U.S. and Global Companies Up the Ante on Sustainability

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Companies-Up-the-Ante-on-Sustainability In the United States and around the world, sustainability is increasingly becoming a focal point of corporate strategy.  Not only is it beneficial for the environment, but it is also consistent with long-term financial success and profitability.  Sustainability not only optimizes the use of resources but it minimizes operating costs, reduces tax liability, enhances brand equity, and attracts investment as well.   

Successful corporations recognize the benefit.  Numerous reports by lead consulting and accounting firms report that sustainability is becoming an increasingly core consideration for successful businesses around the world.  The United Nations takes a similar position in its 2015 Guide to Corporate Sustainability

The trend is no different within the United States.  In 2015, 75% of companies listed on the S&P 500 produced sustainability reports in response to growing stakeholder and stockholder demand for them.  According to the Governance & Accountability Institute, only 20% of all S&P 500 companies produced similar reports in 2011.  This increase in sustainability reporting suggests a growing importance being placed on sustainability within corporate strategies. The chart below demonstrates the increasing trend for reporting on sustainability within the S&P 500.

Investor concern for sustainability may, to some degree, explain the cause for the trend. According to a recent survey from US SIF:  The Forum for Sustainable and Responsible Investment (a leading voice advancing sustainable, responsible, and impact investing across all asset classes), one out of six dollars under professional management is currently earmarked as sustainable. This is up from one out of nine dollars in 2012.  These investors not only see the environmental benefits of sustainable investing, but its positive effect on return on investment (ROI) as well.

There are numerous ways in which sustainability can help a company‚Äôs bottom line.  Energy efficient lighting and high efficiency heating and cooling equipment can significantly reduce energy costs. Also, sustainable supply chains can reduce transportation costs for products and materials. Additionally, sustainable process improvements can reduce manufacturing costs. Finally, sustainable designs can often reduce first costs for new buildings and equipment.    

The availability of utility rebates and government incentives can further increase sustainability benefits.  The primary incentives include utility rebates for energy efficient equipment, EPAct (Energy Policy Act) tax credits, and alternative solar tax credits.  In many areas, these incentives can reduce the upfront costs for energy efficient and renewable energy solutions by over 50%.  

Perhaps the most substantial government energy incentive is The Energy Policy Act of 2005.  The bill was passed by the United States Congress on July 29, 2005, and signed into law by President George W. Bush on August 8, 2005. Known for its widespread success in enhancing sustainability on a national scale since that time, the bill contains numerous provisions aimed at sustainability.  Some of the broader measures incorporated in the bill are described below:

  • Authorizes tax credits for wind and other alternative energy producers
  • Authorizes loan guarantees for innovative technologies that avoid greenhouse gases
  • Requires the Department of Energy to conduct numerous studies on sustainability
  • Provides tax incentives for those making energy conservation improvements to buildings & facilities
  • Authorizes loan guarantees of up to 80% of project costs for energy efficiency

U.S. companies focused on sustainability should take particular notice of Section 179D which can be utilized by building owners in any industry.  Section 179D tax incentives provide up to $1.80 per square for qualifying lighting, HVAC, and building envelope projects.  At the end of the 2015 tax year, President Obama signed the extension of Section 179D, the Energy Efficient Commercial Building Deduction.  Section 179D was extended for two years; one year retroactive (2015) and one year forward (2016).

Both existing buildings and new buildings are eligible for the EPAct tax incentive. Although virtually all building categories are tax incentive eligible the benefits are particularly favorable for warehouses and manufacturing buildings. To qualify, a building, post-project, must reduce its energy costs as compared to an ASHRAE building energy code standard.

With the two-year extension of Section 179D, energy-efficient tax incentives have now been available for 11 years. Most existing buildings that are 11 years or older have had some type of upgrade (lighting, HVAC, or building envelope) that likely qualifies for EPAct tax incentives.

The Energy Policy Act of 2005 was the most comprehensive energy policy act ever enacted by Congress.  As U.S. companies are increasingly focusing on sustainability, most of them will be able to take advantage of some of the many incentives offered by the act.   

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Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Michael Wilshere is a Tax Analyst with R&D Tax Savers.