Environment Analyst speaks with Adrian Bliss, environment & sustainability account lead at Mott MacDonald, about the challenges and opportunities for consultants and their clients in this field of huge interest.
EA: How do you define sustainability?
AB: Sustainability has an enormous range of definitions and has become a somewhat over- and mis-used word, often bandied around to add credibility to situations without much sense of purpose.
From a US perspective, it’s often less about philanthropy and more about winning work. In the Mott MacDonald international development business, we feel that our sustainability ethos is directly aligned with that of our clients.
At an organizational level we have developed our ‘Group Sustainability Plan’ to align with the UN’s Sustainable Development Goals, because they cover all aspects of our services and operations, and they are a widely accepted benchmark used by many of our clients. We also strive to meet the targets set by our commitments to integrated reporting, net zero, elimination of single-use plastics and a number of other initiatives aligned with the SDGs.
EA: How close do ESG accounting and target-setting approaches get to delivering on the requirements of that definition - and what would get them to 100%?
AB: ESG accounting and target-setting can play a big role for any organization trying to benchmark their sustainability contribution. It does, however, depend on how challenging the targets are and how they relate to a wider framework. From our organization’s perspective, we have developed a data platform that is mapped to the SDGs and our ‘Social Outcomes Framework’ and that can be equally adapted for other frameworks such as the Equator Principles or the Task Force on Climate Related Financial Disclosures (TCFD).
There is an issue with inconsistency of data across the multitude of ESG management and reporting systems – but organizations are starting to work together to address this challenge. The World Economic Forum’s International Business Council launched a paper in 2020 which set out 21 core metrics and 34 expanded indicators to help companies more consistently measure and report progress towards shared economic, environmental and social objectives.
The metrics are deliberately universal and industry-agnostic, to create the comparability across sectors and geographies that currently eludes ESG reporting. They are built from existing metrics, to accelerate the convergence of the ecosystem towards a global solution for ESG reporting that is as rigorous and widely accepted as the standards for financial reporting. It’s really promising, but there are gaps. For example, there’s no mention of soil preservation (an essential measure for food production) or contaminated land. And there’s no requirement to implement international ESIA standards for built assets or to use green building rating systems.
EA: Which systems or frameworks do you see as the most rigorous, and why? Are some more suitable for certain sectors than others?
AB: It’s difficult to pick one as they all have pros and cons. At Mott MacDonald, we use the SDGs as our framework, as well as undertaking integrated reporting. If we’re working with a client, we’ll help them choose the most suitable one for their needs. If we’re undertaking an ESIA for a donor-funded project we may follow the IFC performance standards and the Equator Principles. However, although widely known, only 116 financial institutions in 37 countries have adopted the EPs, which isn’t that many given the number of financial institutions out there. For other clients we use GRI and we’re starting to gear up for the EU taxonomy which looks interesting. For infrastructure, it could be appropriate to use an established sustainability rating system such as CEEQUAL or Envision to provide a benchmark. For occupied buildings LEED could be used.
However, none of these systems really considers any kind of constraints on resources, largely encouraging responsible or more efficient use. This is something that is addressed in Doughnut Economics, and which probably needs to be considered more if we are to achieve true sustainability.
Some clients need a bespoke solution. We were approached by Guggenheim/WWF a couple of years ago and supported the development of a sustainability assessment tool to help them analyse risks in their infrastructure investments. At the time, they felt that the right tool for their needs wasn’t available in the market.
EA: Where are the main "pressure points" at which ESG implementation has the greatest impact on business sustainability, and where is its effect weakest?
AB: Investment, because without finance nothing can happen. Similarly, financial institutions also have the biggest potential to enact change. I don’t think anybody questions that if you want to obtain funding from the World Bank you have to follow their Environmental and Social Framework. Commercial banks are starting to follow, but there’s some way to go.
Having said that, the COVID pandemic has highlighted how fragile our logistics and supply lines can be. Whether it’s personal protective equipment or sustainable timber for construction, both availability and cost have been adversely impacted. For example, recent reports suggest that the increases in lumber costs are adding $41,000 to an average house price and, where availability is an issue, it would be easy to opt for a cheaper and potentially less sustainable alternative.
We are also vulnerable to geopolitical influences. For example, as we embrace a transition to renewable energy, we’re finding ourselves increasingly dependent on Chinese-made solar panels and rare earth minerals [for batteries] sourced from just a handful of mining operations globally. As we’ve witnessed over the last few years, political moves such as the imposition of tariffs can have a strong bearing on the cost/availability of such resources and are largely beyond the control of corporate ESG initiatives.
EA: How does ESG shine a light on risk, and how is that best leveraged within the investment community to maximize sustainability?
AB: ESG has a long history that dates to the beginning of the 20th Century. The emphasis has changed over time and is becoming increasingly complex. In the early 1970s the apartheid regime in South Africa resulted in disinvestment and led to the development of the Sullivan Principles which set out guidance for doing business with South Africa. Whilst this was a hugely important step forward it dealt with a single issue, apartheid. Today, the range of issues is much greater and includes climate change, GHG emissions, biodiversity, water resources, waste management, animal welfare, diversity and inclusion, corporate governance, etc. – and the awareness of their impacts is greater than ever.
Long term investors, like hedge funds and pension funds for example, have an interest in the long-term sustainability of their investments. Their business models must avoid the risk of vulnerabilities, stranded assets, uninsurable risks, etc., and ESG can be a valuable tool to help assess risk through analysis of the ESG credentials of the investments within their respective portfolios. In response, the tools for assessing risks are becoming more sophisticated and will continue to evolve. Consistency and accuracy of data is vital but using the development of the tools to highlight an increasingly complex set of risks is also important.
EA: In your experience, how can the consulting sector most effectively use ESG to help clients meet sustainability targets, and what are the biggest headwinds and tailwinds?
AB: There is enormous momentum around ESG now, with companies recognising the value it adds to their businesses and highlighted by the level of ESG investment, which now exceeds $30tn, up nearly 70% since 2014. Major asset managers, such as BlackRock, are using their leverage to pressure companies to improve their ESG disclosures.
For the clients we work with we look at four key areas:
- Selecting the correct framework (or developing a new one) – materiality is key
- Gathering the right data
- Identifying easy wins, such as changing suppliers for certain goods, increasing recycling rates or switching energy providers
- Set a medium to long term strategy – covering behaviour change, cultural shifts or moving premises
We’ve helped Google design a number of their operational buildings. They were very focused on eliminating materials they felt could be harmful to the building occupants. This challenged us as the materials weren’t easy to source but we managed to deliver what they wanted. The point here is that this isn’t something you can do on day one but Google had a long-term vision of the environment they wanted for their employees and worked towards it.
EA: Do you have any comments on how regulatory and financial backdrops can help or hinder that process?
AB: Mandating the uptake of ESG requirements would help and there are encouraging signs. The EU is tightening its ‘non-financial reporting directive’ this year which requires disclosure from companies with more than 500 employees. The US may follow suit.
Standardization remains an issue and would need to be considered carefully alongside any regulation, but it is encouraging that a number of leading ESG standards organizations have declared an intent to work together. These include:
- Sustainability Accounting Standards Board (SASB)
- Carbon Disclosure Project (CDP)
- Climate Disclosure Standards Board; and
- International Integrated Reporting Council (IIRC)
However, the International Financial Reporting Standards (IFRS) Foundation is also proposing to develop a set of ESG standards. As 120 countries currently use the IFRS standards for financial disclosure it is highly likely that these countries will use their ESG standards. There has been a lot of support from stakeholders. There are however constraining issues of materiality, comparability, in-house capacity and the deployment of technology, which need to be addressed.
And, as previously mentioned, the World Economic Forum has developed a series of universal metrics drawn from existing ESG standards to align mainstream reporting on performance against ESG and track their contributions towards the SDGs on a consistent basis.
Adrian Bliss is Mott MacDonald's Environment and Sustainability Account Leader, based in Washington D.C. He took part in the panel discussion exploring the rising global ESG imperative at the Environment Analyst Global Business Summit 2021 this week. Watch on-demand here.