Actionable ESGs: Achieving Ambitious Corporate Goals in Sustainability Part 1

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Episode Transcript

(Music Intro)

Brian Trainer, Host: Welcome to Trends + Tensions presented by BHDP, where we discuss trends in architectural and interior design and the competing priorities or tensions that arise from integrating new ideas into existing organizations, enterprises, and institutions. In this episode, “Actionable ESGs: Achieving Ambitious Corporate Goals in Sustainability: Part One,” BHDP’s Daniel Lessing brings local leaders in sustainability together to discuss the growing importance of ESGs for organizations. ESG stands for environmental, social, and governance, and ESG practices set businesses apart when it comes to establishing their credibility and impact on the community. Now more than ever, employees are concerned about their organization's ESG practice, as it affects their work life and influences their behaviors as well. P&G’s Melissa Doughty, North American CSA Manager for Global Facilities Engineering, and Steve Winbigler, Global Technical Director of Facility Technical Systems at corporate offices and research sites, as well as Elizabeth Rojas, Director of Cincinnati 2030 District, join us to offer practical tips for organizations building or implementing their ESGs. I am your host, Brian Trainer, Senior Strategist for BHDP. Let's get started.

Brian: So today, we're going to explore ESG reporting, but we're going to break that apart a little bit. But we want to start from that as a base point. So, Daniel, what is ESG reporting, and why is it important?

Daniel Lessing: Thanks, Brian. So, it's really a term that was utilized by the financial industry as they started wanting to have a way to track how a company was performing on some key metrics outside of their profits and their revenue. We started looking at environmental issues, social issues, and how a company governs itself. For a while, those were kind of three separate buckets, and a lot of companies realize that there's a lot of crossover between how they're looking at environmental issues, how they're looking at social issues, and how they're governing themselves. So those three acronyms, while they're three separate buckets, they got slammed together. And what's happened is, back maybe 20 years ago, there was a handful of very large companies that were looking at environmental reports, social reports, and they started merging those things together. Procter & Gamble is one of the companies that were the leading edge of that, one of the first companies to publicly declare what their goals were, put them in a report, and share them with their stockholders. And the reason they started sharing them with their stockholders is that these big investment firms that are investing with companies across the entire nation and globally started seeing a very clear correlation between companies that had good governance and controls, as well as ones that were putting their money where their mouth is, like “Hey, we're going to hit a 30% reduction goal in energy by this year,” and then they hit it. So that's showing that they know what they're talking about, and they're driving to it. So those big investment companies got really interested in ESG, so they started investing in companies that cared about environmental issues, that cared about social issues, and cared about governance, really, not because there's some big all “aha” about saving the planet, but because this makes a lot of sense from a money standpoint. Fast forward to today, where 95% of S&P 500 companies are reporting some sort of ESG publicly because they're all getting on board with “this is where folks invest, this is where we have the best opportunity for impacting our stock,” and then it's correlating to “this is what our consumers are expecting,” right? 70% of consumers expect to see what the values are from the company that they're buying products from. So, everyone is paying attention to environmental issues, and especially over the past few years, the social issues have really bubbled up to be on par with the environmental issues. So, if you want to be a company that people want to invest in, if you want to be a company where folks are buying products, you better understand how you're impacting the environment and how you're impacting the people in your communities and across the country.

Brian: Thank you for that, Daniel. So, it sounds to me like it's setting a set of values that you can measure. So, I was going to ask because ESG was strictly voluntary, is it being regulated? Is that happening?

Daniel: So, on March 31st of last year, almost a year ago, the SEC voted, and it's not law yet—however, they voted to require a publicly traded company—so that's beyond just S&P 500—every publicly traded company to release their scope one, scope two, and their scope three emissions. And that is referring to how much carbon they're emitting into the environment. Scope one is what they're doing on their property, scope two is from all of the utilities that are used to feed their properties, and scope three is all of their supply base and anyone who's doing anything related to the company. So, there are some companies that are releasing scope two and scope two emissions. I know Procter Gamble does—it’s in their public report. Scope three is really hard, and in addition to that, there are a lot of publicly traded companies that do not release their scope one and scope two emissions, probably for very good reasons, and this SEC ruling is really freaking them out about, “how can we comply?” There's a lot of pushback within certain large, expensive industries, oil and gas primarily, that are pushing back on the SEC on making this a requirement.

Brian: Thank you for that, Daniel. So, part of our goal here today is to focus on the environmental part of ESG, and I made sure the social part will come up some, but this is more, “let's focus on the ‘E’ for today.” I was thinking that, with Melissa and Steve, you're looking at this from two different lenses. We have the corporate office where a lot of people are occupying, working every day, and then there's the manufacturing side, also with people occupying and working, but also larger spaces with machinery and product and things like that. So, P&G has started requiring new projects to be LEED silver. Is that both for offices and for manufacturing? 

Melissa Doughty: It is. In our corporate policies, we have thresholds based on costs and square footage for Greenfield and Brownfield, major renovations, whatever the project type is. So, LEED silver is our target for everything.

Steve Winbigler: And just a real good example of that, Brian, up in our Mason facility, which is a little north of town, we put an expansion on that facility several years ago, and with that facility, we certified that to a LEED silver as an example.

Brian: So, what are some operational strategies that you've deployed that have been successful? Do you want to start with manufacturing? Because that seems like it'd be a lot more complicated. Or, actually, which one's harder? Offices or manufacturing?

Steve: Well, if you look at the work that happens in our research centers, in our offices, we have a pretty diverse population, particularly with our new work models now, where some people are in the office part of the time and part of the time they're at home doing their work. It's a pretty eclectic mix of people that are both doing research, and some of that research can involve pretty power-intensive equipment in the development of our new products. At least within the base of work that I work with, our type of facilities, it's like, “how do you take a set of facilities and optimize the energy use with so many people coming in and out on a pretty frequent basis, where some days they're there, and some days they're not?” So, rather than a manufacturing model, which might have production starting up on Friday and maybe stopping on Friday, or being seven days a week, we can have people in and out of the facility at all different times. One of the key things that we're really doing within a lot of our facility operations strategies now is we're going from run to a schedule to run to demand. And by that, if you look at traditionally how to operate a facility, Brian, you would say, “Hey, it's seven o'clock in the morning, I'm going to start to heat the building up,” or “I'm going to start to air conditioning in the summer. I'll bring the lighting up to an occupied state, and then I'm going to run it until five or six o'clock at night when I think most people have gone home.” That's fine in our old traditional models when people had a set work schedule and came into work five days a week. With the models we have now, that'd be very wasteful on energy. So, what we're trying to do is take our buildings and adapt them more to that where the buildings can begin to sense when there's occupancy in certain areas, or we give the end user the ability to turn on that part of the facility if they happen to need it that day. And for that particular amount of time, when we begin to convert from running to a set schedule to where people are in the space, we can sense, or they can register, their presence, then we bring the facility up to an operational state. And that's kind of the conversion that we're in the process of going through right now—to optimize our energy use at our sites.

Brian: Would that be something that would be building-wide, or can it be zoned down to little microenvironments to where floor by floor or neighborhood?

Steve: Floor by floor or zone by zone, yeah. It can definitely be done in a micro level across the sites. In fact, I'll give you a really good example we've implemented in our lab to have more of a variable use to them. In a lab environment, when you think about the amount of HVAC ventilation air you have to use sometimes for chemical safety, you don't want to recirculate that error, so it comes into the laboratory. 

Brian: Why not? [laughs]

Steve: Yeah, why not? [laughs] So, it's very energy intensive to heat or condition that air, and then you exhausted out the roof, which is the right thing to do for the safety of the lab worker, but it's not that great for energy efficiency. With our green lab concept, where these labs have a highly variable use, meaning that sometimes people are in the lab and then maybe several hours or a day where they’re not, we're going now to where we're putting controls in the front of the lab where the occupant can push a green button that puts the lab into its operating mode, they go in and do their work, and then when they're finished, they walk out of the lab and push a yellow button and put it back in a standby mode, and it makes it very energy efficient. So, that's just an example of one of the new run-to-demand strategies we're starting to use in our facilities.

Brian: Steve, I like that, the run-to-demand strategy; that’s a pretty cool concept.

Steve: Well, you know, it's kind of funny, but I think the best sustainability strategies are really any technical strategy. If it sounds simple, you've probably got a good strategy. If you need to go ahead and open up a dictionary, you're probably on the wrong track.

Daniel: There's an old phrase like, “What is the most efficient light bulb? The one that's off?”

Brian: [laughs]

Steve: No, that's a great point because even within sustainability, and you start to look at on a macro scale, when you can begin to start detecting occupancy levels in your facilities and understand exactly what your daily threshold is for average attendance, you can start to analyze your whole property portfolio. It’s like, “Gee, if I have a lot of people in on Tuesday, Wednesday, Thursday, obviously they're not here on Monday or Friday,” then they're probably more of a digital employee, right? They're living out of their backpack; they can be home; they can come into the office—they don't need a big set office footprint. Knowing that you have a digital population like that, you can begin to, like Daniel—he’ll go ahead and design a very open, collaborative thing where people come in, and there's touchdown or drop-in spaces, and you don't have to take up nearly as much of the building footprint—and all of a sudden you can begin to house an awful lot of your business in a much smaller facility footprint. And kind of like the example of the most efficient light bulb was the one that's off, the facilities with the lowest carbon footprint are the ones you don't have to have. So then if I can go ahead, and before, I needed three buildings back in the 1970s with this big, set workforce, and now I can get down to two buildings because I've got more of a flex environment, then that allows your facility carbon footprint to come down, the energy use to come down, and the emissions to come down. It all gets to applying more digital fluency and having a flexible workforce.

Brian: Thank you for that, Steve. Melissa, what what's the manufacturing looking at from that standpoint?

Melissa: Well, Steve just did a really good job talking about the complexities in research, but there are other complexities as well. So, last time I counted, we had 55 LEED-certified buildings in our portfolio, and they span across 15 different countries. So, LEED is structured so that there are regional priorities set, there are different usage types, and different levels of complexity built into the program. So in manufacturing, you have these large volume volumes of space and very few people occupying them, so the baselines are completely different—different usage types, different needs, and different outputs from the buildings. If you look at the scorecards we have for manufacturing and distribution, even though they're regional priorities that generally define our approach for any given building, there are some consistencies. In distribution, we typically get a lot of the energy points for LEED. In manufacturing, not so much—it’s kind of the opposite of the spectrum. But, then, in both manufacturing and warehousing, we get most of the water credits—we’re really good on water and circularity, so that's very helpful. There are a couple of areas that we do struggle with in both, and it's really in the creature comfort area. We hardly ever get the daylight and views, the thermal comfort credits, just because they're manufacturing and their distribution. They’re large buildings with not a lot of light coming in. And then moving forward, as we refine our ESG strategies, we develop our internal programs to meter our spaces, monitor our usage, and control our usage. And then, of course, as we develop new technologies for energy and water, I think some of the innovation credits we pursue in the LEED program will definitely change character.

Daniel: That's one thing we've noticed as we work with manufacturing companies—is the facilities that focus on sustainability. Part of that is the health and wellness conversation of the employees in the space and whether it's LEED or just a focus on well design. We're having conversations about daylight. We're having conversations about “Can we get a clear story in? Can we get skylights in? What's the proper number for air exchanges to make sure we have good turnover in the air?” And people pay attention to that, right? If you're trying to hire a workforce and you go visit one facility, and it's dark, and it's old, and it's dirty, and you visit another facility, and there's natural light, and it's bright, and it looks clean, which one are you going to pick? And the companies that are focusing on the sustainability and wellness conversations are the companies that can attract the best talent and keep that workforce in the building. Today we basically have negative unemployment, right? There are more jobs than there are people, and we're all fighting over the same folks. So, anything that gives you a step up on the competition, companies are paying very close attention to that. 

Melissa: Daniel, you make some great points. One thing that I discovered when I came to P&G was the whole universal design. We are incorporating universal design principles not only in our office buildings but also in manufacturing, which isn't often done, so it is quite a journey, but it does help with the social part of our ESG program, and it helps with our workforce and anyone who touches our facility.

Steve: Yeah, I think that was a great thing we did, really adopt the universal design concepts, because when the ADA first rolled out, we viewed that as a regulation to help someone in a wheelchair. And that was just one particular use case, but by really expanding out the universal design concept, it really follows our good corporate citizen concept of trying to have a very inclusive workforce and make sure that we're giving everybody an equal opportunity to really come in and contribute. So I think it's one of the best things we've done.

Brian: Is it social to be taking care of occupants? What's the driver there?

Daniel: That's one of the reasons that environmental and social issues overlap. It's not a conversation just about the planet—it’s a conversation about the people on the planet and how we create environments that support the people in your community and across the entire globe. So, we're designing a space, but there are people in that space, so when we talk about equity issues, when we talk about community involvement, so much of that is tied to creating an equitable environment for everyone. They have a right to clean air. They have a right to clean water. They have a right to get a job and have opportunities, and if you're a big emitter that's polluting the environment, usually that big factory, just from the history of our company, the neighborhood directly next door to that big factory, it's probably not your high-end homes, right? It's the original workers that lived next to the factory, and whoever is there now, probably from a social and economic standpoint, are not your high-end homes. So it's even more important when we have these big manufacturing plants that they're paying attention to the communities that they're in because when we look at the cases of asthma and cancer, usually they're a much higher prevalence in these manufacturing districts.

Steve: I think the more that you can get the community and then your general business groups thinking in terms of “and” versus “or,” that's really when you start to move the needle because, as a company, you care about your customers. They're your customers, and you want to take care of them. Your shareholders want to see that you have a commitment to doing the right thing, and so if you take an “or” mentality, you're probably not going to have a great long-term economic outlook as a company.

Brian: Yeah, you're part of a collective ecosystem. How do we exist together? How old is Procter & Gamble?

Steve: We were formed in 1837, and we started out actually, believe it or not, as a candle company, and then we worked our way into the products you see today.

Brian: The reason I ask that is because you look at companies from the Fortune 100 companies from 100 years ago, and the ones that don't exist were the ones that didn't adapt. And I think it's a testament to what you've decided to focus on, and it shows that you are willing to learn and do the “and” part and see which way do we need to turn to be viable for the future. I've worked at companies before where I've left at the end of the day feeling miserable, and it wasn't the job.

Elizabeth Rojas: Right.

Brian: After a while, I was like, “I think this building is making me sick.” So, your focus on occupant health and wellness, I think, is long overdue.

Elizabeth: Right, that's right. You know, sick building syndrome was really a thing and still is. That is still prevalent. These businesses really are thinking about things in terms of, “What are the risks of not taking action? What are the risks of not having an ESG?” and then following through with it with the data because people are much more savvy these days. They know what they're looking for, and talent is looking for organizations that are investing in them. Investors are looking for organizations that are doing good work, and stakeholders now are much more understanding of these aspects, and so they look for it as well.

Brian: Thank you for that, Elizabeth. So, for Melissa and Steve, what are some challenges you've faced, either on the manufacturing or the corporate office or even the laboratory side? Because it's a big organization. What could other people learn from things you've discovered when it comes to implementing these broad environmental strategies? Do you have any? 

Steve: I guess what I would start out with is how to eat an elephant one bite at a time.

Brian: [laughs]

Steve: So, when you first come across your sustainable strategy—but start out with the fundamentals in your facility first—look at how your base equipment, your base operating equipment, is and focus first on, “Hey, is that in the right condition or not?” or, “Does it need some maintenance to tune it up?” They give a great example with an automobile. If the tires aren't properly inflated or if the fuel injection system's improperly calibrated, that could be 10 or 15% of your fuel efficiency. The same holds true in a building. So, by going through and, first of all, getting the equipment tuned up to the right efficiency, that's step one. Then, from there, start to look at your equipment and how old it is and how close it is to the end of its useful life cycle and find those pieces of equipment that are about worn out that you have to replace it anyways. Start building a strategy right away and do some research on, “What's the most efficient thing I can put back in its place?” and then, “Hey, I'm going to have to replace it anyways.” And sometimes the incremental cost just to go from like a medium efficiency to a higher efficiency piece of equipment might only be 5% of the cost of the equipment, but you'll just get that over and over again, particularly now that our energy rates have gone up so much, so focus on your base operations and equipment that's at your end of a useful life cycle, and get those upgraded and then look for special or unique opportunities where maybe there's something that's really inefficient and do that as your next level of focus. Once you have that good base in place, start to think long-term in terms of, “Am I getting maximum use out of this facility, or is it possible for me to build so much efficiency into it that I could actually consolidate two or three other operations I've got into this one building?”

Melissa: At a higher level, I've learned quite a few things on this journey at P&G. First and foremost, it's very daunting, as Steve said, to start something major like resetting your ESG goals, or whatever your big project is, but go back to the fundamentals of, “What's your starting point?” as Daniel had said. Where are you starting from? Where do you want to go? Hopefully, you have your goal set and then understand the different options and levers you can pull along the way—if it's specifically in your facilities with things you can change or add or if it's new technologies you can incorporate. It's always a balancing act between your capital funding and what you have available. For me, it's just a classic engineering problem that's very exciting.

Daniel: The original conversation was that I have the increased cost for a piece of equipment, and then I have the energy I'm saving, and I can do a very simple payback. Is it three years, or is it four years, or is it five years, based off the increase in the cost of the equipment? And what a lot of corporations are doing now, getting back to how environmental issues, social issues, they all tie together. When folks say, “I can't afford to be sustainable,” I usually flip it back and say, “You can't afford not to be,” because if you're focusing on attracting and retaining talent, if you're focusing on the resiliency of your facility, if you're focusing on your stock price, if you're focusing on your ability to sell a product, or if you're focusing on the wellness of people in your space, like how often are folks home sick, when you add in all these other variables, that payback goes down to nothing because your people are your most expensive asset, not your piece of equipment, not your capital investment. If you're making a product, but you can't get top dollar for it because your company has a bad name in the industry, you have to constantly mark it down, then you're not getting top dollar for your product, and then your invests and your stocks are dropping. So, when we start having that bigger, holistic conversation, sustainability pays for itself tenfold. 

Brian: Melissa, Steve, anything else you wanted to share? Any hot topics on your mind that I forgot to bring up? And Daniel, did you have any other questions for the group?

Steve: Thank you for your time, Brian.

Brian: No, thank you. Thank you all for coming. This was exciting. I had fun, how about you, did you have fun?

Daniel: Of course I had fun.

Brian: Thank you for joining Trends + Tensions presented by BHDP for this episode, “Actionable ESGs: Achieving Ambitious Corporate Goals in Sustainability: Part One,” with Elizabeth Rojas of Cincinnati 2030 District, Steve Winbigler and Melissa Dowdy of P&G, and Daniel Lessing of BHDP. If you appreciate what you've heard, please rate, subscribe, and give us a review. I'm Brian Trainer, your host, and I hope you'll join us for Part Two, where we uncover the ways organizations like 2030 District can help you reach your ESG goals.