Sustainability: Aligning ESG and Asset Management
THE IMPORTANCE OF COMMUNICATION AND STRATEGIC PLANNING
A Tug-of-War Environment
Have you ever felt like a game of "tug-of-war" is being played between your Operation and Maintenance teams? It’s not your imagination, as these two groups must often compete for time with the same asset.
Consider that an operator wants to run a machine to obtain production goals and meet desired profitability; while a maintenance engineer or technician wants to perform needed preventative or corrective work to ensure or re-establish the equipment's designed state. Both actions are valid and required for an organization to be efficient, profitable, and sustainable. However, they both require time for the precision of execution.
This situation is further magnified as leaders and managers align team and personal goals around competing performance metrics. Many of these metrics, when viewed through a singular lens, make total sense. But, when viewed more broadly against other team or individual goals, conflicts can be identified and often arise. A closer look reveals a lack of alignment and communication, causing unnecessary frustration and challenges among workers, who are pulling for shared success.
Consider the corporate strategy of Environmental, Social, and Governance (ESG) that many organizations are discussing today.
Aligning to Corporate ESG Goals
The environmental component of ESG is about focusing on the preservation of our natural world by looking at things like climate change, reduction of carbon emissions, water/air pollution, water scarcity, and deforestation. Although ESG policies may be in place at the corporate level, only 30% of the Fortune Global 500 have a clear goal and a documented plan that is all renewable, carbon-neutral, or science-based.1
There are certainly some companies that are leading the way in this area—for example, Microsoft's commitment to wipe out historic emissions was the first retroactive neutrality goal. Microsoft set one of the most aggressive climate goals to become carbon negative by 2030, and by 2050 removing all carbon it had emitted since it was founded.2 This requires far more than simply making a statement; it requires a detailed plan linking the day-to-day actions of every employee and third-party supplier to accomplish. No company will achieve such lofty goals without enterprise-wide alignment and communication.
Going back to the game of tug-a-war, do you think either the operator or the maintenance personnel understand how their actions are tied to the company's ESG policy and goals? I can tell you from firsthand experience, that many of them are not aware of ESG initiatives in general and more specifically how this filters down to asset management. Not only are their personal and team goals for managing assets misaligned (discussed above), but their daily activities are also not aligned with one of the most important corporate strategies—sustainability.
Research indicates that most public companies publish ESG reports and other material featuring statistics on how concerned and conscious they are of their environmental impact. Financial reporting standards, such as SASB and TCFD, allow ESG data to be scrutinized with the same rigor as a company's financials.
Imagine as a CFO, you will need to know and understand live operational measurements to provide accurate reporting of ESG data. That means, the finance department is being asked to account for emissions at the level of the individual asset, e.g., the greenhouse gas contribution of a compressor, heat exchanger, or another energy-intensive asset over the last six months.
We know that our asset management practices, and how we run and maintain our assets, contribute directly to answering these questions. If the equipment is failing frequently, across the organization, or in a singular plant, the carbon footprint is larger to accommodate those failures.
MRO warehouses and onsite stores must be stocked with more replacement materials and consumables, (i.e., lubrication, oil, motors, belts, bearings, etc.). But it doesn't stop there; we must procure those parts and consumables, which require delivery of some sort. Not to mention, those failed parts require disposal. None of this is reflected in reporting and rarely gets the deserved attention or corrective measures…another disconnect.
However, this is changing. The digital transformation movement is bringing together a vast array of data at the floor level (operational process data, maintenance work history, connected condition-based sensors, MRO consumption, and usage data, etc.) to enable individuals within companies to operate in a more efficient and effective manner. This is our opportunity within maintenance to link our efforts to the organization's ESG and net-zero commitments.
I’ve worked with companies over the past few years on such endeavors and found that these companies have moved beyond “pilots” and “proof of concepts” and are realizing significant improvements not only in asset management but in driving a more involved and connected culture. These companies are breaking down old silos and embarking on meaningful solutions to increase operational availability.
As an example, reliability teams are no longer simply reporting identified defects using traditional predictive maintenance (PdM) technologies. Today’s reliability team is utilizing algorithms that incorporate numerous operational parameters with online traditional PdM technologies to monitor and identify interesting variances that lead to investigative discussions with operators long before equipment degrades, or a defect is induced. These proactive conversations are preventing failures and helping companies lower their overall consumption of materials.
Social Implications
Over the past 12 to 18 months, we have experienced a global event that has quite literally changed the way every single company does business. No one could have predicted or seen the number of ripples that an event, such as COVID-19, would have on individuals and companies alike. There has been a significant increase of conversation around ESG over the past two years. Regulatory pressures are one factor driving ESG efforts but there is more. The events of the past year and a half, from the global health crisis to heightened social unrest. All these issues and concerns have awakened companies to the fact that commitment to ESG matters more than it ever has in the past.
Much attention has been brought to the fact that many people are using these recent events as an opportunity to explore different personal and career paths. We are seeing a major shift in what people value when it comes to their profession. No longer is the majority simply focused on their personal and company success.
Employees are now concerned more about how the company they choose to work for contributes to society. They want to understand and be involved with the social impacts their companies promote and support. Most importantly, people want to work for companies that support more than simply profits. Let me share a specific example of a company that is starting to do excellent work when it comes to linking day-to-day activities to the social element of ESG.
It has been well documented that improving maintenance planning and scheduling can yield huge efficiency improvements while avoiding unnecessary production downtime and excessive costs. In conjunction with these benefits, properly planning and scheduling all work drives organizational discipline that leads to a proactive maintenance and production culture shift. When aligned with ESG principals and goals, this shift is generally accelerated from similar efforts and quite difficult to slow.
Far too often, individuals get really focused on individual tasks and responsibilities. Falling into a trap of simply “getting stuff done”. When we do that as individuals, our actions and behaviors may not contribute to improving the overall health of our organization, the people we work with, the community, or the environment. In essence, our behaviors are only linked to immediate responsibilities. This is likely the reason there are some folks who simply don’t understand the environmental impact of poor and inadequate maintenance practices.
Management teams of the company mentioned above came together and aligned their operational strategies with ESG goals. They solicited input from their employees to identify several community and social programs which they wanted to support. Next, the teams identified direct implications their individual work had on the proactive culture being driven. Metrics were aligned across all departments identifying interdependencies.
Now, on a weekly basis, when efficiency goals meet or exceed targets, team members are given credits that are used monthly for hours during their normal business day to devote towards the community and social programs previously identified.
Given this company was implementing improvements with their maintenance planning and scheduling, they were able to capture a 21% efficiency improvement in the overall maintenance effort. This improvement aligned with over 16 hours a week the maintenance department was able to “give back” to the programs of their choice. Meaning, that in a particular month, two team members worked within their communities on Friday rather than in the plant. Efforts such as these make a significant statement that a company promotes and supports more than simply profits.
Each of us plays an integral part in creating and fostering the culture within our sphere of influence. I’ve often promoted, encouraged, and assisted teams within organizations to start each day by ensuring their actions are aligned with the core mission of the business. If a company has done a good job defining its ESG policies and has also moved forward with a well-developed plan on how they are going to accomplish these goals, it will directly articulate its commitment to not only being a financially successful company but being one that leads from a global responsibility perspective.
As a leader within an organization, it is critical to first and foremost foster a culture that helps its employees understand the “why”. Why are they in business and what would be missed if they were not in business tomorrow?
Make no mistake, this work can be rigorous and difficult but with a focus on the governance around the framework and the relentless focus on execution, we’ve seen that this is doable and the prize at the end is transformational. Not only from a profit perspective but from numerous environmental and social aspects. Knowing that what you do each day at work is helping an organization improve and impact our culture and society while leaving the world in a better place for future generations.
Conclusion
For these reasons and more, corporate responsibility concerning ESG is increasingly viewed as necessary and of strategic importance. Relatively few businesses have yet to make clear, detailed plans for how they will achieve what is stated in their ESG policies. It is now time for leaders to shift their focus to a results-oriented approach, as investors, regulators, and society expect them to do so.
A structured ESG program is recommended, one that is linked to the communities you operate within, the health and wellbeing of your employees who help operate and execute your business, and driven by accountability to start “walking the talk.” This mindset will ultimately bring the most value and highest return on your efforts to achieve true sustainability.
Allied Reliability can assist with the alignment of ESG and asset management programs. Register for our free one-day executive workshop, “ESG and Asset Management: Designing the Journey” to help successfully meet your sustainability goals.
About the Author
In his current role with Allied Reliability, Chris is responsible for building successful relationships and engagements between Allied and its clients. He supports client teams’ execution strategies and is instrumental in helping Allied’s teams deliver world-class service and value. Chris focuses on business improvement elements that yield a measurable return on investment through sustainable change.
Chris has over 24 years of experience in the industry with a focus on engineering, reliability, design, maintainability, and energy management. Prior to joining Allied, Chris worked for a large electrical and mechanical contractor. Additionally, Chris has experience in a wide range of industries, including oil & gas, primary metals, mining, food & beverage, power generation, automotive, and pharmaceutical.
Chris graduated from the University of Louisville with a Bachelor of Science in electrical engineering and has been an IEEE member for 23 years. He is a Certified Energy Manager (CEM) through the Association of Energy Engineers and a Certified Maintenance and Reliability Professional (CMRP) through the Society for Maintenance and Reliability Professionals (SMRP). He is the co-author of the book Clean, Green, & Reliable – How equipment reliability delivers low-cost, energy-efficient assets to plants around the world. He has taught numerous seminars and written multiple articles to help educate engineers and maintenance personnel worldwide on maintenance and reliability and energy management best practices.
Connect with Chris on LinkedIn.
References
- “Response Required: How the Fortune Global 500 Is Delivering Climate Action and the Urgent Need for More of It,” Natural Capital Partners, October 6, 2020, https://www.naturalcapitalpartners.com/insights/response-required.
- Brad Smith, “Microsoft Will Be Carbon Negative by 2030,” The Official Microsoft Blog (blog), January 16, 2020, https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030.
ABOUT ALLIED RELIABILITY
Allied Reliability provides asset management consulting and predictive maintenance solutions across the lifecycle of your production assets to deliver required throughput at lowest operating cost while managing asset risk. We do this by partnering with our clients, applying our proven asset management methodology, and leveraging decades of practitioner experience across more verticals than any other provider. Our asset management solutions include Consulting & Training, Condition-based Maintenance, Industrial Staffing, Electrical Services, and Machine Reliability.
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