NEW YORK (Reuters) - U.S. industrial companies are spending heavily on environmentally friendly efforts even as the economic slowdown dents their profits.
Fueling the “green” trend are hopes that products that are made of recyclable materials or use less energy will win praise, forestall onerous regulation and cut rising costs.
In particular, oil prices have jumped more than 20 percent this year.
“Oil for $116 a barrel is staggering,” said Donald Young, a spokesman for the International Facility Management Association professional group. “Companies are forging ahead.”
For example, building maintenance supply company W.W. Grainger Inc says its manufacturing and industrial customers are clamoring for the energy-efficient lights, high-efficiency water faucets and even waterless toilets it sells through its catalog and Web site.
“I‘m not seeing any evidence of customers cutting back (on the purchase of green products),” said Patrick Davidson, senior vice president for sales and marketing.
Indeed, Grainger’s sales of such products rose 20 percent in the first quarter from a year earlier, compared with a 7 percent revenue gain overall, a company spokesman said.
At Home Office Solutions Group, which sells furniture to small businesses, sales of green products are “going strong” even as its customers’ average purchase has declined, Chief Executive Mark Levin said.
One of his most popular items is Steelcase Inc’s Think chair, which is made of as much as 37 percent recycled materials. And Home Office can sell it for $569 -- $250 less than the same manufacturer’s Leap chair.
“Green doesn’t always mean more expensive,” Levin said.
An economic downturn will prompt companies to keep a closer eye on the economics of green investment, said Michael Klein, chairman of Citigroup’s institutional clients group.
“The current market conditions will sharpen the focus. They will weed out initiatives that probably were not sustainable,” Klein said. But he added that businesses will not entirely scuttle their environmental investment plans.
“The momentum that has been building in the U.S. private sector will not be lost,” he said.
Citigroup has said it will direct $50 billion over a decade to address global climate change through investments, financing and other activities.
Replacing current technology with something more sustainable can save millions of dollars in the future, even if there’s a temporary hit on earnings, investors and analysts say.
“Companies can spend $20 million to save $60 million,” said Matthew Zuck, a manager of the AHA Socially Responsible Equity Fund.
While some of Grainger’s energy-efficient lighting systems cost more than older styles, the company said they could save enough power to justify their purchase price in as little as nine months.
Of executives who oversee facilities of 500,000 square feet
or more, 84 percent say they will invest in energy-efficiency plans this year, up from 56 percent last year, according to a survey by Johnson Controls Inc.
And what companies may lose in cash, they expect to gain in goodwill or customer loyalty.
Steelcase has cut jobs and closed plants recently due to higher material costs and lower North American sales. But the Grand Rapids, Michigan-based company went ahead with a pledge to buy all the renewable energy credits generated by a Texas wind farm as part of its plan to cut its carbon impact.
Although the energy from the wind farm, developed in part by a Deere & Co unit, will flow into a local power grid rather than a Steelcase facility, the company will use its credits to help its buildings meet environmental goals.
Companies have other reasons to operate in a more sustainable manner.
Some are rushing to make changes this year so they can take advantage of tax breaks offered by the Energy Policy Act of 2005, Grainger’s Davidson said.
And regulation is coming, said Andrew Hoffman, a professor of sustainable enterprise at the University of Michigan. Companies are implementing changes to head off government policies that could be even stricter, he said.
Although the economic slowdown will probably crimp some large-scale building projects, such as revamping heating and air conditioning systems, companies will still spend to make smaller changes.
“Our members are continuing to make investments in energy savings and sustainability,” said Young, the International Facility Management Association spokesman. “It’s all about the bottom line.”
(Additional reporting by Scott Malone in Boston)
Editing by Lisa Von Ahn and Braden Reddall