Taking the long view of sustainability

Out in Minneapolis, you might note on approaching Murphy Warehouse Co.'s distribution centers that the landscaping looks a little different from what you might see at other industrial sites—a mix of native prairie grasses rather than a green lawn. That's the first sign of the many steps the company has taken to conserve resources and invest in sustainability.

The Murphy Co. operates 2.3 million square feet of warehousing space across 13 buildings in the Minneapolis area. It doesn't own all of them, but in those that it does, it has invested heavily in energy conservation, recycling, improved storm water runoff, and more—all aimed at decreasing the warehouses' impact on the environment.

The Murphy Co. and a relative handful of other privately held warehousing companies around the country have made the leap into sustainability in a major way. (See sidebar on The Barrett Companies for another example.)

Richard T. Murphy, president and CEO of the company, has become an evangelist for investing in sustainability. He speaks regularly on the topic and urges business owners to look hard at the long-term benefits for both their businesses and the environment, an argument made more credible by his hard-nosed understanding of business reality and the need for returns on those investments.

Murphy is the fourth generation of his family to run the company, which was founded in 1904. He did not initially set out to become a warehousing executive. He earned degrees in landscape architecture from the University of Minnesota and Harvard University, and taught the subject at Syracuse University and back at his Minnesota alma mater for 25 years.

That training and what he considers his family's legacy inform his commitment to sustainability initiatives. "The Murphy family has always felt that as part of the community, it was important to be a leader. Today, sustainability is one of the areas where it's important to do that," he says. "We want to show the business community what you can do."

Murphy acknowledges that privately held companies have one major advantage over their publicly traded counterparts when it comes to investing capital in sustainability initiatives. And that is that they have greater tolerance for waiting out returns on investment (ROI). But he emphasizes that he takes ROI seriously. "Our perspective is a lot longer than the publicly traded sector's, but we still have to have an ROI in a reasonable amount of time," Murphy says. "We still have to pay the bills and pay our employees."

SEEING THE LIGHT
As for the kind of long-term investments Murphy is talking about, one example is his decision to light his warehouses with LEDs. LEDs (light-emitting diodes) cost twice as much as state-of-the-art T-5 fluorescent lighting, but use far less energy. Last year, the company conducted a lighting analysis on one of its buildings, a 350,000-square-foot warehouse built in the 1980s and purchased by the Murphy Co. in 2012. At the time of the purchase, the building had an antiquated high-pressure sodium lighting system.

The study showed that LEDs with motion sensors offered a 4.4-year ROI, compared with 2.6 years with T-5s. Despite that, the company chose to invest in LEDs—something public companies would have difficulty justifying.

"They are double the cost, but use one-third of the energy," Murphy says. "And we will never touch those lights in our working lifetimes." The LEDs, he says, have an expected life span of 17 years in a two-shift operation, compared with three years for modern fluorescents. The lights it chose, from Lithonia, included diffuse lenses to reduce glare and motion sensors that allow for the lights to remain off in unoccupied areas.

Murphy is also proud of changes made to the building's exterior lighting. The lights operate most of the time at 20 percent of the normal lumen level, but motion sensors bring them up to full when a truck—or an intruder—enters the property. "It works and it's cool," he says. "It makes us a good neighbor and gives us better security."

Murphy hopes the lighting and other investments made in the building will earn it a Platinum LEED certification from the U.S. Green Building Council. (LEED, which is an acronym for Leadership in Energy and Environmental Design, is a Green Building Council program that provides third-party verification of green buildings based on a strict set of standards.) Three other Murphy DCs have already earned LEED certification, two gold and one silver.

He considers the not-insignificant cost of earning LEED certification to be a strategic benefit for his company—largely because a growing number of customers now factor in sustainability when they go to choose a vendor. "We saw a client base that needs our help in reaching their own sustainability goals," Murphy says. He adds that although he hasn't seen any requests for proposals that specifically asked about his company's green credentials, he also knows he has won business because of it.

ALL THE PRETTY FLOWERS
In addition to major operational improvements in lighting and energy use, the Murphy Co. has paid close attention to issues like landscaping and ground water. Richard Murphy's background in landscape architecture has much to do with that.

The deliberate use of native prairie grasses at the facilities is a prime example. "You drive around a lot of industrial parks, you find manicured grass," he says. "It makes no sense environmentally, aesthetically, or economically."

The Murphy Co. began installing prairie flora on its properties in 1994. The company estimates it has saved close to $1 million at two of the facilities since that time as a result of installation and maintenance costs that are far lower than for seeded lawns of sod. Murphy says the ROI for installation is 1.3 years and that annual maintenance costs are one-fifth those of maintaining a cut lawn.

Murphy finds the company's experience at its Northtown Logistics campus to be telling. "We run 33,000 trucks in and out of there annually," he says. "And the number one thing we hear from the city is about all the pretty flowers on Main Street. We're saving money, have better carbon sequestration, and visually, it's what people like to look at."

MAKING SOLAR POSSIBLE
Solar power is another area where the Murphy Co. has had success that is contrary to conventional wisdom. Between 2010 and 2012, the Murphy Co. installed eight solar systems on five buildings that combined produce 320 kilowatt-hours of electricity, making it one of the largest producers of solar power in the state. Murphy points out that low utility rates in the Midwest militate against making a straightforward investment in solar power. The company took advantage of several grants to build a business case for the installations. Those included grants from the state and federal governments and the local electric utility.

The final piece of the solar puzzle came in the form of Small Business Administration (SBA) loans—a type of financing not generally available to warehousing companies because they usually don't meet a key lending standard that rates companies on the number of employees per square foot of building space. "When they saw we were investing in solar power, we were instantly in the program," Murphy says. That financing was crucial. The SBA loan provided 95 percent of the financing. He says the long ROI—11 years for the solar power investment—would have prohibited the investment without it.

Editor's note: Clifford Lynch contributed to this article.