In today's building sector, Environmental, Social, and Governance (ESG) considerations aren't just admirable goals — they're business imperatives. Stakeholders are no longer satisfied with a mere nod toward sustainability; they demand tangible actions. Furthermore, many developers and building owners have recognized that ESG initiatives can lead to long-term financial stability, greater stakeholder trust, and reduced operating costs.  

(If you are following some media suggesting ESG is dead, citing Larry Fink’s quote that he won’t use the phrase ESG anymore, this blog is still for you. Regardless of the words used, data shows that money-minded people will make investments that mitigate risk, reduce costs, improve revenue, lead to improved human wellness and performance, or future-proof assets. All of those words = sustainability.) 

But achieving ESG goals isn't a one-time effort; they require strategic planning every year. So, when you consider how to effectively implement ESG programs, it's important to consider the annual obligations to make sure your program is sustainable for the long term. This is where annual forecasting and budgeting come in.   

This process can be thought about in three hierarchical steps: general ESG initiatives, annual goals, and buckets of expenses to reach those goals. Careful consideration in each area will help you decide how to efficiently allocate capital to meet your long-term objectives. Let’s dive into how this plays out for sustainability in buildings. 

General Sustainability Initiatives – Long Term Goals 

Before even thinking about numbers and spreadsheets, the first task is to understand the sustainability priorities for your business. Whether that's in the five-, ten-, or twenty-year horizon, long-term objectives are the core of all sustainability programs and will guide any short-term programs. These objectives should be grounded in items of material value for each company. 

While sustainability programs are unique to each business, most developers and building owners will have a set of similar general goals. Some common ideas include (which can be identified through an aptly-titled Materiality Assessment):

Reducing Emissions 

Buildings are huge energy consumers, accounting for 26% of global energy-related CO2 emissions. A variety of initiatives, such as installing solar panels, shifting to energy-efficient HVAC systems, and leveraging intelligent building management systems, can go a long way in reducing this number. An added benefit of these programs is lower operating costs and government incentives to facilitate your efforts.  

It's also likely that federal regulations for building sector emissions will come into effect in the next several decades to support the country's goal of being net-zero by 2050. Getting ahead of future requirements will help developers stay in compliance. 

Reducing Waste Generation 

Waste generation is a major consideration in the development sector. Municipal solid waste is the third largest waste stream in the U.S., and cradle-to-grave waste from the construction sector is over double that. With landfills estimated to reach maximum capacity in the next few decades, waste generation needs to decline across the country.  

As a result, waste disposal costs have risen over 130% in the last two decades, and this trend will likely continue. Strategies like waste segregation, recycling programs, efficient building design, and even zero-waste policies can significantly reduce environmental impact and operational costs. 

Creating Spaces that Support People 

In today's competitive job market, companies are finding that environmental sustainability is not only essential for the planet but also a key factor in attracting and retaining top talent. By prioritizing sustainability practices, businesses can foster a workplace that resonates with prospective employees seeking purpose-driven organizations. 

Employees can be a company's greatest asset. Among the top human health risks in working environments directly related to buildings are poor air quality, inadequate lighting, noise pollution, and vibration. These hazards may not always be visible but can significantly impact workers' health over time. Even chronic discomfort or fatigue can impair focus and lead to long-term illness and other health problems.   

Reducing these risks is critical from both an ethical and financial standpoint. Employee well-being translates directly to physical and mental health, which drives business productivity and sustainability. Prioritizing worker health by designing better work environments, providing social services, and developing a positive company culture are all aspects to consider in managing your business's human capital. That’s why businesses turn to sustainable rating systems to guide space design and operations, including the WELL Building system, which focuses on human wellness. 

Transparency in Reporting 

Governance in ESG refers to how your organization is run. This can range from implementing ethical business practices and internal financial controls to transparent reporting.  

Governance impacts not just your organization's reputation, but also its long-term performance through risk management and decision-making practices. One link between buildings and governance is around transparency in reporting environmental impacts. A focus on improving the sustainable performance of a building will naturally lead to better reporting of metrics that matter. 

Next Year's Scope – Near Term Goals 

Once you've painted the big picture, the next step is to get specific and set realistic annual targets. First, defining and announcing annual ESG goals increases public transparency. Research shows that investors and consumers consider company transparency an important factor in their decision-making. Second, yearly goals help a business allocate capital most efficiently by highlighting important focus areas for that year.  

For example, say your business decides to focus on emissions reduction: define it. Will you cut emissions by 20%? Will you achieve it by retrofitting older buildings with energy-efficient systems? Perhaps by incorporating electric vehicle charging stations? The more detailed your goals, the easier it becomes to allocate financial resources efficiently. 

For building owners, Current Facilities Requirement (CFR) documents are a great way to define the near-term goals. A CFR document is an all-encompassing report that outlines the components of a building, targets areas that need maintenance, defines building goals, and includes building records. This helps owners prioritize repair work and allocate a budget to make needed updates while avoiding unexpected costs. 

Expense Categories – Achieving Near-Term Goals 

Next is deciding where to allocate your capital to achieve your annual goals. Putting funding into "bucket" categories is one approach where buckets are used to disperse money to individual programs. Some common bucket categories for sustainability programs include: 

Capital Improvements 

You'll need to allocate a significant portion of your budget to direct building-related repairs and upgrades, especially if you aim to meet resource use goals. Upgrades like improving energy performance with new or improved HVAC, or process equipment, low-flow water fixtures, adding solar panels, or implementing recycling systems fall under this category. 

Supplier Engagement 

According to Accenture, up to 60% of global GHG emissions originate from the supply chain. Supply chain emissions, also known as scope 3 emissions, are some of the hardest to tackle and require ongoing communication with suppliers. It often requires a substantial initial investment to develop a supplier management system and then ongoing capital to manage the system, train suppliers, and even perform on-site visits. 

Software and Data Management 

Tracking ESG-related metrics is crucial to creating a baseline for your building and seeing changes over time. It lets you understand where to make the most impactful changes and investments.  

Manual tracking is outdated and inefficient. Modern software-based ESG reporting and tracking platforms come with a cost but offer immense value. Check out our recent in-depth blog on how to choose the best software solution for your ESG program. 

External Reporting 

Annual public reporting is a meaningful way to highlight your sustainability commitments and progress. Sustainability reports on your company website provide an easy access point for stakeholders, future renters, and potential employees to get this information. As we’ve noted, the research clearly shows that all stakeholders place a high value on sustainability when choosing where to spend their time and money.   

Consultants 

Hiring experienced sustainability consultants can be an invaluable investment, especially when navigating unfamiliar regulatory waters. They can help you strategize, implement, and measure your initiatives more effectively. 

Employee Engagement 

The power of a motivated workforce is unparalleled. Budget for employee training programs, workshops, and even morale-boosting activities like community garden planting — all of which can substantially contribute to your sustainability goals. 

Leveraging Consultants for Smart ESG Budgeting 

Mapping out your ESG budget can be challenging and time-consuming, but it's a necessary step to turn your sustainability goals into an actionable plan. Specialized consultants can streamline this process, aligning financial planning and ESG goals. This is where Emerald Built Environments shines. As specialists in sustainable strategies for buildings, we ensure your sustainability goals aren't just lofty ideals but achievable milestones.