transportation
    initiatives. I read your post and the comments with interest. UPS has really “gone the
    extra mile” on the environmental side. UPS is the first US carrier (and so far the only
    US carrier) to offer carbon offsets for shipping. And many peole don’t realize that
    UPS uses a great deal more intermodal, compared to other carriers, which translates
    into a much lower carbon footprint for UPS packages. Lynette, how about doing a
    blog post on that subject?

    • I am forever indebted to you for this infmortaoin.

  19. You are so smart to know about our extensive use of rail, compared to others. It is one
    of those actions that we have taken to benefit both economically and environmentally.
    In fact, in 2008 ground-to-rail shifts prevented absolute emissions of 1 million metric
    tonnes of CO2 in our US package operations. There is a detailed description of our
    program in the latest sustainability report. http://www.responsibility.ups.com/sustainability on
    page 4 and page 62.

  20. There has been a lot of talk and action by Boone Pickens
    about natural gas fueled vehicles. As a stockholder I
    really appreciate your perspective on your blogg. Can you
    supply any feedback on UPS’s experience with Natural Gas
    vehicles, or is it too soon to tell? I also understand
    that there are many more Natural gas vehicles being used
    in other countries. Any information you could provide me
    would be greatly appreciated.

  21. Lynnette,

    Stepping back to the core question of “Do green projects need an ROI?”, I believe they do. An ROI is needed to make intelligent and green
    business decisions. The problem is that generic ROI calculations are highly inaccurate because of how sensitive these vehicles are to the
    way they’re driven and the routes they’re used on. Missing the opportunity of pairing the usage pattern with the right technology, leaves a
    lot of money and GHG emission savings on the table.

    One way around this is to look at the full lifecycle costs of the vehicle. For accurate estimates, fleet managers need to fully understand how
    each vehicle is used.

    Has anyone else seen this being done? I have a study report that I could share with interested parties. This green fleet study report
    develops a business case for the purchase of hybrid vehicles by using vehicle usage data to estimate fuel consumption prior to purchase.
    That might be something you can take back to the sustainability department and automotive to help you justify purchasing more of these
    vehicles.

    Cheers,
    Alain

  22. Alain, thanks for your comment. We do life cycle analysis and by now we have more
    than 200k miles worth of experience on the road with alt fuel vehicles so we are pretty
    deep in the data. Is your study one of heavy duty vehicles like ours, or retail? Happy to
    forward it on to our folks.

  23. Lynnette,

    The study I’ve referred to assessed the business case of purchasing light duty hybrid
    vehicles for one private and two municipal fleets. However, the process and technology used
    for assessing the business case prior to purchase would be the same for heavy duty vehicles
    and has in fact already been used by Purolator to estimate the fuel consumption of Unicell’s
    Quicksider electric delivery vehicle. Neither study is fully available online, but I am able to
    share the detailed reports with you. Can you email me at aboutros@crosschasm.com and I
    will reply with PDF versions that you can circulate within your organization as you see fit?

    Another similar study is currently in progress with Toronto Transit Commission to determine
    the best bus powertrains for their particular routes. The results of this study won’t be finalized
    before May, but I can surely send you a copy of the report once it’s ready. Let me know if
    you have any other questions. I’d be glad to help.

    Cheers,
    Alain

  24. Limits on driving distance. If you drive long distances,
    an electric car might not suit your needs, so you will
    need to consider how far you plan on driving your car.
    Lack of power is another disadvantage of this hybrid vehicle.

    Regards,
    Micheal

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