How to Start the Journey to Sustainable Success for your Construction Company

If access to bank or investor funding is important for your construction business, this is the time to ask: how will the increasing focus on sustainable finance impact our company’s ability to access capital, and the cost of this capital? Will this represent a barrier to success or a strategic opportunity to change “business as usual”?

Integrating environmental, social and corporate governance (ESG) performance into operational analysis and decision-making is vital for companies in today's business environment. ESG truly is the cluster of non-financial factors that do have a financial impact on any organization. This raises the priority of sustainability decisions made today on long-term success.

In fact, your company’s future borrowing may be impacted by lenders establishing conditions related to how you promote sustainability in your operations., Considering this reality, here are three steps to start your company on a path to successfully addressing sustainability.

1. Begin a discussion about sustainability with your board and senior leadership team
2. Conduct a carbon footprint assessment
3. Establish targets

1. Begin a discussion with your board and senior leadership team

Sustainability initiatives are not only good for the planet, they are also good for your business. Benefits include more innovation, greater efficiency, lower operational and financing costs, stronger growth, greater resiliency, and enhanced reputation and customer relationships.

To realize these benefits, it’s necessary to treat sustainability strategically and integrate it into your culture and core business practices. This means initiating a dialogue within the leadership team and those charged with governance oversight.

For companies just beginning to embark on sustainability initiatives, refer to the UN’s Race to Zero Breakthroughs as a helpful starting point. This sets out strategies for organizations in 20 industry sectors to achieve. Another helpful reference is the UN’s 17 Sustainable Development Goals.

2. Conduct a carbon footprint assessment

Your company’s carbon footprint is the quantity of greenhouse gas (GHG) emissions produced by your operations. Establishing this footprint will provide you with a clear picture of your company’s energy utilization, resource consumption and emissions. This is important to first measure and then benchmark against to establish measurable carbon reduction targets.

Evaluating a company’s overall environmental impact requires undertaking a baseline assessment, which considers greenhouse gas (GHG) emissions, use of land, water and other resources. Essential to this process is understanding your company’s organizational and operational boundaries. Organizational boundaries evaluate whether there is financial control of the assets or operational control of activities. Operational boundaries will define the scope of both direct and indirect emissions within that organizational boundary.

It is important to understand your business – before talking about reductions in emissions or resource consumption. Boundaries allow for a meaningful way to understand your carbon footprint and strategically decide where to focus efforts on making meaningful change. Without a full knowledge of your carbon footprint, you will be unable to pursue the most cost-effective carbon mitigation strategies.

To determine your carbon footprint, first you need to determine the emissions for which your business is responsible. This requires specifically defining the following:

• Geographic – where emissions take place
• Organizational – which operations, facilities and sources should be included in the assessment, depending upon a company’s legal structure and the emission sources over which it has direct control.
• Operational – how and where the company impacts the environment, i.e., what energy you consume, how you transport raw materials and operate equipment. For GHG accounting purposes, emissions are classified as scope 1, 2 or 3.
  • Scope 1: direct emissions from sources that are owned or controlled by the business such as those related to your site and the equipment you own and operate
  • Scope 2: indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling
  • Scope 3: indirect emissions from activities of the company that occur from sourcesit does not own or control. These typically include emissions associated with travel, procurement, the supply chain, waste disposal and wastewater treatment.

It is recommended that companies begin with scope 1 and 2 emissions for determining GHG boundaries including setting targets for reduction.

Your carbon footprint represents only a portion of your company’s environmental, social and governance performance and its impact on society, but it’s a good starting point for a long-term sustainability journey.

3. Establish targets

Global initiatives are underway to work towards limiting the temperature increase in this century to 2 degrees Celsius above preindustrial levels, while pursuing the means to limit the increase to 1.5 degrees, as set out in the Paris Climate Agreement. And this is being achieved through corporate carbon reduction commitments, as well as financial institutions targeting net-zero financed emissions goals. Having assessed your carbon footprint, you can now establish specific targets to reduce your footprint before lenders or investors compel your company to do so.

Forward-thinking companies are publicly announcing their greenhouse gas (GHG) reduction targets and efforts. This helps to focus senior management’s attention and deployment of corporate resources, spur internal efforts, and reassure lenders, customers, employees and your other important stakeholders that your company is making a true effort to mitigate the destructive effects of climate change.

Determine your footprint. Establish targets. Make a difference.

Now is the time for action. 

Contact

Edward Olson, CPA, CA, CIA, is leader of the Environmental, Social & Governance practice of MNP LLP. You can reach him at [email protected] or 1-877-766-9735.