Sustainability Pathways: From Assessment to Strategic Response

By Marianne.Fernagut@erm.com

Sustainability & Business Strategy

Whether a company is building a new power plant or planning a new facility,

it has to complete a number of legal procedures to gain planning permission:

the developer must show how their project meets the environmental

objectives of regulators. However, to an increasing extent, developers must

now also demonstrate that their projects comply not only with the

environmental and socioeconomic objectives of regulators, but also with the

broader requirements of stakeholders, being it the general interested public,

government, or pressure groups.. It is also strategically important for

companies to anticipate and integrate sustainability requirements early in the

project’s life cycle – if possible, at the design stage. This applies particularly

for capital-intensive projects in which delays of first production and budget

overruns can pose significant financial risks. . As much as 80% of the

exploration and production projects of a major Oil and Gas company are

delayed by non–technical factors. How can they control and reduce this?

Figure 1 Despite good corporate intent sustainability execution lags on many projects

Sustainability Assessment

In response to this need, ERMhas developed what we term the Sustainability

Assessment or SA, a methodology we have refined in cooperation with

companies to help them meet stakeholder expectations and ensure that

projects successfully progress through the planning or permissions process.

Our approach is designed to demonstrate how a company meets such

expectations both through what it is proposing and how it will seek to deliver

what it proposes. It is clear that good governance has now become a

requirement in project development, and companies must identify how they

respond to public expectations or comply with policies.

Unlike traditional environmental impact assessments (EIAs) or social-impact

assessments including environmental, health and safety impact assessments

(EHSIAs), the SA is not a legal requirement. Increasingly, however, clients are

looking at carrying out SAs before or in addition to meeting the legal

requirements of EIAs or EISHAs for project development. This does not result

in another level of bureaucracy; it can instead actually speed up the

permissions process, heading off problematic issues at the pass and removing

major obstacles to planning approval. Moreover, because an SA also involves

considering the developer’s own internal governance processes, it can also be

used to assess business strategies themselves, even when no specific project is

being developed.

Figure 2 Progressive companies build portfolios on a more informed view of risk

In one example, a power company planned to develop a coal-fired power

plant in Europe. Even though an SA was not required by law, the company

wanted to apply best practice and complete an SA focusing on the project’s

expected contribution to sustainability objectives. The main challenges were to

assess the benefits that the plant would provide at both a regional and a local

level and to identify mechanisms to deliver benefits at both of these levels.

This topic is of particular importance to local stakeholders such as nearby

communities and both small and medium-sized enterprises. Specific measures

were proposed to engage local suppliers in the construction phase and

increase the contribution to the local economy.

The advantage of the SA process, whether it is used for a power plant or a

business strategy, is its potential to save time and money by reducing the risk

of costly delays further down the line. Clients who have used the SA also

point to the resulting project-management benefits, enhanced decision-making

process and increased confidence in the project-development cycle or business

strategy.

What does an SA involve?

First and foremost, it involves explaining the sustainability context of a

proposed development via a rigorous diagnostic and assessment process.

How does the project correspond with local, regional and national public

policy, and what policy ‘hooks’ position it?

Secondly, how does the project meet local needs and concerns in terms of its

core objectives, and are there wider spinoff benefits such as job creation and

socioeconomic development?

Thirdly, as mentioned above, an SA also involves looking at the developer’s

own internal governance processes. Are these reflected in the project, and do

they help define how the developer will approach various aspects of the

project? Does the developer have a track record in projects of this kind, and

has good governance played a part in determining its success?

Figure 3 Steps in a sustainability assessment

Another crucial part of the SA is stakeholder consultation and engagement. To

understand the concerns of environmental NGOs, labour unions, chambers of

commerce, trade associations, government agencies and neighbourhood

committees groups, companies must consult them. This also ensures that these

stakeholders can help identify enhancement and mitigation measures which

would not otherwise have been considered. Of course, this does not

necessarily mean that a company can meet all stakeholder expectations: a

balance between social, economic and environmental objectives must be

found. It should also be noted that stakeholders are not only external. Internal

stakeholders such as executive management and shareholders must also be

taken into account. An SA can be used to support the business case for a more

sustainable project option than the one initially considered most favourable.

As for timing, it is better to carry out an SA early in the development cycle,

but this is not essential. No matter when it is undertaken, an SA is used to

present the project’s overall sustainability in line with external expectations,

demonstrating why it is a viable proposal for consent. In an SA, the developer

also seeks to identify mitigation or enhancement measures. The earlier this

takes place, the greater the range of options for these measures.

While sustainability assessments are not legally required, it is best practice to

manage business risks at an early stage in the project design and to utilize

sustainable projects and strategies.