According to the Federal Reserve, corporate America is sitting on $1.8 trillion in cash and short-term assets. This is an unprecedented level of cash on hand, and it could point to a way out of our economic doldrums. What if corporate executives invested that cash in one of the smartest and most financially sound opportunities available–one that not only creates jobs, but would help end our dependence on foreign oil and slow climate change while paying a steady return on investment?
I’m talking about energy efficiency. It may not be sexy, but over and over we see that upgrades to lighting, ventilation, manufacturing equipment and transportation systems pay for themselves and create new jobs.
Take, for example, a company called Cree, Inc., that makes energy efficient LED lighting. A year ago, Cree announced it would boost its local payroll by 575 workers, and just last month, the company announced that it would create another 244 local jobs over the next two years. Best of all, in an era where politicians of both parties are shouting about jobs being exported to China, Cree turns that equation on its head. Its North Carolina plant manufactured and exported the LED chips that were used to light the Bird’s Nest stadium and Water Cube aquatic center during the Beijing Olympics.
The possibilities for accelerating this kind of growth are seemingly endless. Our EDF Climate Corps program uses business students to find energy savings opportunities at participating companies. In just 10 weeks at 50 companies last summer, we found $350 million in potential operating savings. And that’s just the tip of the iceberg.
But don’t take my word for it. The management consulting gurus at McKinsey calculate that commercial and industrial energy efficiency investments of a mere $238 billion–peanuts, compared to the $1.8 trillion on hand–would by 2020 generate $732 billion in energy savings (in today’s dollars) while avoiding some 660 million tons of annual greenhouse gas emissions.
The confounding piece of the puzzle? Rather than harvesting these savings and helping to drive job creation in all the companies that make, install, and maintain energy efficiency equipment and building materials, U.S. companies instead are choosing to buy back their own stock. The Washington Post reported last week that U.S. firms will purchase $273 billion of their own shares, more than five times as much compared with this time last year.
It seems that buying your own stock is a quick way for executives to make themselves look good. That’s because Wall Street analysts closely track something called earnings per share, which divides a company’s profit by the total number of shares on the market. If the number of shares on the market goes down, earnings per share go up and the stock price rises.
But that’s just arithmetic–it hasn’t fundamentally changed the way the company is run, its future profitability, or its impact on our planet. But really, haven’t we had enough clever math? It’s time to get back to fundamentals, and nothing could be more fundamental than investing in today’s jobs and tomorrow’s energy future.