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ESG and Facilities Management

Written by Jodi Dowis | June 12th, 2023


What is ESG?

environmental social governance
Source: Early Metrics [3]

ESG is gaining significant global attention, but what does the term actually mean? ESG is a criteria that provides stakeholders, especially investors, with a glimpse into an organization’s risk and opportunity management related to environmental, social, and governance factors. This can be in the form of a framework, a set of standards, or even a score.


The environmental pillar represents an organization’s impact on the physical planet and its resilience to climate change, such as carbon footprint, greenhouse gas emissions, and natural resource use. These factors have significant long-term effects on the health and well-being of our ecosystem.


The social pillar demonstrates an organization’s influence on various stakeholders, including its employees, customers, and community members. Factors that impact the social pillar for each of these stakeholders include workplace diversity, product safety, and community engagement, respectively. These items can affect a company’s reputation and brand, positioning them to attract and retain top talent and develop strong relationships with clients.


The governance pillar depicts an organization’s management and oversight structures, especially how leadership incentives align with stakeholder values. Important governance factors to consider include executive pay, ethical standards, and internal controls that promote accountability. Strong governance practices can help ensure that a company is managed effectively, in the best interests of its stakeholders.


How has ESG evolved?

environmental social governance timeline

Having gained an understanding of ESG and its three pillars, it is important to acknowledge its history and realize its impact. While ESG is a relatively new term, the underlying concept has been in development for several decades.


EHS, which stands for Environment, Health, and Safety, surfaced in the 1980s and was one of the earliest principles that resembled current buzz around the idea. EHS is a management approach that seeks to ensure compliance with environmental regulations, protect employee health and safety, and prevent accidents and incidents in the workplace. It encompasses a wide range of activities, including waste management, training programs, and risk assessments.


By the 1990s, corporate sustainability became a more widely used term, which refers to the practice of managing a company's operations and resources in a way that meets the needs of the present without compromising the ability of future generations to meet their own needs. This involves incorporating sustainability into all aspects of a company’s operations including human resources and encompasses activities such as reducing energy consumption and fostering diversity.


Corporate sustainability evolved into Corporate Social Responsibility (CSR) by the 2000s when companies began to focus more on their impact on societal well-being. The aim of CSR is to promote positive social outcomes and address social issues by integrating social and environmental considerations into the company's operations and decision-making. Corporate philanthropy and employee volunteerism were key elements of CSR.


The modern term ESG grew in popularity in the 2010s along with Socially Responsible Investing (SRI), driven by several factors such as increased awareness of climate change, social issues, and corporate governance failures. Investors started demanding more transparency and accountability from companies regarding their environmental impact, treatment of employees, and corporate practices. This led to the development of various ESG frameworks, standards, and reporting guidelines [2].


Why is ESG important?

business man analyzing environmental social governance
Source: FSG Smart Buildings [1]

ESG factors can help investors identify and manage risks that may not be captured by traditional financial analysis, such as resource scarcity, labor practices, and executive compensation. Companies that effectively manage ESG factors are more likely to create long-term value for shareholders with improved employee well-being and operational efficiency.


Stakeholders, including customers, employees, communities, and regulators, increasingly expect companies to operate in a socially and environmentally responsible manner, and meeting these expectations can help companies build trust and enhance their reputation. Many investors are incorporating ESG factors into their investment decisions to align their portfolios with their values and mitigate risks.


Governments and regulatory bodies are increasingly recognizing the importance of ESG issues and implementing regulations to promote sustainability and responsible business practices. Companies that fail to comply with these requirements may face fines, legal consequences, and damage to their operations. ESG factors are closely linked to some of the world's most pressing challenges, and integrating ESG considerations into business strategies and investment decisions allows companies and investors to work together toward a more sustainable and equitable future.


In summary, ESG is important because it helps manage risks and create long-term value for stakeholders and ensures that companies comply with regulations that address global challenges. It promotes responsible business practices that consider the broader impacts of companies on society and the environment, leading to more sustainable and resilient economies.


Where should you start to improve your ESG score?

technician analyzing environmental social governance
Source: FSG Smart Buildings [1]

Facility management serves as a strategic entry point for enhancing ESG scores, encompassing all pillars of sustainability. By focusing on building improvements, companies can effectively diminish their environmental footprint, enhance occupant comfort, and provide transparency to stakeholders.


Environmental: Enhancing facility management practices lead to improved energy efficiency, resulting in reduced energy consumption and associated greenhouse gas emissions. Optimizing HVAC systems and adopting smarter building controls can effectively lower energy usage and mitigate the environmental footprint of facilities.


Social: Advantageous building management also improves the well-being and comfort of occupants. By ensuring proper maintenance, efficient HVAC systems, adequate lighting, and comfortable indoor environments, facility managers create healthier and more conducive spaces for people to work, learn, or reside. This can positively impact occupant productivity, satisfaction, and overall quality of life.


Governance: Lastly, successful facility management requires accurate and comprehensive data management. This includes tracking key performance indicators, maintenance records, energy consumption, and other relevant metrics. By implementing proper data collection and reporting processes, building managers can provide valuable insights to support decision-making, transparency, and accountability within the organization.


Essex has the building technology expertise that you need to improve your ESG and facilities management. From building technology planning to master systems integration, our wide range of services meet you where you are in your facilities journey. We connect you to robust data analytics and provide dedicated support to accelerate your organization toward a leading-edge, sustainable building portfolio. Contact us today to learn more!


References

[1] A. Ghilino, “Turning ESG goals into documented wins with building automation,” FSG Smart Buildings, https://www.fsgsmartbuildings.com/turning-esg-goals-into-documented-wins-building-automation/.

[2] K. Peterdy, “ESG (environmental, Social, & Governance),” Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/esg/esg-environmental-social-governance/.

[3] K. Mansour, “ESG Ratings: How can a business’ environmental and social impact be measured?,” Early Metrics, https://earlymetrics.com/esg-ratings-how-can-a-business-environmental-and-social-impact-be-measured/.

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