Improving corporate sustainability is an ongoing process with no defined finish line. To many businesses, this sounds like a daunting proposition that may weigh down their operations. In actuality, it's the opposite — sustainability provides financial and social benefits that drive long-term business success. Embracing sustainability elevates business performance.

Even though the pursuit of sustainability is a journey, it is broken down into defined steps that can be thought of in yearly intervals. The first year is about creating a baseline of existing environmental data and deciding how to track those data points over time. The second year moves into setting major goals and implementing programs to tackle high-impact parts of the business. The third year and beyond is an ongoing cycle of implementing sustainability programs, tracking data, and reporting progress.  

Take, for example, greenhouse gas (GHG) emissions. Year one focuses on developing a GHG inventory, year 2 is for creating emissions reduction targets, and the following years are for implementing emissions reduction programs and generating GHG emissions reports (often annually!). When broken down into individual steps, the process seems more manageable — and it is.  

However, an important consideration throughout the process is how to allocate resources to fund the work. Environmental, Social, and Governance (ESG) programs and effective GHG reporting typically require a financial investment. Understanding the nuances of costs is key to ensuring the success and longevity of these environmental initiatives. 

What About Sustainability Costs Money? 

Understanding where money will be spent throughout the lifecycle of a company’s sustainability program is the first step in developing a cost estimate and securing budget allocations to fund the work. While the following list is not exhaustive, it highlights the major budget items. 

Hiring Consultants and Staff 

Developing a robust sustainability and GHG reduction strategy often starts with human resource investments, including consultants and internal staff. The team is critical to ensuring programs are implemented effectively and adapted as necessary. 

In many cases, the early stages may involve assigning tasks to existing roles and hiring external sustainability consultants to help develop an overarching framework and get programs running. As programs move into their third year and beyond, companies may create specialized internal positions to oversee the ongoing efforts. 

Consultants are still a valuable tool throughout, yet their role and involvement are typically refined over time. For example, consultants may only be involved in developing public-facing annual progress reports. 

Projects Delivering Improved Performance 

Often, one of the most capital-intensive portions of corporate sustainability is implementing projects to improve environmental performance. These are the core of all sustainability programs. 

For example, a manufacturing facility may implement new equipment that uses less energy or produces less waste. A business may install onsite solar panels to cut down on Scope 1 or 2 emissions and reduce ongoing energy costs. A building owner may implement improvements like low-flow faucets to reduce water waste, balance the existing HVAC system to improve air quality and reduce energy costs, or install EV chargers to facilitate low emissions commuting.  

The list goes on — projects and associated costs are specific to each company's goals. 

Reporting and Supplier Engagement 

Tracking sustainability data, like energy use, greenhouse gas emissions, and waste generation, can be time-consuming with thousands of data points. Investing in software to help record and report this information is a great option. 

For example, GHG reporting software typically provides a framework to organize and quantify emissions data based on common emissions categories that highlight key areas to consider when collecting emissions data. Plus, they will provide reports on overall emissions that are useful in deciding where to implement emission reduction programs.  

The same goes for engaging with suppliers, which can be challenging depending on the size of the supply chain. Having a central point to pull data from all suppliers simplifies the process.  

Carbon Offsets and Renewable Energy Credits (RECs) 

RECs and carbon offsets are an effective way for companies to reduce their overall emissions. Offsets are purchased from a broker or on the open market to offset any company emissions. Alternatively, RECs are typically purchased from a utility provider and certify a portion of energy purchased is from renewable sources.  

RECs and offsets are useful in targeting challenging or cost-prohibitive emissions or as a near-term solution before operational changes can be implemented. In 2021, 36% of S&P 500 companies purchased carbon offsets, and the global carbon offset market is expected to reach nearly $3 trillion by 2030. Clearly, offsets are a core component of many GHG emission reduction strategies, and they are a core component of our net zero strategy here at Emerald Built Environments.

Philanthropy 

Adjusting corporate giving strategies to focus on environmental causes is becoming popular. While it doesn't reduce a company's direct environmental impact, it shows a company is engaged in sustainability. This can be a great way to highlight a company's pro-sustainability outlook in annual reports. 

For instance, the environmental non-profit 1% for the Planet connects companies with approved environmental organizations. Companies pledge to donate 1% of their annual income to these organizations and know the money is spent in an impactful way. There are over 5,400 companies that have joined 1% for the Planet, including Emerald Built Environments.  

Paying for Sustainability 

After there is a general idea of the program costs, the next step is identifying and allocating resources to fund them. Several options are available depending on your industry, what you are using the capital for, and your current balance sheet. 

Internal Funds 

Using internal funds is straightforward, whether that's by shifting around budgets or allocating available capital. However, using internal funds is not always possible, and relying solely on this option year after year can be challenging. Market conditions shift, and internal priorities change — you don't want to scramble to secure external funding on short notice. 

Government Incentives 

The U.S. government has set a priority of reducing nationwide emissions and boosting sustainability. This includes reducing U.S. GHG emissions by 50% by 2030 and achieving a net-zero emissions economy by 2050. In this pursuit, there are many government programs and incentives that help businesses facilitate this process. 

The Inflation Reduction Act (IRA) is a great place to look for sustainability-focused tax credits to reduce energy use and emissions. Some core components of the IRA are: 

• Tax credits up to $5 per square foot for buildings that meet energy efficiency criteria. 
• Tax credits that cover 30% of the cost of implementing onsite solar power systems. 
• Tax credits of up to $7,500 for new light-duty electric vehicles and up to 30% for commercial electric vehicles. 

While tax credits won't cover all sustainability initiatives, they can play an integral role in reducing overall costs. 

Grants 

In this same vein, state and federal governments sponsor several grant programs designed for green businesses and initiatives. Grants provide upfront funding for a specific project or initiative that doesn't need to be paid back.  

For example, the EPA recently awarded over $2 million in grants to small businesses developing technologies to help protect the environment. While these types of grants may not apply to all companies, they can be invaluable in some cases. 

Borrowing — Public & Private 

Another solution is looking for green loans. Public sector loans often come with favorable terms, encouraging sustainable projects. For instance, the Department of Energy has over $412 billion in lending capacity for projects that reduce GHG emissions. 

In the private sector, green loans are gaining traction. These loans are linked to environmental sustainability performance and provide favorable rates if ESG-related targets are met. In 2021, sustainability-linked loans totaled over $52 billion in the U.S., a significant increase from previous years. A notable example includes carmaker Hyundai securing a $1 billion green loan to expand its electric vehicle business in the US. 

Your company may also opt to use innovative financing such as PACE or Energy As a Service. PACE is bond-financed, low-interest, off-balance sheet financing by entities authorized by legislation to lend. Energy As a Service is similar to on-bill financing, with the equipment and service provider paying for up-front costs.

Conclusion 

Understanding the overall picture of your sustainability program — including capital expenditure — is critical for budgeting to ensure there is adequate funding. Sustainability and GHG reporting require foresight and consistent funding to succeed. While direct financing is ideal, it's not always feasible for every business. Capitalizing on the array of available funding sources, from government incentives to green loans, is a great option. 

If you're navigating the complexities of sustainable financing and seeking to implement impactful environmental changes, Emerald Built Environments is here to assist. Our experts can help you develop a sustainability roadmap, create a budget, and identify and secure the most relevant funding sources. Discover how we can help you successfully implement and support your GHG and environmental programs.