Split Incentives Hinder Sustainable Initiatives

There's an 800-pound gorilla in the room when most companies discuss sustainable initiatives. Intraorganizational split incentives present significant barriers to sustainable design and construction. Departments often compete for resources and recognition, and sometimes they seem more focused on competing with each other than with outside organizations. Individual departments are often only willing to make investments for which the returns benefit them directly, rather than their "competition".

Interdepartmental cooperation that benefits the overall bottom line and planning for the future are especially challenging when money is tight and cut-backs are required.

In an ideal world, everyone (or at least everyone with a shared mission) would work together for the common good. But in reality, personnel charged with design and construction within an organization are sometimes reluctant to dip into their budget in order to realize savings in operations and maintenance costs. Why spend money in order to make your competition look good?

There's been a lot of talk about revamping financial practices to consider the triple bottom line of "people, planet and profit." If that goal seems too challenging in the current economic climate, how about "profit, profit and profit?" Many sustainable initiatives have less than a five year simple payback, and a 20% ROI is certainly nothing to sneeze at, especially when it also benefits people and planet and improves an organization's image.

While addressing split incentives between organizations (as in landlord vs. tenant) can be challenging, split incentives between different departments within a single organization can be effectively addressed by its finance team.

Addressing the issue of intraorganizational split incentives can have a significant positive impact on an organization’s bottom line. For instance, Harvard University has set up a revolving fund that enables departments to obtain grants for sustainable initiatives. The grants are repaid from savings on operations and maintenance within less than five years. Harvard's Green Campus Loan Fund has been averaging an ROI of 20% per year, which is considerably better than the endowment funds of most universities.