Why ESG is Important to Project Leaders

Transcript

STEVE HENDERSHOT

As organizations and teams put a greater focus on ESG—short for environmental, social and governance—they’re finding that sustainability and social impact have the added benefit of making them more innovative, adaptable and profitable.

MAURICIO BOLAÑOS

ESG, it’s not only taking care of [the] environment by planting trees or just making some fun employee events through the year. It’s about innovation. It’s about respect. It’s about being a company that truly tries to solve problems of the future that we’re seeing today.

NARRATOR

The world is changing fast. And every day, project professionals are turning ideas into reality—delivering value to their organizations and society as a whole. On Projectified®, we’ll help you stay on top of the trends and see what’s ahead for The Project Economy—and your career.

STEVE HENDERSHOT

This is Projectified®. I’m Steve Hendershot.

ESG is in the midst of a transition from an aspirational, nice-to-have component of organizational identity to something that’s both essential and fully integrated into every aspect of operations and culture. But even with increased attention on ESG, inadequate governance practices make it more likely that companies won’t meet ESG goals, according to a 2021 GlobalData survey.

Organizations need to take action in order to turn ESG ambitions into reality—and have the governance in place to ensure these efforts deliver. That includes creating a structure and framework for ESG efforts, as well as empowering team members to have a true ESG mindset, according to PMI’s recent report The ESG Imperative: Turning Words Into Action. You can visit PMI.org to read the full report and for other ESG-related resources.

Today we’ll look at how project teams are integrating ESG into their work and benefiting because of it. We begin in Heredia, Costa Rica, with Mauricio Bolaños, ESG operations and program manager at software company VMware. Projectified®’s Hannah LaBelle spoke with Mauricio about how VMware is infusing and integrating ESG into its existing culture and operational model. 

MUSICAL TRANSITION
HANNAH LABELLE

So you’re part of the ESG office, which is working not only on ESG-specific projects, but you’re also working with other project leaders across business units. So how are project leaders integrating ESG into their projects? And what’s maybe the first step of that process?

MAURICIO BOLAÑOS

First step, sometimes, it’s just talking with them about what’s ESG. Sometimes they don’t even know about ESG, and they will just consider ESG as the team that is in charge of planting trees or the team that is in charge of employee events for inclusion and diversity. And it’s a lot more than that. So that’s the first part. Make sure that the organization or project [lead] is comfortable with the topic and that they understand how they can connect the ESG concepts with their own processes, products, projects.

After that, just make sure that you understand the processes they run. Make sure that you understand what’s the goal of the project. You have clarity of what’s going on, and then you can start looking at how can you embed ESG into their product or into their organizations or into their project management practices? It’s about partnership, most of the times. Start with baby steps. That’s what I always like to say. If you’re talking with a team that is in charge of the servers, okay—understand what they do. Understand if they have a way, for example, to identify what are the idle hosts and make sure that they can turn them off at some point. That could be a project and that could be something big, because depending on the size of the servers and everything, the energy consumption could be very significant for the organization. So have those conversations. ESG is not a super complex topic every time. It could be something that you can see in [an] everyday activity of your work, everyday activity of your project.

HANNAH LABELLE

So energy consumption is one example. What are some other potential ESG factors project leaders should consider? And once those have been identified, how do teams track these efforts? What sort of metrics are they using?

MAURICIO BOLAÑOS

You can have the objectives that are related to an organization itself, right? Like their operational work. And then you will have the metrics for the projects, the success metrics. We always have success metrics just to know if, at the end of the project, everything was accomplished. So, as part of those critical indicators, make sure that you have ESG indicators as well.

So talking about the operations objectives—there are systems in place in which we can say, “Okay, we have this objective for the organization.” We can have an objective like 50 percent of our leadership should be female. You should put that somewhere. It could be a very fancy system in which you can track everything, and you can have all those nice dashboards. But also, it could be a spreadsheet or something if you are in a small company. It’s just making sure that it’s visible and that the team can look at it and that everybody understands what are we trying to achieve? My perspective is that if you can link those objectives to things like executives’ compensation, for example, that will be a game changer.

For projects, we should include ESG goals as well as critical indicators. How can we track those? It depends on the project, of course, but if, for example, we were talking about a project in agriculture, we can also think about how [much] water are we using? How [much] water [did] we use last time? What’s our baseline, and we can try to improve that. I’m talking just as a project level, but you can also think about this as a program or portfolio level. So you can think also about, okay, we are traveling again. How many people [are] traveling? How many miles they are traveling, and you can convert that to carbon numbers. And you can see, okay, my portfolio is actually contributing with a big chunk of the carbon emissions for my company. How can we change that? We can think about, okay, do we even need to get together in person to solve this thing or can we do it via a call, right? And we have multiple tools that we can use right now. Those are things that you can put in your goals for the project: How many CO2 tons were avoided.

HANNAH LABELLE

ESG can also play a role in risk management. What types of risks would that potentially include when you’re looking at ESG factors?

MAURICIO BOLAÑOS

When thinking about ESG, we should also think about what policies we have locally in the country, and now with these multicultural organizations, we should also think about what other policies we have in other countries, right? So, anti-corruption, for example. Or some countries are starting to think about environmental items, such as banning nonelectric cars in 10 years. So those types of things are risks for your company. Also, you can detect if you’re having issues with your carbon consumption, for example, and there could be some tax implications for that. So all those are risks that if you look [at] the processes with your ESG lens, you will detect them sooner. That could help to avoid more legal issues, environmental issues, even issues with your employees and stakeholders.

HANNAH LABELLE

The ESG office is part of the office for the CTO within VMware. How do you think this placement within the organization impacts the company’s ESG efforts?

MAURICIO BOLAÑOS

This is just a reflection of our ESG mission, and it’s a reflection of how the company puts ESG at its very heart. The office of the CTO is the organization in charge of the R&D of the company. It’s the organization that will put out the new products, the new features. It’s very much leading innovation. Every new product, every new R&D process, will have an ESG component embedded. So we think about not only building products that are compliant, that are sustainable, that are inclusive by itself, but that we are going to be impacting people with those products. At the end of the day, there will be someone using that product. There will be an IT manager that will be having carbon reduction because of the new features that we’re launching. It’s just a reflection of what we think of what we do, and of what we want to achieve.

HANNAH LABELLE

What’s your advice to other project leaders who are looking for ways to include ESG in their project practices?

MAURICIO BOLAÑOS

So it’s something we can all think about. And the good thing about ESG, it’s just innovation. It’s being creative. And I do think that ESG is not a competition between companies, and this is very interesting. Every time I talk to an ESG person from another company, it’s like we are all working together. So don’t be afraid to ask. Don’t be afraid to reach out to your ESG office. All the ESG people that I know, and I’m sure that this will happen for you, they will give you ideas. They will give you good input for your activities. It’s not a competition. We are all together in this.

MUSICAL TRANSITION
STEVE HENDERSHOT

ESG efforts have a unique character within organizations where some aspects of ESG are baked in—companies whose products are designed to improve social or environmental outcomes, for example. That’s the case at renewable energy company Fourth Partner Energy Private Limited. I asked Abhay Bhavsar, head of Fourth Partner’s ESG and safety departments in Pune, India, about the company’s approach.

MUSICAL TRANSITION
STEVE HENDERSHOT

As the ESG head, you’re at the forefront of your company’s ESG practices. How did you go about building buy-in, just because this is one of those things where it ends up costing you something to live up to the value.

ABHAY BHAVSAR

I think you need to appreciate that [the] ESG agenda doesn’t happen on its own or it can be achieved overnight, or it could be even delegated to a single person or a department. It has to finally make way through all the functions in an entire organization. So for me, it goes through a long journey from being an ad hoc to a functional state, moving to a strategic stage where ESG requirements are embedded into the strategy of every function, and finally reaching the cultural stage where it becomes a part of the working culture of a company.

STEVE HENDERSHOT

When you began this process, how did you go about establishing the specific areas? How did you do the research to establish your scope of work and then the process of vetting what things to approach in what order?

ABHAY BHAVSAR

In terms of setting baselines and agendas, it is always important to understand your own company’s ESG situation, right? So from the perspective of line managers, these changes can be challenging. In order to have all of this in place to begin with, it is always better to have external expertise with you. That kind of guidance came in the form of the environment and social due diligence that was done by our financers and investors, which incidentally also gave us our starting point for discussions among various cross-functional team members on what are the preliminary actions required from the respective departments. So we began compiling data on [the] company’s practices and track record, much of which came from the investors’ due diligence, as I just mentioned, and also some from my own experience of working in this very company as the head of projects initially, which also gave me [an] upper hand in getting buy-in from project managers and site managers. Thereafter, we went through a detailed process.

Firstly, we carried out stakeholder identification, wherein we identified our important stakeholders externally, as well as internal to the company. We carried out engagement exercises with them. Then, we also went through a second step of mapping and identifying the likely “E” and “S” aspects on our business of a typical solar plant. This list of impacts is, in fact, an integral part of our environment and social management system. And then we categorize all these business impacts into short-term, long-term and temporary impacts.

At the third stage, we went through [the] important activity of carrying out a materiality assessment, as it’s called in [the] ESG domain, where we identified material or important ESG issues which are most impactful to company success and our stakeholders. Now, these issues were then synthesized to arrive at a list of 20 broad topics that were then ranked for importance to stakeholders, again on low, medium and high scale, and also on impact on business; that also ranking was done on low, medium and high scale. In addition to all that, we have recently subscribed to a globally recognized ESG rating and evaluation platform, which is also used by many institutional investors to assert any company’s ESG performance within the themes of environment, labor and human rights, and also sustainable procurement. I believe that the rating will also help us in assessing our own performance against our peers in the similar market.

STEVE HENDERSHOT

So at that point, you’ve written and codified all of these ESG processes. How do you make sure they are actually put into practice at the team level—both the teams within Fourth Partner and also other partners along your supply chain?

ABHAY BHAVSAR

So toward this, we have a concise ESMS [Environmental and Social Management System] implementation plan with key references to E&S risks from project level to the procurement level and related activities, which are required during various stages of the project from planning, that is pre-feasibility stage, mobilization, construction stage, the operation stage and also includes the decommissioning phase of the project. Each activity is identified on the basis of whether it involves administrative procedure, inspection procedure or a compliance procedure. These activities are then mapped to respective checklists or templates, which are there in the ESMS, and responsibilities assigned for implementation, documentation, review and final submission of that.

STEVE HENDERSHOT

ESG might be daunting for some organizations, but in a case like Fourth Partner, you begin as a sustainability-focused business, so there might be a temptation to say, “Alright, this is already written into the business plan. We’ve got it.” So how did you go about ensuring that ESG goes beyond what’s already there in the core product?

ABHAY BHAVSAR

The concern is that though the fuel we use—that is sun energy and wind energy—and the product that we generate are clean or green for that matter, are renewable companies really good stewards of environment and the investor capital? So just because we produce clean energy doesn’t necessarily mean that we are shielded from any ESG-related issues.

So for example, there are large ground-mounted solar plants, which we typically call it as open-access plants, and for that matter, even wind energy plants. We can have [an] impact on protected areas or natural habitat due to land conversion, displacement of formal and informal land users, water wastage during operation and maintenance activities. Even the supply chain network if you see for such companies is also widespread. There is also a keenness to commission the plant at the earliest to kickstart the revenue generation and garner government subsidies. So this brings the possibility of companies to get close to the regulators and even government officials, directly or indirectly, which in turn leads to a lot of governance risk, such as corruption, bribery, fraud, illegal price-fixing at times or money laundering. So a thorough assessment of such risk is therefore critical to both. We have realized that our decisions must not only focus on what and how much we do but also on how we do.

STEVE HENDERSHOT

It’s a good reminder that there can be a tendency to sort of ascribe ethics and virtue to a company with a virtuous mission, but it’s possible to go astray without the right governance, right?

ABHAY BHAVSAR

Absolutely. So, all decisions therefore, whether related to acquisition of land, the construction of [a] plant, hiring, developing supply chain, managing the waste, they all need to be equally guided by ESG considerations. We have aligned our ESG vision to our corporate mission and strategy, that is to develop our business in an ethical way with minimum impact on environment and society at large.

MUSICAL TRANSITION
STEVE HENDERSHOT

The organizations that thrive now and in the future will be those that are committed to setting clear expectations for delivering projects that have positive social impact. The leaders and teams turning those ESG ambitions into genuine capabilities and strengths are not only bringing value to their organizations, but to their communities as well.

NARRATOR

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