1. What is known of the concept of ESG in general?
If we begin with the roots of ESG, as mentioned in the Environment, Social and Governance Programme for Corporate Real Estate and Facilities Departments by Colette Temmink and David Flynn, they mention that the early advocates for socially responsible investing (SRI) and how it advocated thought leadership to influence policy, creating a foundation upon which ESG could grow and expand.
SRI was convinced by the early adopters that investing needs to take into consideration factors beyond just focus on increasing profits for shareholders. In the 2000s, large investors started focusing on:
• sustainable investing,
• analysing a company’s fiduciary duty,
• the impact on the climate and its corporate governance in which it was later believed that if it was done poorly, it would be harmful to the markets.
Those are the pioneers of the development that is now known as ESG.
Based on a landmark study called ‘Who Cares Wins’ written by Ivo Knoepfel that was published in 2005, embedding environmental, social and governance factors in capital markets makes good business sense and leads to better outcomes. There are factors that were not part of a typical financial analysis but are relevant because of its impact on financial performance, such as:
• Corporations responding to climate change
• Quality of the water management programme
• Supply chains
• Corporate culture builds trust among stakeholders.
The United Nations Environmental Program (UNEP) on their Report also highlighted how ESG issues are relevant for financial valuation.
Today, in line with the government's serious response to the energy transition plan, the President of the Republic of Indonesia, Joko Widodo, is paying great attention to being able to realize this energy transition plan, even though based on the explanation of the Minister of Energy and Mineral Resources, Arifin Tasrif, the energy transition will require a very large investment. The total investment required will increase to more than USD3.8 trillion per year in the period 2021 to 2050. Through the presidency of Government Group 20 (G20) Indonesia 2022, the Indonesian government also uses this opportunity to invite countries to provide support for developing countries in prioritizing the energy transition.
This means that in line with the government's plan, the public must then also start preparing to enter the early stages of the energy transition roadmap which will be targeted in 2030. A mixture of the public and private sector continues to drive action around sustainability targets. This includes the role of corporations in assisting to realizing the acceleration of this energy transition plan.
2. Why ESG is important for an organisation's and corporation’s future?
When expanding the awareness, importance and the growing knowledge of ESG, it appears that the favourability of ESG’s rating is rising and can translate into strong market performance. ESG has become a key focus for not only investors but also for occupiers. It is also growing among financial institutions where investment decisions are being made. Nowadays, it is almost universally accepted that by implementing programmes that highlight corporate ESG risk, the company can improve its financial performance. ESG now plays a role where it merges both the purpose of socially responsible investing with mainstream investing.
There are several benefits and competitive advantages in implementing ESG:
1. Access to Sustainable Finance
As mentioned by the European Union at the World Economic Forum, sustainable finance has a key role to play in the world’s transition to net-zero emissions by channelling private money into carbon-neutral projects. Sustainable investing covers a range of activities, from putting cash into green energy projects to investing in companies that demonstrate social values, such as social inclusion or good governance.
2. The sustainability plan of a corporation has become an important factor that can attract talent. New talent nowadays tends to considering a corporate that not only has a healthy and supportive environment, but also assesses their ‘green credentials’ such as certified for green building for their workplace, etc. All these considerations are believed to increase their work productivity.
3. Image and Reputation indirectly increase market value.
4. Preparing for the future and long-term operational cost competitiveness. Going green will help corporations to conserve energy consumption and ultimately save money. By controlling usage, it will help corporates to meet sustainability standards that are in line with the company’s real estate strategy.
3. What can FM do to assist clients in order to achieve their ESG goals?
An important element in a corporation for implementing ESG lies in how the company's leaders, and also the culture of the company, can complement each other portion into ESG-based business programmes and strategies. The task of a Corporate Real Estate (CRE)/Facility Management (FM) in this regard is important. As a CRE/FM leader, it is important to understand how to build the right ESG programme strategy, in order to be able to contribute while ensuring that the business continues to operate well.
Regarding the Environment aspect of ESG, it includes minimizing environmental impacts in the company’s own operations to improve the health of our planet, such as by establishing a Science Based Target to achieve Net Zero emissions. This is important because buildings and construction contribute nearly 40% of global carbon emissions.
Science Based Targets initiative (SBTi) emissions are closely related to the real estate market, including fuel burned in fleets of company-owned and leased vehicles (Scope 1), fuel burned to provide space and water heating in corporate offices (Scope 1), electricity generated for lighting, air conditioning, plug loads, and in some cases space and water heating in occupied offices (Scope 2).
To reduce emissions and achieve net zero goals, below are several solutions that can be implemented:
• Renewable energy procurement such as procuring solar or wind power to supply our operations. This will address our Scope 2 footprint.
• Fleet electrification such as replacing our vehicles with electric models.
• Greener workplaces by reducing energy consumption and our carbon footprint company-wide, with a focus on sustainable design and energy reduction strategies, including pursuing green building certification, such as Greenship, Leadership in Energy and Environmental Design (LEED), Green Mark, etc.
Nowadays, the company has started utilizing technology that focuses on cloud computing and sensing by incorporating a more comprehensive approach to the building’s ‘Internet of Things’, including data capture and analysis, modelling, measurement and verification, control, and human expertise.
The Social aspects of ESG, include elevating inclusiveness and health and wellbeing. Elevating inclusiveness in areas such as increased diversity, equity, and inclusion within the company and across its procurement practices to foster environments that are inclusive and engaging, such as by purchasing from diverse suppliers. Elevating health and wellbeing by promoting WELL or equivalent certification to help improve lives.
Leveraging the right technology is critical to help us understand our space. It helps us to understand the changing patterns of usage, ensure our offices are set up in a way that benefits employees and provides them with a sense of security.
In the Governance aspect of ESG, it includes supporting the submissions of the annual report in alignment with GRI, SASB, TCFD, or other frameworks to ensure strong and transparent governance of the company’s Environmental and Social initiatives, and the business as a whole.
The company is feeling the pressure to meet stringent climate targets and ensure that the property can align with their ESG goals. Regulators are demanding greater transparency regarding companies’ environmental impacts to encourage greener investments, and investors are becoming increasingly sensitive to climate risk and any associated liability. So, using ESG data management tools can help the company better manage, measure, disclose and act on its portfolios.
Click here to learn more about Environment, Social, and Governance (ESG) application and to know how you can accelerate your business success or contact our Facilties Management experts for a discussion.
