ESG and sustainability are the inescapable reality for corporates today. And many have solemnly embraced it, especially since the pandemic outbreak, driven by heightened awareness of mental health, climate actions, and employee wellness, among issues that had long remained on the back burner. While the realignment of corporate strategies with ESG and sustainability provisions is a welcome development, they are not without certain apparent limitations: Supply chains. 

In sectors with long value chains — such as real estate and retail — the footprint of big companies often does not factor in upstream and low-tier service providers and vendors. It is not uncommon to see a glaring lack of scope-1 and scope-2 emissions in sustainability reports, with only scope-1 (direct footprint) accounted for. As a result, regulators seldom know a company’s “real” footprint. In real estate, such blindspots are a cause of concern because the sector is carbon-intensive, accounting for about 30% of total global final energy consumption and 27% of emissions⁽¹⁾.

The carbon devil is in the supply-chain details

Harvard Business Review (HBR)⁽²⁾, attempting to demystify the hindrances to supply-chain sustainability, found the inaction from MNCs as a primary causal factor. Seemingly, some companies’ lack of concern has incapacitated their suppliers from pursuing sustainability and ESG. HBR also found a few MNCs desensitized to the plight of service providers. One such supplier, addressing the heavy overtime work, said: “We don’t want to tell the client that we can’t produce its products on time because, otherwise, it’s going to try to find someone else that can. But our client doesn’t give us enough notice to hire enough skilled people for the job.”

At the same time, big companies aren’t provisioning for service providers’ sustainability in their budgets. If considered, service providers would be better equipped to undertake in-house ESG, sustainability, and employee wellness initiatives — which, in turn, would reflect well on big companies’ supply-chain sustainability. The Economist Intelligence Unit, in its report ‘Sustainability: The Missing Link’⁽³⁾, shed light on factors holding back companies from achieving impact across the value chain. Among the companies surveyed, the majority (38%) outlined increased costs as the reason behind their inaction. But companies are oblivious to the fact that increased costs also impact service providers. In the real estate sector, that double standard is experienced by facilities management (FM). 

FM: Soaring costs; stagnant revenues

The FM industry, due to its occupational range from janitorial services to highly technical HVAC operations, can reflect the state of labour markets. Following the pandemic outbreak, the industry has witnessed a surge in demand for workers because of their delayed rejoining. The demand has translated to competitive hiring and a related increase in labour costs. At the same time, the proficiency required for hard services (HVAC, plumbing, etc.) has increased, necessitating appropriate training and upskilling. So, recruiting for such roles is anything but easy.

Yet, the recruitment costs for hard services do not compare to that of soft services (cleaning, janitorial, etc.), where wages have risen significantly following the pandemic. As a result, employee retention has become hard to achieve. This scenario called for more employee wellness/experience initiatives, which FM service providers are financially not equipped to undertake and sustain. CBRE underlined such issues in its FM Cost Trends report⁽⁴⁾, revealing that the industry will continue to face challenges in 2023, given the pace of inflation. While material costs could come down with supply-chain recovery, the protracted labour shortage and skyrocketing energy prices may offset the savings.

The timely emergence of IoT, AI, and automation solutions does promise more savings through streamlined, resource-efficient operations. However, if companies don’t ascribe “value” to the implementation of such solutions, then FM service providers cannot justifiably increase the budget. With compromising on service standards not an option, facility managers have no choice but to hold back on in-house ESG and sustainability initiatives. That scenario places the onus on big companies. 

Supply-chain sustainability pays dividends in the long-term

In the same Economist survey, a third of respondents said that cost savings are the top incentive to implement supply-chain sustainability. That opinion, Economist says, stems from differing viewpoints, namely short-term and long-term. While supply-chain sustainability does entail added costs in the short term, it pays great dividends for companies in the long haul. That notion particularly carries weight in the FM industry, where long-term working relationships have been linked to more value creation. 

Big companies must embrace long-term sustainability goals with economic considerations, ensuring the impact cascades throughout the supply chain. Service providers, for their part, are willing to integrate into companies’ sustainability pursuits, provided the latter is sensitized to their financial constraints and operational roadblocks. A chain is only as strong as its weakest link, and both big companies and their service providers are well aware of it. But the buck must first stop at the big companies. 

References:

1. https://www.iea.org/topics/buildings
2. https://hbr.org/2020/03/a-more-sustainable-supply-chain
3. https://impact.economist.com/perspectives/sites/default/files/llamasoft_report_-_report_digital_2_2_0.pdf
4. https://www.cbre.com/insights/reports/2022-fm-cost-trends-report

This article was authored by Sangeetha B, CEO of Amantra Facilities Management as part of the 'Expert Talk' series. In a career spanning nearly 25 years, she has left her mark on industries such as banking and real estate while working for companies such as Al Fajer FM, FixPro FM, and Bright Minds. Built Environment's ‘Expert Talk’ series carries knowledge pieces every week by industry professionals who give their take on the key trends, observations, issues, and challenges in the built environment. The opinions in these articles are the author's own and do not reflect that of the publication. This is a standard disclaimer.