Moving Beyond the Payback

September 7, 2011

By David McInally, Executive Vice President and Treasurer, Allegheny College

(This article appears in the September, 2011 issue of The ACUPCC Implementer)

Many colleges and universities have rightly celebrated the success of their first-generation sustainability efforts. Now that these initiatives have matured, the time has come for integrating them fully into institutional planning and financial systems, rather than relying primarily on arguments about economic paybacks.

Making the case for integration is relatively straightforward. Grass-roots efforts generally depend on individual champions, leading to uneven progress as campus leadership changes. Enthusiastic supporters may not be located in essential areas such as the budget, physical plant, or planning offices. Competition for resources can mean wavering commitment in times of scarcity.

These potential obstacles become real threats for institutions that have relied too heavily on payback models. Rather than integrating sustainability fully into the organization’s strategic plan—where the goals are clearly stated and understood by the wider community—many colleges and universities have promoted sustainability as an initiative that pays for itself. This approach is an effective way to open the door for energy-reducing investments, but its limitations become apparent as soon as the fast-payback initiatives are completed.

Payback models rely on assumptions that sometimes prove unreliable due to factors outside of the institution’s control, such as energy costs and macroeconomic instability. They can be expensive, since they frequently incorporate risk premiums to insure against failing to achieve the desired savings. They also enable organizations to dodge central questions about our educational missions and our leadership role in our regions and nation. What happens when the light bulbs have been changed, the insulation has been upgraded, and one LEED-certified structure has been built? Is sustainability part of the deep infrastructure—meaning the curriculum, the faculty staffing plan, the campus master plan, the marketing and communications program, the operating budget, and the strategic plan? If not, then resources are likely to be steered toward other priorities, and some very smart long-term options (e.g., campus improvements with decades-long paybacks, or renewable energy purchases that require premium payments) may be discarded.Moving beyond the payback model requires the full power of the shared governance system, and in the case of sustainability, the commitment of the chief financial officer. Imagine trying to revise the curriculum without strong leadership from the chief academic officer, and you will see why many campuses are struggling—their presidents and governing boards have joined the American College & University Presidents’ Climate Commitment, but their CFOs think it is unrealistic and prohibitively expensive. That is understandable in light of the complexity and cost, as well as many other economic pressures facing business officers, but the fact remains that sustainability initiatives are unlikely to become fully integrated into institutional operations without strong leadership from the CFO at all levels of governance, including the board of trustees, the faculty, and the financial systems (operating budget, capital finance, project management, and investments).

This leadership begins with the strategic plan. Effective plans include concrete goals for teaching and learning programs (curricular and co-curricular), the physical campus, and key areas such as enrollment, diversity, and fund-raising. If the strategic plan includes no reference to the Climate Action Plan—to which all ACUPCC members are committed—then resources are likely to be unavailable for projects that don’t pay for themselves relatively quickly through energy savings. The Climate Action Plan (CAP) is a ready-made initiative that qualifies as strategic on every level, since it takes into account an institution’s particular strengths and weaknesses as well as a variety of economic, political, technological, social, and other environmental factors. The CAP is intended to place the institution in a position where it can thrive in anticipated future conditions. There is no reason for it to operate independently of other strategic priorities.

In successful organizations, financial operations and fund-raising priorities flow from the strategic plan. The operating budget, capital finance program, and fund-raising campaign should include evidence of the climate commitment. Colleges and universities are wise to pursue as many auxiliary energy-savings initiatives as they can (some of which may even be off-balance-sheet), but it is short-sighted to imagine that true climate neutrality will be achieved that way, since it depends on a host of educational and mission-driven factors, and not only on self-financing campus infrastructure improvements. Governing boards and CFOs have proven to be imaginative in achieving other ambitious educational goals, some of which may have appeared to be out of reach at the time. How many of us benefit from science facilities, athletic complexes, residence halls, or IT networks built by our predecessors? Climate-neutral campuses can be our legacy, but this effort will require as much creativity and campus-wide commitment as any of those past projects.

Governing boards are essential to this process, even if some trustees have doubts about climate science. We can find common ground in the short run—who doesn’t want to save money?—but long-term success depends on the board agreeing that climate neutrality is an important institutional goal. This will require a series of substantial conversations with the board, where the case is made not only for quick-payback improvements but also for the educational imperative. The president, chief academic officer, and CFO can be a dynamic team if they are of like mind on this topic, especially if they have plans in place for pursuing sustainability goals through multiple dimensions representing each of their areas.

These conversations need to take place on campus as well. The physical plant staff may have the best ideas for improving energy efficiency, the residence life staff may have the greatest impact on student behavior, and the budget officers are in an ideal position to lead the campus through the process of making climate-aware choices within operating or capital budgets. The entire faculty and staff will need to understand that investing in sustainability will have an effect on the resources available for other purposes—but since our institutions always deploy our resources to balance a variety of needs, the climate commitment is not unique in this regard.

This level of integration is a starting point for moving beyond the payback model. It offers a payback in deeper, lasting ways—not the least of which is creating a sustainable and healthy campus environment for the faculty, staff, and students who will follow us. Best of all, it’s something that we already know how to do—we regularly utilize this educational and governance system, as well as higher education’s access to inexpensive capital financing, for all of our other educational priorities. The time is right for sustainability to be among them.

Case Study: Integrated Sustainability Financing at Allegheny College

Allegheny College was an early ACUPCC signatory and one of the first colleges to partner with the Clinton Climate Initiative.  They employed a leading energy services company to complete a comprehensive energy audit, but after reviewing the terms of the energy performance contract determined that they could finance their Climate Action Plan most efficiently by using the financial systems already in place—namely, their operating budget, comprehensive maintenance plan, capital finance program, and fund-raising campaign.  The College assumed the risk associated with failing to achieve desired energy savings, and directed the funds associated with the risk premium into additional sustainability projects.  Allegheny’s $10 million Climate Action Plan—included as an explicit goal in the strategic plan—is financed through a combination of annual maintenance funds (determined through an annual campus-wide priority-setting exercise), capital finance, and fund-raising from government sources, foundations, and private gifts.  To date, the College has updated lighting, insulation and HVAC across campus, installed geo-exchange systems in three buildings, and constructed two LEED-certified buildings.  In addition, a new environmental science center is under construction and the College now purchases 100% of its electricity from wind-powered sources.  The integrated funding approach means that the entire financial operation has taken on elements of a comprehensive green revolving fund, where resources are devoted to the CAP and savings are realized on an annual basis through reduced utility expenses.  The savings do not always equal the investment since many CAP initiatives have long-term paybacks, so this approach—while the least expensive in the long run—requires continuing support from all levels of the campus governance system.

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