Environment, Social, and Governance (ESG)

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Asset Management Enabling Environment, Social, and Governance Principles

There is a growing desire in many organizations to practice environment, social, and governance (ESG) principles in everyday business operations.

The challenge is to overcome complexities associated with operationalizing ESG so that the purpose and intent are embraced throughout the organization and sustainable in day-to-day tasks. This is where Allied Reliability has exceeded for years: effective change management to ensure new maintenance and reliability approaches are understood and adopted.

Applying asset management competencies to achieve ESG goals is not complex; however, assessing present state, designing roadmaps, and deploying these competencies can be challenging. To help, we’ve mapped the connection between asset management performance and ESG objectives. Taken together with our proven asset performance methodology, we can help ensure successful achievement of your ESG goals.

ESG and Asset Management: Designing the Journey

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Achieving specific ESG objectives requires multiple asset management (AM) competencies. Fortunately, many ESG objectives are enabled by common AM competencies, as indicated in the above graphic. Doing due diligence (designing an ESG plan and measuring/achieving compliance) is of utmost importance, as it will result in operational effectiveness, reliability, and profitability. ESG and AM are intrinsically related and, along with traditional success measures, can be a win-win proposition.

ESG and AM Alignment: Environmental Elements

Some key environment outcomes related to ESG are detailed below. They include:

  • Reduced energy consumption
  • Waste reduction
  • Pollution reduction
  • Optimum resource utilization

Operational and business activities that drive environmental outcomes.

It is natural to associate environmental performance with good operating and maintenance practices. But the essence of ESG is about enhancing environmental performance and being more responsible operationally every day. It is also about improving the ability to foresee environmental and social risks in the medium and long term and applying these concerns to a risk-based, decision-making approach. An approach that inherently includes environmental and social concerns, goals, and objectives alongside (and with appropriate ranking) other strategic goals and objectives (safety, profitability, quality, and so forth).

In this context, the question becomes: How does the organization mature to better represent ESG values? The short answer is that asset management discipline provides the key ingredients including Criticality Assessment, Maintenance Strategy, Condition-Based Maintenance (CBM), Risk-Based Decision Making, and much more. To learn more, download our white paper, Designing ESG within an Asset Management Framework.

ESG and AM Alignment: Social Elements

Social responsibility is a key characteristic of ESG-compliant organizations. While some important activities are related to corporate engagement and support for community-based initiatives (to name a few), there are important operationally focused business activities related to these aspects, as shown below.

As in the environmental stream, it is notable that there is an essential AM contribution to enhancing and applying an organization’s commitment to social responsibility.

Certainly, it is necessary to have a deep understanding of how assets (their condition and performance) can impact the wellbeing of employees, the community, and customers. It goes without saying, it must be rigorous and transparent in practice. And, while this makes sense, it is not always simple, yet it is an ESG requirement. Through an AM lens, however, it need not be considered a cost. It can be a value driver.

Here are some high-level examples of what AM principles can provide:

  • Foundation for social goals
  • Criteria for socially responsible decision making
  • Framework for considering future challenges, such as climate change

ESG and AM Alignment: Governance Elements

Governance, like environmental and social streams, has essential activities at the executive and board level. However, to establish an ESG culture throughout an organization, it is necessary that principles and strategic goals are represented, applied, measured, and managed in all operational areas. This is a cornerstone to sustaining ESG goals and objectives.

As detailed below, governance categories related to ESG include:

  • Transparency
  • Reporting
  • Stakeholder engagement
  • Conflict of interest

While the categories of governance are obvious, operationalizing them, in a rigorous way, is not simple and not typically embedded within operational activities. In an ESG world, it is necessary to have the following in place:

  • Clear lines from strategy to action
  • Transparent decision-making methodology, as it relates to sustaining assets
  • Performance management across the organization
  • Infrastructure that supports clear and accurate measurement in support of performance management

These ESG fundamentals are also common AM fundamentals and are necessary competencies for a business to move toward AM maturity.

Fortunately, the purpose of AM development is, typically, to enhance performance, which is the essence of ESG (at least from an environment and social perspective). It can be asserted that ESG development is, in practice, equivalent to maturing an organization’s AM competency. And a business should expect that AM maturation will advance its ESG goals while enhancing its performance and/or bottom line.

Note that every category in the environment and social streams included performance management. This is not by chance. The essence of ESG (and AM) is that business activities are transparent, highly measurable, and provide the means by which management has appropriate oversight to understand status and issues.
Well-executed performance management provides the right intel to the right people in the organization. AM should have a streamlining effect and, importantly, reduce much decision making to processes. Of course, strategic decision-making is the realm of senior management, but AM enables an effective way to have high-quality decision-making throughout the organization’s business activities.

Consider the following examples of governance from an ESG and AM perspective:

  • Measurement of foundational programs (criticality, maintenance strategy)
  • Measures (assets, programs, people)
  • Management oversight
  • Risk-based decision making

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