Dow's amazing $7 billion profit on greenApril 5, 2011: 11:25 AM ET
The company learned they had to accurately account for saving money in order to understand how they profit from green investments. Once they did, the figures were staggering.
FORTUNE -- Making chemicals takes energy -- a lot of it -- so the mere fact that Dow Chemical (DOW) can save a lot of money by improving their energy efficiency is not what's surprising. It's just how much energy and cash they've saved that's jaw-dropping.
Dow Chemical says its green investments have saved 1.8 quadrillion British Thermal Units of energy since 1994 -- enough to power every home in California for 20 months. Yes, those savings cost money to achieve, nearly $2 billion. But they have so far generated over $9 billion in reduced energy costs, for a net profit topping $7 billion.
While there's no definitive list of the most profitable green investments in corporate America, its clear that Dow's huge cash savings and return on investment place it at or near the very top.
The key, says Neil Hawkins, Dow's vice president of sustainability, was first having a clear understanding of how to measure environmental improvements and then "building an economic understanding" of their effect on the company's financial results. Dow reports a wide array of environmental measures every quarter. (In a related effort, Dow is spending $10 million in collaboration with The Nature Conservancy to tally up the ecosystem costs and benefits of every business decision.)
Dow first launched a 10 year plan to improve energy efficiency in the mid 1990s, and is now mid-way through a second decade-long effort. "Those sets of goals and the progress we made against them really changed the culture of Dow," says Hawkins, who discussed Dow's effort at Fortune's Brainstorm Green conference this week.
Much of the efficiency gains have come from new ways of making chemicals such as propylene oxide, a key ingredient in many plastics. By finding a way to turn hydrogen peroxide into propylene oxide, the company cut the energy use by 35%. (It also cut waste water by over 70% and won the Environmental Protection Agency's, Green Chemistry Challenge.)
There's more such savings to come, Hawkins says. Dow plans to put another $100 million in cutting energy use even further, and expects similar returns.