Building back better: Mainstreaming ESG for the built environment

The pandemic changed so much of our behaviour, such as working from home, consuming entertainment services differently, shopping online, and living differently in many ways, that we should consider it an opportunity to reset how we design, build and operate our built environment and our businesses in that sector. To me, building back better means taking full account, then proactively actioning ESG (environment, social, governance) excellence in our sector.

In this article, I set out how we can adapt a holistic approach to ESG, from our work in the corporate sector. We are not starting from scratch, as we have been working on green buildings as an example, for many years. Yet considering ESG as a centrepiece of our building and infrastructure’s values and purpose is both broader and deeper than reaching even high levels of compliance with environmental standards and requirements.

What is ESG: unpacking and applying its key elements

The framework I use for guiding and evaluating ESG goes well beyond the practices of E, S and G actions, in three ways: first we include the planning and leadership of ESG, because this is what connects E, S and G to the rest of the organisation’s values, purpose and strategies. Secondly, we explicitly include results: what are the accomplishments of the planning and E, S and G actions? Third, it’s a dynamic world so I include not just the present ESG state and position, but also the initiatives, improvements, innovations and overall trajectory of the building project or organisation in this framework.

Adapting the general ESG framework to the built environment means putting all the five major categories and their detailed elements into our sector context (see diagram), as discussed below.

Planning and leadership of ESG

Planning and leadership of ESG involves integrating overall strategic intent with E, S and G actions, aligning stakeholder interests with ESG and its outcomes, and senior leadership’s ESG commitment. This leads to and involves setting up an ESG action plan, specifying ESG initiatives going forward. For all these subcategories, we have developed scales, so that the ESG performance can be quite precisely scored for a built environment project.

Environmental Practices

The environmental category includes lowering emissions and pollution, reduced use of water, preservation of the natural environment, practices of 3R (reduce, reuse, recycle) and other related elements. These need to be applied over the full lifecycle of the asset, and are the presently most advanced part of ESG in practice in this sector.

Social practices

Social practices involve respectful treatment of all stakeholders, including throughout the supply chain, such as material suppliers, contribution to community wellbeing, and impact on diversity and human rights. I believe this should start with employees, then extend in influence to everyone involved in a project.

Governance practices

Governance practices relate to project leadership, again throughout the design, build operate lifecycle. They measure accountability, transparency, ethical standards and integrity of practices such as procurement, and executive decision-making structures, delegations and responsibilities, surrounding the project and asset.

ESG results

ESG results are measures of outcomes and impacts, related to all of the above.

The elements described above and in the diagram can be accurately scored, on a set of scales that reflects the degree to which they are systematically in place as against ad hoc, considered as a part of strategy as against tactical or operational, and aimed at driving overall business, project and asset performance, as against a ‘compliance only’ or minimalist approach.

The benefits of taking a performance (rather than compliance) approach to ESG for buildings and infrastructure are many. First is a higher asset quality that meets a broader and deeper set of stakeholder needs. Second is the stimulation and motivation of innovation that comes hand in hand with pursuing ESG practices and outcomes.

Third, project and asset riskiness is reduced by proactively engaging with community/ social practices and outcomes and good governance, and this drives to the project and asset’s net valuation, as a lower risk means a higher financial valuation as determined in the net present value formulation of it. Further, over the asset life, financial returns for the owner / operator can be enhanced by intelligently designed elements ranging from environmentally sound materials, to energy efficient control systems and a range of other design elements that simultaneously advance the E- environment and the financial bottom line.

This moves us ultimately into a new paradigm for considering the built environment, much more than in the narrow investable framework that some developers have traditionally applied, albeit including environmental compliance, to a holistic ESG way of conceptualising built assets. In the previous era of sustainable organisations and building, we used the mantra, ’doing well by doing good’, and this still applies, but in a more powerful way, when ESG is considered and implemented as a central part of project/ asset design and business management.

Post the pandemic, we have the ‘reset’ opportunity to bring ESG into the heart of the sector, including remaking how we design, procure, construct, own/ operate and then finally recycle our built assets. Proactive consultants will find this rewarding in many ways.

Professor Danny Samson

Professor Danny Samson has worked with Consult Australia for over three decades. He conducts the annual Professional Consulting Excellence Course in Melbourne.