The ESG journey through an asset lifecycle
The emergence of ESG
Environmental, Social and Governance (ESG) is a term that has become more commonly used within the business world, particularly when sustainability is being discussed. At its basic level, it refers to a set of standards or actions to which an organisation can measure itself to show how sustainable, ethical and socially responsible they are. If we delve a little deeper, we see a framework for which multiple initiatives can be undertaken to reduce negative environmental impacts and help promote positive social outcomes.
Looking to the built environment for solutions
From an environmental and social perspective, significant efforts are currently being made to address the causes of climate change. Nations are generally focusing on reducing energy demands and looking to switch to less carbon intensive energy supplies to lessen greenhouse gas emissions that are an attributable factor behind temperature rises around the world. Recent United Nations Climate Change Conferences, or Conferences of the Parties (COPs), have been at the forefront of global media coverage in recent years as they have taken place at a point in time when multiple countries are experiencing extreme weather events and record temperatures.
As more people become directly affected by the issue, it is imperative that countries collectively try to formulate solutions that have a meaningful impact, but the dilemma lies in that there is no single answer or action that can be applied which encompasses the complexity of the problem. In broad terms, if coordinated action is to be successful, commonalities need to be identified, which when addressed, have a meaningful, proportional impact. One such commonality is urbanization and how we manage our built environment, as all nations seek to develop and satisfy the needs of their growing populations.
Notably, 40 per cent of the total global emissions is attributable to the property and construction sector. This typically comes from activities such as the sourcing, manufacturing and supply of materials and goods, the energy used to heat and cool them, all the way through to demolition and disposal. All solutions must ultimately consider the needs of people and that the functional value of the built assets are not eroded and won’t negatively impact the social outcomes of providing the assets in the first place. Looking at how we design, construct, use and dispose of built assets is therefore something that all property and construction professionals, and those who develop and maintain assets, can action and make significant and measurable progress in the fight against rising temperatures, whilst still addressing the needs of the population.
The role of organisations
How the decisions are made to explore and adopt solutions that decrease negative environmental impacts and promote social outcomes will rely on having a solid distribution of rights and responsibilities across an organisation. These decisions can then be made within an adequate governance structure that shows transparency and accountability.
The development of governance structures is largely applicable to organisations. They then act as facilitation to the environmental and social initiatives. As a leading engineering and design consultancy with projects that impact millions of people worldwide, AECOM recognises not only their responsibility to have a meaningful ESG policy, but also the multiple ways in which different areas of their business can contribute to making it a success and have a real impact on projects and communities around the world. Involvement in projects throughout an asset’s lifecycle provides multiple opportunities to implement positive ESG initiatives and help to create a more sustainable built-environment.
Notably, 40 per cent of the total global emissions is attributable to the property and construction sector.
ESG in the early stages of the asset lifecycle
A typical asset lifecycle begins at conceptualization, where the need for a built asset is identified and it’s intended purpose, location, scale and budgetary costs are considered. The biggest impact from a sustainability perspective can be made at this stage, as it should be questioned as to whether the asset is needed at all, or if an alternative, such as refurbishing or reusing an existing asset, can be used instead.
If the need is confirmed, feasibility can begin and conceptual designs can be considered according to project briefs that are well defined with a focus on its environmental and social parameters. Again, there are numerous opportunities at this stage and throughout the design stages to ensure that the asset has the most minimal impact on the environment while delivering positive social outcomes for its intended use. Examples of this could be through the installation of green spaces, cycling infrastructure, or community facilities that have a larger reach than the primary function of the asset, while the design also considers material choices and careful specifications. The need for increased operational design reviews will also allow a look ahead into the practicality of use and maintenance post-construction, identifying opportunities to implement efficiencies in the design.
It is at this point that costs are examined and the need to comply with certain minimum requirements of any relevant legislation, which in the Middle East could be the Estidama Pearl Rating scheme in Abu Dhabi or the Green Building Regulations in Dubai. Decisions to implement any other initiatives over and above these minimum requirements may be linked to perceived increased asset value from obtaining relevant certifications, such as LEED. This is where the analysis of cost becomes crucial to facilitate meaningful change. In balancing project budgets at early stages, the capital cost of construction tends to take precedence over rudimental forecasted operational expenditure for running and maintaining assets throughout its useful life, yet holistically, this is where the majority of an assets cost and emissions are realised. Greater consideration and analysis of an asset’s operational impact, during these stages, has the potential to reap some of the largest rewards in the field of ESG through consideration of overall lifecycle cost efficiencies, where greater investment in capital expenditure can considerably reduce operational cost, environmental impact and deliver better social outcomes. The quantification and analysis of lifecycle costs and lifecycle carbon emissions from each dollar invested is where AECOM’s environmental, advisory and cost management teams work closely with design teams to actively explore creative and innovative options and provide analysis that allows for client decision-making based on the most affordable and impactful outcomes to their projects.
ESG during an asset’s operational life
When an asset enters its operational stage, the opportunity to enact large-scale ESG initiatives becomes largely hindered by barriers to change the cost of implementation to a fully-functioning and newly built asset that is expected to commence its return on investment. In the case of new build assets, the most effective time to have an impact will always be during the design stages. However, this does not mean that there is nothing owners, operators or occupiers can do to have a meaningful impact during its operational life.
ESG, in the asset management process, is a relatively new concept, but only in regards to bringing together numerous activities that may have existed independently before. Sustainable asset management practices typically only adapt to changes in legislative requirements and have always been focused on optimisation, usually with the intention to reduce cost and enhance value. In the field of asset management, data is key and establishing data management and reporting strategies that align to ESG measures alongside structured review and risk assessment governance frameworks that provide an asset manager with the tools to make strategic business decisions during an asset’s operational life.
Implementations and improvements in technology and artificial intelligence has led to the emergence of smart buildings, where energy use is not only monitored to identify trends and opportunities, but occupational use and associated energy systems are adjusted in real time according to the needs of the asset user.
End of life considerations
The way in which an asset is disposed of, and the amount to which it can be recycled, is often not considered until the time comes to do exactly that. However, asset disposal can be made simpler and re-purposing, rather than recycling wherever possible, can be part of legacy planning for some assets that have time limited uses below the usual life expectancy of the buildings themselves.
The 2022 FIFA World Cup is a current example of a significant amount of development in the region that could be considered time limited. While individual stadiums, such as Stadium 974, is largely built from recycled shipping containers, it will be dismantled. Several other assets, such as an expanded metro system and improved public realm, will form part of legacy planning that ensures they provide a positive impact on the communities in which they are located long after the final whistle is blown.
Refurbishment of existing assets is perhaps the largest opportunity to reduce emissions from existing assets as they enter the end of their operational life, as they effectively reduce the need to build new.
Refurbished and reused assets can also reimagine community spaces as use classes change. One excellent example of this is the relaxation of permitted development clauses within the UK Building Regulations that allowed the conversion of commercial space to residential units, creating much needed living space by re-purposing excess office space created from a generational change in working patterns (General Permitted Development Order, 2015). It may be that such refurbishments are now considered more broadly as we have emerged from the coronavirus pandemic and flexible working practices form part of corporate ESG policies to reduce the need for office space.
It is not always true that improved ESG performance means increased capital cost.
Are we on the right path?
A coordinated, multidisciplinary approach throughout the asset lifecycle suggests that there are many opportunities to add value in regards to positive environmental and social outcomes that not only help to mitigate emissions, but also identify cost savings via intelligent design and sustainable asset management.
Cost of implementation is often a first barrier to suggested ESG initiatives, and while there will often be an additional capital outlay, this may be offset by significant savings in energy and water consumption throughout the lifecycle of a built asset. More robust linking of asset lifecycle cost to the design process by undertaking lifecycle cost analysis and conducting carbon modelling, provides information that allows a more considered approach. It is not always true that improved ESG performance means increased capital cost either, as some initiatives will mean a reduction in materials used to meet the same design needs, or sourcing cheaper, more sustainable materials for construction.
While cost is obviously an important factor, demand will provide another angle of consideration for developers. The 2022 RICS Sustainability Report shows that a global demand for sustainable buildings is increasing, with Europe and the Middle East leading the way. Demand from a change in consumer attitude is perhaps overshadowed by the demand from the sheer rate at which the built-environment will need to expand to meet the needs of the population.
The total amount of built assets worldwide is projected to double by 2050 (International Energy Agency, 2021). The world population reached 8 billion in November 2022, an increase of 1 billion since 2010. This is forecasted to reach almost 10 billion by 2050 (United Nations World Population Prospects Report, 2022). If these needs are to be met and the rise in global emissions mitigated, it is evident that all stakeholders in the property and construction sector will play a vital role in meeting the global climate change initiatives. They will crucially have the ability and influence to make positive impactful change through the adoption of ESG initiatives at all stages of an asset lifecycle.