3 Things BSCs Should Know About ESG
Daniel Daggett has always harbored a great love for the outdoors. In his free time, you can find him gardening, fishing and camping, often with his kids in tow. The appreciation he shows for the outdoors is evident in many aspects of his life, especially in his profession. Daggett, the vice president of corporate sustainability at Fort Mill, South Carolina-based Diversey, has spent his career exploring the overlap between public health, business and the environment.
“For me, sustainability comes naturally,” Daggett explains. “What’s better, a disposable wipe or a reusable wipe? How much better are bio-based chemicals compared to petroleum-based chemicals? What are the best practices for water stewardship?”
For Daggett, taking a scientific approach to these questions, along with all the other initiatives around sustainability is something he loves about his work.
“It is pretty fun stuff, and it’s exciting,” he exclaims.
Interestingly, this is also an area that is quickly becoming relevant across multiple industries, including the building service contracting (BSC) industry. As investors increasingly focus on environmental, social and governance (ESG) management, companies are finding themselves on the hook for strong sustainability plans, goals and more.
Daggett urges companies holding back from exploring ESG to rethink their stance.
“If companies aren’t doing a sustainability report, it’s definitely time to ramp up efforts and to also show transparency on their performance as it relates to environmental stewardship, social responsibility and governance issues,” he says.
For BSCs who may be unsure about how to get started, here are three things to keep in mind about ESG:
1. ESG Doesn’t Just Mean Evaluating Risk
The belief that ESG is all about evaluating and disclosing environmental and social risk does not paint the full picture. Yes, mitigating risk is an important element of incorporating ESG into a company’s operations or goals, but there is also tremendous opportunity for increased value for BSCs who choose to embrace it.
“BSCs are most likely going to have some customers who are increasingly paying attention to environmental and social issues, and increasingly recognizing the responsibility they have to take action,” Daggett says. If a BSC can demonstrate that it is also focusing on these issues, the relationship with that stakeholder can be strengthened through common goals and collaboration.
ESG also has the potential to open the door for new revenue streams for BSCs by serving as a lens for innovation. For instance, as companies focus on their carbon footprint, they increasingly look for renewable or low-emission alternatives to improve their performance. Solutions that require less energy will lower the carbon footprint of the owner or operator of that facility, helping them with their climate change goals.
In the world of carbon accounting, there are three ‘scopes’ of emissions. Scope 1 emissions are the direct result of burning fuel and releasing greenhouse gases (GHGs). Scope 2 emissions are the result of using electricity, and Scope 3 emissions are all the other indirect emissions associated with an organization.
An energy intensive cleaning process performed by a BSC will result in Scope 1 and 2 emissions for the owner of the facility, but be considered Scope 3 for the BSC. Understanding these relationships can help provide additional value to BSC customers that have climate change goals.
2. ESG Isn’t Really All That Optional
The recent focus on ESG was driven by investors who began to require that their investments meet minimum environmental and social performance goals. Now that the investment community is focused on sustainability, companies struggling in that area can quickly find themselves losing ground to their competitors.
“I think [the investment focus on ESG] really took a lot of people by surprise and made them see this isn’t just an idealistic exercise that’s nice to have. It’s going to be required moving forward,” says Daggett.
Even if a BSC doesn’t have publicly traded shares, odds are that at least some of its customers do.
“If you aren’t trying to address [climate] as a risk in your own operations, then you’re being punished more so than your competitors, who are perhaps managing things a little bit more effectively,” Daggett affirms. “Whether you like it or not, you need to be thinking about what the future looks like in terms of a subject like carbon, and aligning your portfolio of solutions to help those customers who want to set net-zero emissions targets.”
Investors aren’t the only ones focused on ESG. Indeed, regulators across the globe are introducing their own ESG standards for companies.
Earlier this year, the U.S. Securities and Exchange Commission (SEC) introduced proposed rules for companies’ climate disclosures. The Sustainability Accounting Standards Board (SASB) has published a series of guidance documents intended to help companies disclose the material ESG issues for their industry. Meanwhile, a new global body called the International Sustainability Standards Board (ISSB) is working on a global set of standards for ESG reports.
Between pressure from investors and new rules from regulators, ESG isn’t so much a nice addition to a company’s operations as it is a mandatory addition.
3. The Good News Is, You Don’t Have to Go It Alone
If this all sounds overwhelming, don’t worry — BSCs don’t have to start from scratch when it comes to ESG. Daggett says there are ESG frameworks that can help shape a BSC’s approach to the subject. These frameworks are “very structured” and take “a check-the-box type of approach,” Daggett says, maximizing the ease with which BSCs can assess their ESG.
In addition to ESG frameworks, there are multiple other reporting frameworks BSCs can use. Daggett, lists several of these frameworks:
• The Global Reporting Initiative, a “very extensive list of material subjects that organizations are being asked to be transparent about” in their disclosures
• The Sustainability Accounting Standards Board (SASB), which approaches ESG “from the SEC reporting requirement mentality”
• The Task Force on Climate-Related Financial Disclosures (TCFD), which is “an important one, especially if you’re publicly trading and going to be exposed to the SEC rules that are coming up”
• The Carbon Disclosure Project (CDP), which is one of the more popular and long-standing frameworks, has expanded beyond GHG emissions and now has reporting structures for water, supply chains, and land use
If it still seems overwhelming, there’s more good news. Because the different frameworks are similar, BSCs can sometimes follow more than one at the same time with nominal effort.
“There could potentially be overlaps, especially if you focus on climate,” Daggett explains. “Figure out the ones that are the most important, and then start to go down that path of reporting.”