Analytics Framework for Sustainability

Why the analytics framework for process improvement can translate into substantial benefits around sustainability improvements and energy efficiency. The Coronavirus pandemic has upended social interaction – a new normal, with social distancing and protocols, and so why does sustainability play a crucial role in facilitating a smoother transition into the is new normal.  The reason is sustainability engenders confidence.  Knowing facilities are safe and that indoor air quality monitoring is vital for occupant health and safety builds confidence. Health and safety are also essential in generating the confidence that changes consumer behavior.  Therefore, the process by which you implement a sustainability plan plays an expanding role in orchestrating the activities that adhere to values and performance.

A sustainability framework provides the roadmap to monitor, measure and curate data thus enabling performance benchmarking of conditions and processes.  The analytics framework serves as a roadmap to utilize insight gained from data analysis.  Currently available tools such as data visual analysis, machine learning algorithms and cloud computing architecture enable cost effective approaches to achieve business and sustainability objectives.

A sustainability framework provides the foundation to drive business value across several dimensions and performance metrics.  The use of the sustainability process can drive business value, improve our environment, enhance customer loyalty, and better engage healthier and happier employees while rewarding shareholders and stakeholders with higher business valuations.

Green Econometrics has developed a framework to monitor, measure and curate data pertaining to the benchmarking of sustainability performance.  Our framework is a Sustainability Process Blueprint.  This sustainability process blueprint approach is a data-driven monitoring and analytics platform that evaluates conditions and performance of energy, air and water resources.   Our model is quantitative, metric-specific, and dynamic, were data and metrics are used to benchmark, enable feedback, and offer actionable insight to optimize sustainability performance.

IoT and analytics enable an innovative approach to a sustainability scorecard by using IoT devices to remotely monitor, measure and curate quantifiable metrics around energy, air, and water relevant to sustainability.  The sustainability process framework itself engenders competitive advantage by its ability employ analytics to optimize efficiency and productivity.

The sustainability process blueprint employs a dynamic approach focusing on key metrics from which remotely monitored data is measured and cataloged in a format that provides insight as well as the ability to benchmark progress towards goals and objectives.  The process begins with granular detail into processes were IoT devices monitor energy, air quality, water consumption and waste.  Sensor data together with the ability to remotely monitor measure and curate data enables the development of an analytics platform capable of offering alerts, visual insight, context and perspective as well as progress towards sustainability objectives.  The ability to offer an analytics platform supporting a sustainability process framework also provides feedback to evaluate the impact of sustainability policy changes. 

One of the key investment themes in the last decade is the growth of Environmental and Social Governance (ESG) funds, where environmental focus is the dominant focus. Larry Fink CEO BlackRock, perhaps the largest investment funds in the world offered a letter to CEOs. As indicated in Mr. Fink’s letter, “Climate change has become a defining factor in companies’ long-term prospects.“   If climate change has become a major risk factor for investors, how can better prepare and develop a comprehensive sustainability program.

Furthermore, while sustainability and climate change are crucial for our environment, the benefits extend to include business valuation, process efficiency and healthier employees.

Climate change measured by National Oceanic and Atmospheric Administration and NASA show that the decade ending 2019 was the warmest in recorded history  Climate Change Washington Post.  Energy use resulting from the use of fossil fuels is responsible for a substantial portion of Green House Gas (GHG) emissions.   Efforts to reduce energy consumption play a significant role in lowering GHG emissions and improving air quality. 

The latest news on fire in Australia and last summer in California demonstrate the high cost climate change is having on our environment.  Climate change could result in rising sea levels and disruptions to food supply.  Given the latest climate data showing that the past decade was the warmest on record with 2019 being the warmest year on record, could more focus on climate change drive more interest in sustainability. In addition, investment funds such as Environmental and Social Governance (ESG) have demonstrated strong growth and investor interest which is primarily driven by climate change.

Energy Consumption and Carbon Emission

Energy is perhaps the most important portion of sustainability because fossil fuels, the main source of generating electric power and powering vehicles contribute significantly to increasing levels of GHG emissions.  GHG are mainly associated with the release of carbon dioxide (CO2) as a result of fossil fuel combustion.  By reducing energy consumption there is a proportionate reduction in GHG emissions.

The high levels of GHG emissions is play a role in climate change.  The relative output of GHG is proportionate to the ratio of carbon to hydrogen in the composition of fossil fuels.  In the combustion of fossil fuels the amount of CO2 released is in direct relationship to the composition of carbon mix in the fuel.  The following graph shows the methane of natural gas has significantly less carbon to hydrogen than oil or coal. The implication is that by sourcing electric energy from coal is nearly five times more destructive to the atmosphere in terms of CO2 emissions than gas.  Therefore, policies that substitute gas for oil or coal tend to reduce GHG emissions.

Figure 1 GHG Emissions:  Carbon to Hydrogen Ratio

While it is important to source power from clean fuels, energy efficiency including renewable energy, energy storage technologies, and energy efficiency optimization can play a crucial role in reducing GHG emissions.  So, if energy efficiency initiatives can help addressing climate change and sustainability, how can we translate sustainability progress with creating business value?

Sustainability Roadmap

A number of approaches to sustainability performance have focused on scorecards that provide a qualitative evaluation of performance where corporate vision, culture, risks and strategy play a substantial role.  In addition, many legacy sustainability scorecards are often static in nature, measuring progress at a specific point in time. 

A leading ESG rating company, Sustainalytics provides performance measures regarding sustainability where management skills and exposure to risks in the global supply chain are used to construct performance scorecards.  While Sustainalytics has done an impressive job in developing a renewed global ESG rating system, more can be done to quantify metrics where businesses themselves can become more proactive in meeting sustainability objectives. 

To establish an understanding of energy consumption and programs to improve efficiency, the Efficiency Valuation Organization sponsors the  International Performance Measurement and Verification Protocol (IPMVP) that provides a framework to construct an energy consumption baseline and to quantify energy savings where sampling procedures may be employed to create insight into energy usage patterns.  IoT devices enable granular data collections and coupled with weather, occupancy and process activities.  Statistical sampling and analytics play a crucial role in managing measurement and Verification (M&V) projects. The whole process of measurement and verification provides an understanding of energy consumption and efficiency initiatives.

IoT and Analytics

The architecture of the sustainability process blueprint is based on the use of IoT devices collecting data on the conditions and performance of energy, the environment and assets.  Knowing when, where and how energy is consumed is an effective approach to energy efficiency because procedural changes alone may impact energy consumption and operating costs.

Our focus is to provide a framework to improve sustainability initiatives and energy efficiency with the use of IoT devices and analytics.  To illustrate the sustainability process blueprint, let’s examine some useful metrics and monitoring approaches to energy, air quality, and water consumption.  These initiatives to improve sustainability can provide substantial value to your business.  The business values are based on operating cost reductions, reductions to risk profile and the higher market multiple achieved in market valuation that also lends itself to providing value to private companies.  In addition, the data-driven process optimization framework creates analytics capabilities that could lead to improving competitive advantage.

Figure 2 Sustainability Process Blueprint Business Value 

By integrating granular visibility in energy and environmental conditions and performance with analytics, a more comprehensive tool is created for businesses.  The exercise of building processes creates business value discussed in Customer Focused Process Innovation a book by David Hamme.  We have defined five levels of business value and are defined as follows:

Five Key Value Drivers

Monitoring:  The ability to remotely access data, which in many situations is challenging to retrieve.   The use of wireless sensors connected to sustainability metrics helps to reduce transaction costs, costs incurred in the process of acquiring data. Transaction costs are incurred when manual, on-site searching, monitoring, measuring are involved with collecting data to make decisions.  Remote monitoring enables knowing where, when and how energy and resources are consumed at lower costs and thereby help to create business value.  

Measurement:  accurate measurements reduce uncertainty in decision making. Measurement of sustainability metrics enables performance benchmarking in comparing performance over time and in relationship to peers and expectations.    Accuracy and precision are important to reduce variance and bias as well as identifying the correct metrics are also paramount in performance benchmarking.  Importantly, measurement also provide a means of providing threshold alerts to mitigate risks.

Data Curation:  organizing the data in a method that facilitates the quantifying and cataloging of data.  Curation also provides the blending of different data types to understand the relationship among variables and to conduct root cause assessment.  Cataloging the data in a quantifiable format enables faster time to insight, essential in value creation.

Feedback Lops:   provides the framework for process improvement.  The feedback loops enable instantaneous feedback of data (sustainability metrics) that engender machine learning and to gauge efficiency performance.  Analytics in conjunction with feedback loops are used in anomaly and fault detection, efficiency drift on equipment, and changes to performance resulting from enacted initiatives.  The ability of constructing feedback for efficiency performance provides the framework for continuous commissioning and a roadmap to drive process performance.

Time to Insight: decision making under uncertainty, particularly when data is difficult to access and risks are high adds to the importance in shortening time to insight. We believe a sustainability process blueprintcreates a competitive advantage because it fosters a culture around analytics which can be applied to processes and systems to optimize efficiency and productivity.  All of these capabilities provide a platform for continuous process improvement.

Collectively these drivers of business value provide direct and measurable benefits to businesses.  These benefits also offer broader benefits to the environment and general well-being.  Think about the global benefits in the way that car safety provides value to more than just the driver.  Enhanced vehicle safety features such as braking assistance benefit the vehicle occupants and well as pedestrians on the street.  Developing a sustainability process blueprint could not improve your business value and in addition, provide broader global value for the environment.

Key Dimensions of Business Value

• Improve revenue growth, expand margins and reduce risk – the recipe for expanding valuations
• Improving energy efficiency reduces operating costs and lowers GHG emissions
• Sustainability process generates economic value and lowers environmental impact
• Efficiency initiatives lower costs, thus improving financial performance 
• Sustainability governance engages customers, employees, shareholders
• The framework sustainability process optimization engenders culture for competitive advantage

By adhering to a sustainability program, customer engagement tends to improve which could drive revenue growth and better control of operating costs such as improving energy efficiency can significantly reduce energy costs.  As identified by Larry Fink in his letter to CEOs, steps to reduce business risks, enhances the investment appetite of investors.

A sustainability process fosters a culture of optimization and provides the framework for continuous improvement.  The real value is the improvements in health & safety and energy efficiency have both the benefit of higher employee productivity, lower operating costs and reduced GHG emissions.  The environmental benefits could have far reaching impact to not only address climate change and the associated global benefits, but provide your company with a framework where data analytics creates a culture of continuous process improvement.  The sustainability process could then set the foundation for a competitive advantage.  These factor together can dramatically drive business value. 

In summary, developing a sustainability framework can increase business value, while improving safety and health of occupants and is better for the environment.  Additional benefits resulting from a Sustainability Process Blueprint include enhancing customer loyalty while rewarding shareholders and stakeholders with higher business valuations. The sustainability process blueprint provides a competitive advantage by enabling a framework of continuous process improvement while employing an analytics culture to optimize efficiency and productivity.