Why Facility Managers Should Focus on ESG
2/27/2023
Between managing roof repairs, responding to “Billy in accounting” who is always hot, and putting together that presentation for the CEO on how you’re planning to cut your budget by 20 percent, it’s often difficult for facility managers to keep big picture goals in mind. Even so, all facility managers should have the same overarching big-picture goal: Use facilities to add value to their organizations.
But how?
The best way facility managers can add value to their organizations is show that facilities improve an organization’s bottom line. Whether implementing energy-savings projects to reduce greenhouse gas emissions, being diligent about selecting products manufactured responsibly and therefore reducing Scope 3 emissions, or implementing onsite alternative energy projects, facility managers must be constantly cognizant of how their facilities strategies affect an organization’s financial health.
In the corporate world, sustainability is increasingly falling under a new way of thinking about strategies that are good for people, the planet, and profits. Environmental, social, and governance (ESG) strategies are how companies are now organizing their practices under a central umbrella. Facility management hits all three legs of this three-legged stool.
ESG was first coined in a 2005 study titled “Who Cares Wins” as a way for investors to evaluate organizations’ social and sustainability responsibility. These days, still one of the main goals for incorporating ESG strategies is to make an organization more attractive to investors. Investors are increasingly considering ESG strategies as part of their risk appetite in their portfolios.
These ESG strategies are not just about marketing or improving an organization’s reputation. They’re about real-world value, also. A report from the research arm of consulting firm Infosys shows that organizations that focus on environmental, social, and governance actually are more profitable than those that don’t.
The study showed that a 10 percent increase in ESG spending resulted in a 1 percent improvement in profit growth, and the payback on the higher ESG budget was only two to three years. The study also reported that 90 percent of executives surveyed said their ESG investments resulted in “moderate or significant” financial returns.
The study, then, is solid evidence that facility managers investing in greenhouse gas reduction, alternative energy, greening their supply chain, and more pays real dividends.
Understanding the S and G
In addition to the environmental strategies, on which most facility managers probably have a pretty good handle, it’s also crucial to focus on social. That means identifying ways to incorporate best practices of diversity, equity, and inclusion into facility management. The social piece could also include strategies that look to improve an organization’s relationship with its community. Creating standards for diversity in contractors and other aspects of the supply chain is another way facility managers can focus on the social part of ESG.
The G — governance — is about accountability. Facility managers probably have the least control over the governance piece — after all, they’re not making decisions about who is on the board of directors or how much and to whom the organization makes in political contributions.
Still the organization’s governance principles are something facility managers should at least keep an eye on in their own departments — effective measurement and reporting is crucial. This means setting standards, measuring, analyzing, and accurately reporting. It often falls to facility managers to measure and report parts if not all of an organization’s ESG progress. That’s because, even if governance doesn’t, much else of ESG falls within the realm of facility management. This can seem like extra work, but as the study above shows, there is true value in focusing on ESG.
The line between social and governance is a little blurry. At the end of the day, those two pieces add up to one overarching strategy: Making sure your organization is a good corporate citizen. That’s important, again, to potential investors who view organizations that can prove a prioritization of ESG principles to be a good investment.
Starting with ESG
To get started on ESG reporting, facility managers should identify specific strategies and define specific goals. ESG checklists (like this one) can help focus strategies, and allow facility managers to create a manageable action plan. Another good strategy is to form a cross-departmental ESG committee that meets regularly to identify goals, make sure progress is being made, markers are being met, and to keep everyone accountable. If the organization has worked on ESG in the past, even if not formally, it’s likely to have an ESG score from an ESG scoring agency. If facility managers can determine that score, it can be the baseline for goal setting and improvement.
However, the organization decides to pursue ESG, it’s incumbent upon facility managers to be heavily involved. Showing the value the facilities department brings to an organization beyond just hot/cold calls shows leadership that facilities is an important partner in the financial health of an organization.
Greg Zimmerman is senior contributor editor for the facility group, which including FacilitiesNet.com and Building Operating Management magazine. He has more than 18 years’ experience writing about facility issues.