Incorporating Sustainability Goals Into Project Portfolio Planning

A growing struggle for many companies is determining how to effectively incorporate sustainability goals into the ongoing business of long-range capital planning and into the identification, development, and definition of capital projects.

Common questions include:

• How are standalone sustainability projects identified and justified?
• How are sustainability goals included in stay-in-business and growth projects’ objectives?

At IPA’s biannual Carbon Working Group (CWG) meeting in August 2023, we met with 28 owner companies to discuss approaches to identify and justify standalone sustainability projects and how sustainability goals are included in stay-in-business and growth projects’ objectives. The session aimed to have participants share prevalent practices with a goal to learn from each other.

How Do Companies Incorporate Sustainability Into Their Portfolios?

Ideally, project portfolio creation should drive identification of the most valuable opportunities for the business by connecting the company’s strategy to capital investment, allowing the company to achieve its goals through capital expenditure. A solid portfolio process requires a robust basis for selecting the right opportunities (and deselecting the wrong ones) by identifying potential returns (value) and risks to achieve informed decision making. A good portfolio creation process should allow a company to maximize its returns.

To be effective, the portfolio creation process should promote capital governance by enhancing transparency and accountability for capital investment decisions. Buy-in must be obtained from all internal, legitimate stakeholders to ensure a stable foundation for project planning and execution. Finally, portfolio planning should help the company leverage (often limited) resources to obtain optimal project performance.

For companies that address sustainability on a portfolio level, the starting point is in the portfolio strategic planning structure and the portfolio goals and targets. The following questions should be addressed:

• Is there a clear definition of success for sustainability?
• Where, within the organization, are goals being set?
• Are there corporate, business, operations goals?
• How are sustainability targets brought into decision making?

We asked CWG members how many had a structure to incorporate sustainability from the start of the project portfolio planning process and found that about half had some sort of mechanism—and half did not. Only slightly more than a quarter (27 percent) classified their company’s mechanism as well defined, while another quarter (24 percent) said their organization’s process was less defined. In total, about half were either missing a structure or had no systemic mechanism at all.

Given the challenging sustainability targets most of these companies are working toward, a key takeaway for participating companies is the need to incorporate the sustainability function into the strategic planning structure in a way that specifically addresses capital projects.

Additional Ways to Incorporate Sustainability

BEAM

As an example of a tool for operationalization of sustainability across project development and planning processes, we discussed the additional consideration of sustainability in collaborative decision‑making forums such as Business and Engineering Alignment Meetings (BEAMs) and sought insights into similar practices that CWG member companies are using within their organizations.

BEAM facilitates multi-stakeholder decision making as a foundation for setting cost, schedule, and implementation targets. IPA is seeing sustainability professionals are increasingly joining in BEAM or BEAM equivalents where decisions on priorities and trade-offs are being made. CWG members indicated the existence of similar practices in FEL 1 or early project stages. Companies intend to ensure sustainability is a part of the process, but this is still an evolving space and discussions on sustainability have changed dramatically since last year.

Traditionally, BEAM has been a cost vs. schedule or quality trade-off. IPA initiated a discussion on sustainability as a fourth pillar or metric in this trade-off. Methods to quantify the sustainability metrics and target setting mechanism were discussed in some detail. A few good practices were highlighted:

• Carbon competitiveness workshops as a mandatory step for capital projects
• Projects now have a GHG value driver; it is no longer an extra criterion—it is part of the budget
• Carbon and cost are both strategic considerations for concept development

Carbon Reduction Value Improving Practice

Another tool IPA sees as valuable in achieving better integration of sustainability in the project life cycle is a potential Carbon Reduction Value Improving Practice (VIP). IPA already evaluates the use of other VIPs and sees the Carbon Reduction VIP as an extension. The Carbon Reduction VIP is meant to focus on the reduction of carbon emissions during project construction and asset operations and could be used for Scope 1 (direct) and Scope 2 (indirect) emissions.

Other Practices

Other tools similar to the Carbon Reduction VIP in use in different companies include:

• Matrix of abatement options and regions where they may work well is used as a starting point, and then a project‑specific Carbon Reduction VIP is done during concept development
• Energy VIPs where value per dollar of energy efficiency is an additional step during technology selection

Summary

The session closed with a poll on sustainability integration from FEL 1 to early scoping and integration through a life cycle. The majority of respondents indicated they were partially integrated. This finding likely broadly reflects industry trends. Final notes from members included comments on the challenges in enhancing the buy‑in from project stakeholders including engineers for better integration of sustainability goals. Other comments highlighted greater interest in sustainability among the younger population.

Contact us through the web form below to express interest in joining IPA’s ongoing sustainability study to be presented at Industry Benchmarking Consortium (IBC) 2024, or for more information on establishing effective mechanisms for portfolio creation and management.