- Manufacturing and architecture, engineering, and construction leaders need to be front and center in the global effort to create a more sustainable future.
- The green bond market hit $600 billion in 2020 and is rapidly growing.
- As digital transformation accelerates, companies can leverage technology to design and build more sustainably.
People have an inherent bias to focus on negativity and crises—an evolutionary trait that historically improved human chances of survival. So what is the state of the world today? An ongoing global pandemic. Wildfires, hurricanes, floods, drought—a worsening outlook for the global climate. A widening socioeconomic rift with 1% of the population amassing half of the world’s wealth. This sounds like a dystopian novel, but it’s the state of the world in 2021.
Or is it? If humans try to negate those evolutionary biases, a different picture begins emerging: World leaders meeting to fulfill climate pledges. Wage increases for the lowest-paid workers in America. The rise of ESG (environmental, social, and governance) and impact investing. An explosion in low-carbon innovation. When people objectively look at the state of the world, there is a concerted effort to collectively address societal challenges.
Business leaders are recognizing the need to take action, as well, expanding their view of corporate responsibilities, leveraging technology and sustainable financing strategies to change course. And they are making decisions that will benefit their bottom lines at the same time as helping to create a better future.
This is, in part, bolstered by a secular shift in expectations from the private sector. Leaders are facing a growing public demand to do right by people and the planet. Consumers force change with their power of the purse. Employees choose jobs with organizations that prioritize diversity and are conscious of their environmental impact. Investors are also favoring sustainably minded companies. There’s a push for the corporate world to have greater accountability and awareness, and companies are beginning to rise to this challenge.
To take meaningful climate action, the architecture, engineering, and construction (AEC) and manufacturing industries are a great place to start. Here’s why:
- Construction accounts for 13% of the global GDP and uses more than half (PDF, p. 7) of all global extracted raw materials.
- The built environment is associated with 40% of total greenhouse gas emissions (GHG) across the planet.
- Industrial energy use contributes to 2% of GHG emissions, and manufacturing is responsible for 1.3 billion metric tons of carbon dioxide in the United States alone.
The long road to recovery from the COVID-19 pandemic has accelerated digital transformation while also giving companies pause. The takeaway? Things can’t go back to the way they were. This is a perfect opportunity for AEC and manufacturing companies to embrace this digital transformation and leverage digital tools to yield more sustainable outcomes for a more equitable world. To make a real impact, companies have to do more than simply do less bad—they have got to do more good. This will take a collective effort driven by people and powered by technology, and these industries are—objectively speaking—starting to see this take shape.
Expanding Beyond Profits—to Purpose
The definition of sustainability has expanded to include issues around people because, ultimately, it’s about ensuring that people thrive on a habitable planet. Issues around inequality and inclusion are clearly a part of that equation. Companies are now evaluating how they can make an impact alongside shareholder returns—and an ESG framework is the perfect place to start. Under the ESG umbrella are a set of nonfinancial motivators—such as energy, emissions, waste, workforce safety, wellbeing, diversity, customers, community, leadership, and compliance—that companies take into consideration when developing business strategies.
A strong ESG proposition establishes a set of guiding principles for a company; it also minimizes risk and creates value. There’s been a dramatic rise in investors seeking to associate their funds with ESG compliance. According to McKinsey, sustainable investments have already topped $30 trillion, nearly a third of global asset management. Companies that don’t ask ESG investors what they need to invest in a business risk being left behind.
Considering world impact creates a stakeholder economy, a significant evolution of the current shareholder model. In a stakeholder economy, companies widen their circle of responsibility, investing in and empowering workers and communities rather than just lining the pockets of shareholders. It shifts an organization from being profit-focused to being purpose-driven. But that doesn’t mean sacrificing revenues. With the growing demand for corporate social responsibility, becoming a stakeholder company is now a competitive advantage. In fact, ESG funds are beginning to outperform the market.
A Better World via Sustainable Financing
To lay out their path to a purpose-driven future, many companies are developing sustainable financing frameworks. These investment playbooks establish an impact strategy for a company. To raise capital for projects within the framework, companies often issue green, social, and sustainability (GSS) bonds to fund projects aimed at human and environmental causes. In 2020, the green bond market hit $600 billion (PDF, p. 3), a 53% growth in a single year, and it’s on track to continue growing by leaps and bounds.
Green bonds are issued by governments, organizations, and private companies to incentivize sustainable outcomes. Companies can earmark these funds for construction projects, investing in new and existing building projects to mitigate risks associated with climate change. It’s creative financing for the global good, but it also benefits the business. As with ESG funds, green bonds often increase company valuation, according to the Harvard Business Review.
One of the biggest sustainability bonds in 2020 came from Schneider Electric (PDF, p. 2), a multinational company that provides energy-management solutions. Its sustainability financing framework is a great demonstration of a company taking climate action to the next level. The company focused its environmental efforts on reducing its own operational footprint, and its €650 million ($754 million; PDF, p. 1) of green bonds are creating an entire sustainable value chain. Schneider Electric committed to helping its suppliers adopt better processes and practices to achieve net zero by 2050 and provide solutions that “deliver 800 megatons saved and avoided CO2 emissions to our customers.” This perfectly exemplifies the marriage of technology to sustainable finance.
Every company needs to raise capital at some point, whether it’s from investors, shareholders, banks, or by issuing debt. Sustainability bonds typically come with a discounted interest rate, potentially saving issuers millions of dollars annually. With the dramatic rise in GSS bonds, if a construction or manufacturing company wants to align its business practices with more sustainable goals—like less waste, greater energy efficiency, or better materials selection—the opportunity to leverage these bonds is right there.
The Digitalization–Climate Action Connection
As this global shift toward sustainability gains momentum, digital transformation is accelerating across AEC and manufacturing. It’s a happy coincidence. While companies are adopting new technologies to become more efficient, reduce waste, and save money, this also puts them in a good position to reduce their environmental impact.
When AEC companies embrace digitalization and manufacturers incorporate Industry 4.0 tools and practices, they’re on track to deliver projects that are better for the world. Digital tools enable sustainable outcomes in many ways. For example:
- When project data is connected on a cloud-based platform, it creates a single source of truth. This leads to silo-free workflows and smoother collaboration, which reduces the 52% of wasteful rework that comes from poor data management and miscommunication.
- Digital project oversight enables just-in-time inventory management—companies order what they need when they need it. This can reduce the 30% of construction materials that end up in landfills.
- Automation creates actionable insights through data, enabling designers to make more informed choices throughout a project lifecycle.
- Powered by artificial intelligence (AI) and machine learning, generative design allows architects and engineers to explore various design options (like material choices based on embodied carbon) for more sustainable results.
There are a host of other examples where digital tools enable more sustainable outcomes. AI, connected data, automation, and the cloud are just a few of the solutions that are laying the groundwork for AEC to design, construct, and operate buildings in ways that will leave a lighter footprint on the planet. Manufacturers can optimize materials to improve the sustainability of their products. The more these industries adopt digital technologies, the more sustainable outcomes become possible.
Expanding corporate responsibilities to all stakeholders, reducing the cost of financing sustainability investments, and leveraging digital tools to enable sustainable outcomes couldn’t come at a better time: The global population is projected to reach 10 billion by 2050, sharply increasing the need for sustainably made places and products.
As it turns out, doing good for people and the planet is good business, too.