Interview with Richard Wolf
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and Richard Wolf, Managing Partner of Rich Management LLC.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Environmental Sustainability is Financially Viable
Zezas: Hi, this is Andrew Zezas, the host of CFO Studio. I have the pleasure today of being joined by Rich Wolf, Managing Director of Rich Management. Rich Management is a financial and operations consulting firm providing services to small and emerging businesses. They’ve got an interesting twist on their approach in that they provide guidance as to the benefits of sustainability initiatives. Rich, it’s nice to have you here on CFO Studio. Thank you for joining us.
Wolf: Andy, thank you.
Zezas: Sustainability, green technology, and going green are on the minds of everyone. Saving the environment has been around forever, but really took hold in the seventies and has finally caught on. It’s on the minds of executives. It’s on the topic of conversation. From the perspective of finance executives, I have a load of questions to ask you about sustainability. Let’s talk about balance. How do you balance, as a CFO, profit requirements and the spirit of employees as it relates to their desire to be with an environmentally friendly company and environmental causes?
Wolf: Well Andy, as a CFO, your first priority is always to the stakeholders and the financial success of the company. But, there are ways that you can improve the employee attitudes within a business and change processes so that you are not negatively impacting the environment. So, those situations where you can find wins for each of those components quickly will allow a CFO to sell different projects and initiatives to management and the employees equally well. If you can measure something, you can manage it. I always remember as a young boy growing up, I was a baseball fan, I wanted to go to the stadium, take my glove and see if I could catch a baseball- that didn’t happen, but I became so enthralled with the statistics of the game. I used to memorize the batting averages of every Met player that would come to bat.
Zezas: Wait a minute, you are a Met fan?
Wolf: Unfortunately, yes. I am a Met fan.
Zezas: Now how old were you at the time?
Wolf: I was six or seven when I first started getting involved in the Mets. Right around the time they won the championship.
Zezas: And, at seven years old you were memorizing stats, baseball glove, blue baseball hat, orange insignia? Alright, okay. I got the picture. Go ahead.
Wolf: My father was always amazed that how after every at bat I would recalculate the average. That’s how I evaluated the players. Players today get evaluated based on their statistics. So, the more you can measure, the better you can manage it. I believe that there’s plenty of areas, both tangible and intangible, that you can measure and show returns on investments to the stakeholders, the board, and the employees to get them behind sustainable efforts.
Zezas: Okay, you said the magic words “return on investments”. So, let’s talk about returns on investments. With sustainable projects, there’s got to be a lot of components that are hard to measure. We are talking about measure and measuring ROI. So, how do you ascribe value to the components of sustainability initiatives that are tough to quantify?
Wolf: Well, again, there are lots of professionals out there that will define how you quantify individual measurements. I think from a company perspective, what you want to do is understand what your management is focused on. What are they interested in? What are the employees interested in? Define those aspects and then put together a measurement tool that makes sense for you. You are only setting a baseline in a lot of regards. You are setting a standard and you want to measure your improvement against that standard. So, as long as you are doing it consistently, what works best for the company is, what I think, is best for that company.
Zezas: And whether you calculate that internally or you engage someone to calculate against that, that’s a secondary issue. In other words, the company needs to set its own criteria.
Wolf: Yes, especially with the smaller businesses because they are not as measured externally, by this. So, you want to do what’s good for your company. Larger companies, you have the standard CSR, the corporate social responsibility reporting, that everyone out there is looking at in the filings. They have more strict requirements and they have some consistency requirements that they have to manage too. But, smaller companies focus on what impacts your business the most.
Zezas: Okay, so let’s go one step further with measurement, talk about key performance metrics, as it relates to sustainability, what should companies be thinking?
Wolf: Well, the easiest ones are expense reductions. You have expense reductions from energy efficiency measures that reduce your electricity, you have water conservation measures that reduce your water usage and therefore your water costs. But, there are the other aspects that are typically proposed out there: carbon footprint, how do you calculate that? The professionals that do it for a living, they analyze the impact for every operation of your business on emitting carbon into the atmosphere. You’ve got employee absences which are a big tool in building, and constructions of buildings, where LEED buildings today are pushing the benefit of reduced employee absences.
Zezas: Let me interrupt you. You used the term “LEED buildings”.
Wolf: Yes, Leadership in Energy and Environmental Design.
Zezas: Okay, so they are buildings that are certified on a LEED basis.
Wolf: Right, there is a whole certification process that buildings will go through that is environmentally friendly, if you will, and they address many aspects of the building.
Zezas: And, you are talking about a LEED building, or it doesn’t necessarily have to be a LEED building, but an environmentally focused building that will have a positive impact on employee attendance.
Wolf: Right, if you have day-lighting in a building, employees love working where there is openness. The light comes in, you have better air quality. Employees are less apt to be absent in buildings they feel most comfortable in.
Zezas: So, better employee attendance, greater productivity leads to…
Wolf: More profits. Productivity and profits, which is what, as a CFO, you love to hear.
Zezas: It’s a good word for a CFO. Let’s talk about incentives and how governments can tie into, and are tying into, the whole sustainability issues, specifically here in New Jersey. How important, as it relates to sustainability, is the government’s role in attracting companies to New Jersey through sustainability?
Wolf: Well, unfortunately a lot of these efforts need an impetus. They need somebody to get the process started. In New Jersey, they’ve decided to focus on solar energy. You wouldn’t think as a north eastern state that this would be a very good area to focus on, but New Jersey is actually the number two state of solar renewable production in the country; number one per capita, behind California because it is so large. That is a real accomplishment for the state of New Jersey and what they have done is through incentives, they’ve built a structure that is favorable to people that want to get started in the solar business. They have training programs for installers, they’ve got financing mechanisms that are very favorable to people looking to invest in solar projects in New Jersey. I will throw out the term “SREC”, which is Solar Renewable Energy Credits. New Jersey created this market based approach for these credits that has allowed financing companies to utilize that to back their loans, so they can go out and sell these energy credits on either a short-term basis or a long-term basis and get a return on their investment.
Zezas: Is there an exchange for the SREC somewhere?
Wolf: There is a publicly managed exchange. It is like a stock exchange, it is like a commodities exchange. It is run by a regional service that also manages Maryland, Pennsylvania, and the surrounding areas. Actually, New Jersey’s incentives, the way that they have built this energy trading incentive, the price of those energy credits is three to four times more than what you can get in the surrounding states. So, it is attracting a lot of businesses to New Jersey.
Zezas: Wow! That is tremendous. So financially, the state is very active on the issue of sustainability and bringing businesses to New Jersey.
Wolf: In the solar realm, they have been very active. They are also looking for other opportunities in a lot of other areas, but they have been primarily pushing the solar incentive to meet their needs. They want, as a state, to be known as a source of renewable energy. So far, I think they have got a very good start.
Zezas: Sounds like they’ve accomplished it.
Zezas: Let me take you in a little bit of a different direction. You are a finance executive, you are an operational executive, you have a very diverse background, and obviously you know your stuff when it comes to sustainability. Let’s talk about the role of the CFO. We have got a little bit of time left, so I want to as you for a quick answer. Large company, small company, public, private, nonprofit, how does that role differ?
Wolf: Well, it’s basically the same no matter what company you are in. You want to be able to do sustainable things in your company that lead to profitability. But, in a large company, you are more of a leader, you are setting the direction, and then you are delegating responsibility. In a smaller company, emerging company, you are in the trenches. You are dealing with the day to day issues, you are implementing the strategies that you set, and you are training your people to take on the additional responsibilities that they are going to have to do to make a company a sustainable one, and one that is going to last into the next several generations.
Zezas: Not just environmentally sustainable, but also financially sustainable.
Wolf: Financially sustainable, economically sustainable, and environmentally sustainable.
Zezas: One quick follow up question, is it fair to assume that in a larger company, finance execs, specifically the CFO, becomes more of a specialist, and in a smaller company he is more broad and more of a generalist?
Wolf: Reality will tell you yes, that’s the answer. As a CFO, you always want to have the big picture approach and you always want to get involved in every area of the company. But, the reality in today’s world is that larger companies you are less specialized and in smaller companies you are more specialized.
Zezas: Interesting, interesting. More specialized in a larger company or less specialized in a larger company? More specialized in larger company, broader in a smaller company.
Wolf: Much broader aspect in a smaller company
Zezas: I knew that was what you meant. Rich, listen, this has been great. I hope you’ll come back to see us again on CFO studio. I appreciate the time you have shared with us.
Wolf: Thank you very much, Andy. It was a pleasure.
Zezas: This is Andrew Zezas with Rich Wolf of Rich Management. For CFO Studio, saying thank you for watching, we will see you again.
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