Speaker 1 (00:08.962)
Good morning and welcome to the Management and Reconstruction Podcast. I'm Dee Davis.
And I'm Brad Wyant, and today we are talking about sustainability by the numbers. So really what we're talking about is sustainability accounting. It's a new way companies are quantifying their impact or footprint as a result of their business activities, and it's becoming a mandatory part of requirements for publicly owned companies. The question we're going to try to answer today is whether it's worth the extra effort and time.
So before we get into the details and the research we've done on the subject, Dee, why don't you tell us a little bit about your experience with ESG accounting or accounting in general.
I will, but before we get started, I just want to point out for anybody who's not watching this on video, please do check us out on video because we have new management under construction backgrounds for our video. I'm very happy about it. Thanks to my assistant, Connie, who put this together for us and they'll make it look a little bit more fun and interesting for our viewers. My interface with ESG accounting or accounting in general, I took lots of accounting through
Middle school, high school, college, I took all kinds of business accounting classes. With ESG accounting, I get to interface with that sometimes with my clients. Some of my really big pharmaceutical clients in particular are very committed to sustainability. They do operations around the globe and looking at their carbon footprint and looking at how much water, how much energy, all the different things that they use and their supply chains is very important to them.
Speaker 1 (01:48.054)
It's a big part of their business and how they report their environmental responsibility.
How about you, Brad?
Very cool, Dee. I haven't had as much experience with reporting financial data to clients, but I've had some. And I can certainly say that going out and getting this financial data, even the ESG data, is extremely costly. You're spending time on it. You've got to make sure the data you're getting is good. You've got to throw out bad numbers. You've got to figure out what a bad number is. So it's boring and costly, but it's extremely important for anybody to be able to make a good decision.
When it comes to cost data on the job site, we want to understand what our production was and how far we were off of our estimates so that we can understand how to make good estimates in the future. Where we write, we have to have those kinds of answers so that we can do a good job at staying profitable. When it comes to ESG, we're seeing the impacts of huge weather changes. We're seeing the impacts of all the sustainability factors across the globe that
are preventing people from being able to do the things they want to do, both in business and in pleasure. I don't know about any of the people listening to this podcast. I love skiing and the skiing seasons are getting shorter and shorter because there's less snow falling every year in the Rockies because of climate change. And without going into the science of that, if we're going to admit that some part of that is due to things we're doing, emissions that we can control, understanding what's costing us more money than it needs to, or
Speaker 2 (03:24.544)
having a greater impact on the environment than it should helps us make these kinds of decisions. It's tough to go out and get this data, but it's important. So let's talk about what we have now real brief.
Let's define ESG for our listeners because not everybody listening may understand what that means.
ESG is an acronym that stands for environmental, social, and governance. The environmental component of that is anything from the use of water in your business to the consumption of energy, whether that be natural gas or fuel or electricity, pollution and other emissions as a result of the consumption of that energy and waste streams, what you throw away, how much you throw away and where that stuff goes. Social pertains to how the company impacts society.
So examples of that are quantifiable include CEO and gender pay ratios, employee turnover, gender diversity, the ratio of temporary workers to permanent employees. So that gets into the culture of the organization, the society that's created by the people that work in that company. Non-discrimination, which is a big part of social justice. Injury rate, non-partnership with child or forced labor suppliers. So who your company chooses to buy from and are they good for the world? And human rights.
Lastly, those ESG governance means corporate governance. How is the company set up? What are the rules the company abides by to go about its business? So that might include the diversity requirements for the board of directors, whether the board is independent or not, whether they have other outside things influencing them and their decisions. Incentivized pay. Are you requiring your CEO to hit certain milestones to get a bigger bonus or are you
Speaker 2 (05:09.91)
incentivize that person another way or other people on the corporate leadership team, organizational structure and reporting. How do you tell your people what to do and how do they report up to you? Some systems are better than others. Some systems create better transparency than others and accountability. Who takes accountability for what goes on in the company? Where is that assigned? So that's what ESG stands for and that's what we're talking about. Those three main.
subjects when we're talking about ESG accounting. But before we talk about ESG accounting, let's talk a little bit about what we have now, the regular financial accounting that we work with as public companies and as private companies. The Securities and Exchange Commission, SEC, requires public companies to report their financial data according to strict but universal standards so that investors can make informed decisions. That's why they're public companies.
public company is a company that's traded publicly and for everything to be fair for you and I and our 401ks and anybody making investing decisions, the data that we use to evaluate those companies has to be reported in a fair way, in a way that's equal for all those companies so that there isn't one company abiding by one set of rules when they report their finances and another company abiding by another set of rules. So what some are proposing now is to implement similar standards to that SEC
FASB, Financial Accounting Standards Board set of rules for ESG claims. For the last 10 years, public companies have been making claims about what they do for the environment in a vacuum without a strict set of rules governing how they collect their data, how they report this information to the public. And concerns are coming up that maybe there isn't enough data rigor associated with what's going on there, that these companies might just be
making up their standards and living by them without anybody to check them. So if you were trying to compare between Chevron and BP to see which company is more environmentally responsible, for instance, the rules that they are using to report their environmental data may not be the same without these kinds of standards. That's what the whole push is about here.
Speaker 1 (07:28.704)
It could result in what really amounts to greenwashing. Yeah, could sounds really good, but in reality not be there because it's a little fuzzy as to how they're accounting for all that. ESG reporting goes all the way back into your supply chain. So to some extent you're relying on other people. And if everybody's using a different method, you're junk in junk out. You're not really getting good data. If
Exactly.
Speaker 1 (07:57.366)
You've got everybody doing their own thing.
Exactly, you gotta have something you can compare Apple Staples. You gotta have fair rules that everybody plays by. Let's do a deep dive on the emissions that companies produce and how they're classified and what the rules around that are now. What we have now are three different scopes of emissions. What are commonly referred to as scope one, two and three emissions. probably heard of these if you've been listening to any of the.
financial news or reading anything about what's going on in law strip these days when companies talk about their sustainability goals. So Scope 1 covers emissions from sources that an organization owns or controls directly. For example, if you're a construction company and you own a bunch of cat dozers, the emissions from the diesel fuel in those vehicles is going to be part of your Scope 1 impact. And you're going to count how many gallons of diesel fuel you burned over the year.
in what kind of an engine and you're going to estimate your emissions as a result of that. Scope two emissions are emissions that a company causes indirectly and come from where the energy it purchases and uses is produced. So if you're that same construction company, you've got your jobsite trailer on the site and you're getting power from a local municipality. The power that you're consuming on that jobsite trailer, where that power comes from is the scope two stuff. So
If you're in some township in Colorado, you've got to look at what their grid uses, 30 % coal, 30 % natural gas, and estimate based on the figures they give you or whatever figures that they've already produced for the sake of reporting and assign that to the electricity you're consuming. Lastly, we have scope three, and these are the hardest emissions for any company to deal with.
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Scope 3 encompasses emissions that are not produced by the company itself and are not a result of the direct activities you're conducting, but are indirectly responsible for up and down value chains. So this is the materials that your company buys to put into the job site. The diesel emissions that the truck that drove your lumber to the job site caused. The chainsaws that were running out in the forest to cut down those trees.
would be a scope three emissions.
Scope three is really tough because where do you cut that off? How much was that tree that you just cut down? Was that a farmed tree? How much water went into that? How much gas did you burn driving out to the forest to cut it down? I love the fact that we're thinking that deeply about our impact, but you get to a point where you're like, holy crow, how do you even
think of all the things and how do you quantify all the things and you certainly can't control all the things. You're down to these little tiny companies that might be contributing and how are you gonna gather that kind of information from 100 tiny companies that might be contributing along this chain before this piece of lumber gets to your job site? That's tough.
Absolutely it is. This is sounding to me like a real pain in the butt. I am an atmospheric conist. I'm a huge sustainability guy. I want to save the planet. think that reducing our impact is important, but the burden that we're talking about putting on companies when we talk about making these kinds of measurements, getting this kind of data is enormous. And we're starting with some of the bigger companies. I'm getting ahead of myself, but the reason that people want to do this is to be able to manage, let alone improve what we
Speaker 2 (11:46.902)
are doing and we can't manage things without measuring them. So just having the conversations about starting to measure these kinds of things are going to cause people to take a closer look at what they're doing from a high level at the outset. And I think that's productive because you may realize, yeah, that's really inefficient. We don't need to be doing that. We don't need to be trucking here and there and back and forth. We can cut down our emissions and save money because emissions cost us money. We're doing something.
That kind of thing is going to make more money and less emissions for everybody.
I'm sorry, I just popped into my head a Brian Regan joke about the logs. Do you know that one? So he's talking about when he's going down the road, he sees an empty log truck going this way and a full log truck going that way. There's just logs going every direction. He's like, why can't we, instead of hauling the logs from here and moving them all the way over there, there's already logs over there. Why can't we just use those logs?
But it's funny, I crack up every time I see trucks going opposite directions doing the same thing. I think of that joke because it's the perfect sustainability conundrum, right?
Absolutely, I think. We've all seen on job sites behavior and activity that could be described as wasteful. Perfect example of this. I was on a project where I was working for the self performed Carpenter division. I was working with a foreman to help him implement some very I would say unique and fussy. Exterior siding that was going to be a really tough detail to get right, but that we knew was going to make or break the outside appearance of this project. It was a.
Speaker 2 (13:32.056)
huge part of the architectural impact. And so one foreman comes on the job and decides, all right, I'm going to shake out all my materials around the job site first, and then I'm going to have my guys go to each spot and start working with it from there. And then he gets pulled off the project to go to some other job. And a new foreman comes onto the job. New foreman comes on and says, that's a terrible idea. I don't want all my material strewn out all over the job site. People are going to mess with it. I'm going to move all the material and put it in one spot and have my guys
go from that spot to each part of the job and go that way. And then that guy gets taken off the job and somebody else comes on and it's true, did the material a different way. And I was just like, oh my God, what are we doing? So we're moving stuff. It's a lean principle that you get to where it's, if you have moved something five times before you use it, find a way to not do that. That's a waste. it's, and waste is the evil of all of lean. And it's a profit eroder. Toyota had figured that out for the last almost a hundred years. They know what they're
absolutely. And any listeners, if you haven't read the Toyota Way, I highly recommend it. Even though it's about a car company, it is so relevant to every business. Doesn't matter what you do for a living. It is a completely relevant business book to read called the Toyota Way. And it talks about these efficiency lessons that they've learned over the years and the simple things that they do that reduce all this wasted
energy, effort, and time like you're mentioning.
Yeah, I love that book. That was a huge influence on me when I was younger and it's something I come back to even to this day. So that's why we're trying to have these conversations now to try to get to greater efficiency. You can't manage what isn't measured and you can even improve it, let alone. So. Another part of why we're having this conversation about corporate accountability about ESG accounting is because corporations are starting to have goals around improvement of these metrics and they want to be able to compete.
Speaker 2 (15:34.85)
with their peers for investing dollars. There's a new trend in investing that has a thesis of saying companies that are good for the world that are high on these ESG metrics are going to be better long run investments. Companies that are flash in the pan, big pop on crazy news like Nvidia is one of the companies in 2024 that had a insane run up in value but
It turned out a lot of that value was not sustainable when Deepsea came along.
The thesis that these investors have is that companies that get these metrics right, these ESG metrics right, are thinking for the long term and as a result are going to be better investments. there's also this, it is actually gonna make us a lot more money to have the facts on these difficult to measure figures, thesis out there that people are trying to prove. What's going on now? What is the state of the world as it comes to this ESG accounting and where is it going?
In the United States, we don't have a set of standards we're holding people to yet, but in the EU, where a lot of Fortune 500 companies do business, is a sustainability reporting directive that was introduced in 2024. And it's a mandate that EU sustainability reporting be for any public company. The goal is for them to make corporate sustainability reporting more common, to make it standards based so that there's not a bunch of different
systems out there that there's one system apples to apples comparison. And so that it closely relates to financial accounting and reporting. The goal now in 2025 is they're going for the International Sustainability Standards Board, which will serve as a global format for sustainability and climate reporting that meets the needs of CFOs and investors. This is a little bit more rigorous than the 2024 stuff. And there's great data yet on how much this is costing companies because it's so new.
Speaker 2 (17:38.52)
but we hope that will follow so that we can figure out whether these metrics are having the impact that they're meant to or not. Companies have been advised to start following ISSB, the International Sustainability Standards Board standards and make relevant disclosures in 2025. This is all starting to sound like paint drying. So Dee, over to you for what you think of where these standards might go and what you think of how much this is really gonna cost big and small companies.
I'm all for anything sustainable to a reasonable point. I do think that this is something that we're going to have to take care. I think you can go too far as far as how much bang you're really getting for your buck. How much, how much energy effort time and money are you putting into tracking? My friend Chris loves to say, is the juice worth the squeeze at a certain point? The juice isn't going to be worth the squeeze here. You're going to be tracking teeny little
pieces and parts for very little value. It also makes me think of a job site story that I have. It happened, I don't know, a year or two ago. I have a client, an EU based client, but the project was in the US. They did something that really made me start to get a little bit concerned. And I think it ties back to the reporting. I think it ties back to
setting really aggressive sustainability goals, which is all reporting and aggressive sustainability goals is a good thing, but is it possible to go too far? I'm posing that question and I think I'm going to answer it as a cautionary tale. The story is this. Job site trailers, big site, big job site. We had a whole bunch of job site trailers. So what do we do with job site trailers? We rent them from whatever local company.
You put them together out in the field and they have air conditioning units.
Speaker 1 (19:38.264)
So this particular client, as part of their sustainability goals, had said that we're not going to use certain refrigerants at all in our construction. They went as far as considering the jobsite trailer construction, even though it was temporary. So what they did was they came and they said, hey, what kind of refrigerant is in the air conditioning units in the jobsite trailers? And whatever it was, something that probably wasn't the newest greatest thing, because it's a jobsite trailer.
and they said you can't have that refrigerant on the site.
So they paid a lot of money to have the refrigerant taken out and disposed of. You couldn't just swap it out with a newer AC unit. You had to remove the refrigerant, destroy it, properly dispose of it. And not all refrigerants are compatible. They use different oils. So...
You can't necessarily take one type out and put another type into the same unit. depends. I believe they had to put all new AC units in because the refrigerants were not compatible types. When I step back and I look at that and I say, is that a step too far? I'm going to say yes. There was nothing wrong with those AC units. They had a useful life. They were not leaking.
They were temporary on this site.
Speaker 1 (21:11.138)
Did we really need to do that? Did we actually create waste that didn't need to be created yet? Would it be created eventually? Sure. When those units gave it up, eventually, sure, it would be created. But that could have been years and years down the road. There was years of useful life in this equipment that was now taken out of service prematurely. I'm going to say that's a step too far.
Yeah, I completely agree. It's all about figuring out what the best use of your time and energy is from a financial standpoint, from an environmental standpoint. And luckily, a lot of skills that a financial manager uses to evaluate what projects to take on when improving their business. A lot of those skills transfer to the kind of decision making we're talking about, about whether the juice is worth the squeeze or not. When a financial manager reviews
10 different project options and decides which one is the right one to do. Because all companies have limited resources, but unlimited possible things they could do with those resources. They add up the future cash flows of each of those projects and they discount them in the future and compare to see which has the best internal rate of return. Just in the same way that financial managers do that, managers looking at sustainability initiatives need to do the same thing here.
How much is it going to cost to evacuate all of the refrigerant out of all of those AC units on those trailers? How much is it going to cost to buy new AC units and to fill them with that better refrigerant? And how much impact are we taking out of the environment by doing that? I think you'd find that the leakage rate on those refrigerants is so low and the harm caused by emitting those refrigerants is so low that
It's not worth the squeeze that the amount of money you're spending to have that sustainable impact could be better spent elsewhere doing things like putting in a environmentally friendly car initiative, getting your employees to drive something that gets five or 10 miles per gallon better to work or. Putting electric scissor lifts on the job sites that have natural gas ones. Those kinds of calculations are what we're going to force managers to make when we start doing this kind of reporting. We start.
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talking about managing sustainability the way that these standards might require people to. And I think that as long as we don't set unrealistic standards, as long as we don't get over our skis when it comes to saying we're to reduce emissions to zero in the next 30 days, then we can still use a lot of what these standards are giving us to do good. It's just that.
It's just that it's better to have a standard, have everybody play by that same standard than it is to have a sustainability department of a company be a marketing agency that makes up numbers and reports, whatever they feel like. So, but we can't leap to the end of the finish line yet. We're not nearly there. We need to be smart about how we invest our resources.
improvement.
Speaker 1 (24:29.068)
Yeah, absolutely. And we can't forget to engage our brains. Let's make sure that we're not doing things just for the sake of checking a box. Let's make sure that it makes sense and that we're actually accomplishing something instead of just checking a box. Because I feel like in that particular situation, we were literally checking a box without engaging our brains. I tried. was like, wait, everybody. Let's talk about this. I don't think this makes sense, but
They were going to do it no matter what. I don't want to see us get to that point where we're just out there doing these nonsensical things for the sake of looking good or checking a box or whatever. And I think that's what the people that are not so into sustainability are afraid of. They're afraid that we're just going to go way too far and just be doing all kinds of crazy things. And really at a certain point you are talking about marketing. We want to look good. We want to feel good. We want to say that we're doing all these wonderful things.
But all these wonderful things have to make sense.
I think that's such a great point you make about people that are turned off by the word sustainability. This is the kind of thing they're afraid of. They're right to be afraid of it. That kind of thinking of telling a story of convincing people of something is not the right reason to come to this. Making decisions that make sense, which we have to engage our brains for, building a business case around reducing waste that also happens to improve your carbon emissions profile, it takes energy.
to find areas of your company in which there's waste that can be profitably reduced, but it's also profitable. So I come at the sustainability conversation from a point of wanting to find those black swans, wanting to find things that we've never seen before where it's, oh, that would be great on all fronts. Let's do that. So when we hear things like companies saying they're gonna be carbon neutral by 2030, or that they're gonna reduce their water usage by 2028,
Speaker 2 (26:28.898)
We should take heed and make sure that they're living up to the measurements they're making and applaud them for making goals that are difficult to achieve, but look closely at how they achieve those goals and check their math and make sure they're playing by these same rules that people are setting. Publicity is one thing, follow through is another, and whether these companies are doing this profitably or not is another thing as well. I'm sure the public markets
are full of people on the other side of that thesis we talked about earlier saying, no, there's no such thing as profitable sustainability. There's only profit and there's only doing the smartest, most economically efficient thing. And if the most economically efficient thing to do is to keep old trucks on the road that pollute more than others, then that's what the company should do.
was at a sustainability event a couple of weeks ago. I was in San Diego and talking to my local sustainability people here and we're having the conversation about EVs and I brought up our podcast episode about EVs and I said, Hey, I really want you guys to listen to the podcast. said, I want you to listen to the EV episode because there may say things in there that you might not be super excited about, but I want to hear your feedback because in that episode we talk about
We go through the good and the bad and all the pluses and minuses. And in the end, I think I said something to the effect of I have not bought an EV because I simply don't need one right now. What I have at my house in San Diego is a 10 year old Prius. It is hybrid Prius.
It's more sustainable for me to continue driving that car. There's absolutely nothing wrong with this car. It still gets 50 miles to the gallon. It runs great. There's no problems with it. It's well maintained. It's a hybrid. Does it make sense for me to get rid of that vehicle and go buy a brand new EV and install more infrastructure that's needed for charging that EV? It makes no sense for me to do that at this point. Economically, sustainably,
Speaker 1 (28:38.048)
I'm better off driving my older vehicle now. it a diesel black gas belching diesel? No, it's not. But sometimes sticking with what we're doing. And I feel like sometimes when we look at what's sustainable, some of that is looking forward into new technology and new things, new inventions, and some of it's looking backwards. When I wrote
my book, Self-Paced Sustainability, I bring that up in there. When I think about how can we do this more sustainably, I look back into history. What did we used to do? Sometimes we're so focused on solving the problem, we don't realize that we've created it.
And if we look back at what used to happen, we realize, my gosh, we created a problem that now we're trying to solve. The plastic grocery bag thing. my goodness. I remember when we were at paper bags and plastic bags were the solution. Now we're going back to paper bags or trying to get rid of plastic bags and trying to make them thicker so they're reusable. And I'm thinking, I feel like we created this problem people. didn't used to exist.
And now we're trying to solve the problem and there's a really easy solution is just no more plastic bags. It's pretty simple. That's exactly what we used to do.
Yeah, the bag thing is, can't remember where I was. I think it was New Jersey and the grocery store had just stopped giving out any bags at all that weren't reusable. They were making all of their customers buy a reusable bag. And I thought, that's interesting. It's a declaration. It's a marketing move to say we are going to be for an environmental future. We are not for waste. And I thought about how we build habits and how we change our habits.
Speaker 2 (30:35.086)
The kind of waste that you get into when you're thinking about something as small as that for an individual, me consuming one plastic bag versus zero plastic bags on a weekly basis is not going to move the needle of climate change. But all of that company's customers not consuming plastic bags all of a sudden starts to really look like an impact. And if they make their customers form a new habit by bringing reusable bags from the trunk of their car,
to grocery store every time, then all of sudden, yeah, you're having an impact. That's something that I would say is a pain for a month, because, darn, you walk into the grocery store and you realize you forgot your bag and you're sitting there like a moron thinking, I've got my grocery cart full, what am I gonna do? But it's really fine.
You're going to push it out to your car and then put it in the bags that are in your car. I know because I've done it. I forgot my bags. Absolutely.
It's okay. It's one of those things that is a one-time oopsie that ends up just integrating itself into your life in a better
In my opinion, the whole bag thing is a problem that's extremely easily solvable by doing exactly what that store did and kudos to them for having the guts to do it. People moan and complain for a short period of time and they'll get over it. And will people rebel and go shop somewhere else? Possibly. I don't think most people are going to do that. They're going to do what's convenient. It's really not that big of an inconvenience.
Speaker 1 (32:04.13)
So when these companies go out and they do these big public declarations of we're going to, or even cities do it too, the city of San Diego and the city of Denver, they make these big public declarations. We're going to do this. We're going to do that. We're going to be carbon neutral. We're going to reduce our water use, whatever. Those are all great publicity. And I love it when people do that. I love it when they get, they shout it from the rooftops. They're more likely to meet, do something to actually meet those goals when they do a public announcement like that.
But declaring a goal and achieving a goal are not the same thing. So we cannot just assume that these things happen just because somebody says they're going to do it. You have to watch, you have to pay attention, you have to follow up, you have to go log on to their website and read their sustainability report. And you got to be very careful about the language that is used. You have to be a bit of a skeptic when you're going through and reading these things. I'm a natural skeptic, so it's easy for me. I'm sure they have the best intention.
but I'm not always convinced that they have the best follow through. So there's a major recognizable brand out there. We're not going to say who it is, but their public commitment is these words, give more than we take from the planet. Sounds good. I like it. Sounds good. Sounds very admirable in fact. But what exactly is being reported and measured?
and what is missing from their accountability. And I think that's the hard part, just like anytime when we're looking at a bid, we're looking at plans and specs, we're looking at a, we have to figure out, we don't just have to look at what's there, we have to figure out what's missing. And what's missing can be a big deal in anything that we're looking at. So this same company has hit a lot of their quantifiable goals in the past, but they've missed quite a few as well. And they are,
a huge single waste contributor. Huge. So I did log on to their website and look to see what, if anything, they are doing to address this because I got to tell you, when I see their waste rolling around in a parking lot or overflowing from a trash can, it just, it kills me. That kind of stuff really upsets me.
Speaker 1 (34:28.79)
because any kind of single use item is going to create a lot of waste and see this is something where if in ESG reporting, why are we not holding them responsible for the waste they're creating? think that we're headed that direction. But when I go and see a parking lot full of single use waste from a specific place rolling around in the parking lot,
Why are they not responsible for that? Why are they not having people out there cleaning it up or doing something about that? So they are taking steps to address their single use waste. But in the past, they've done very little on this topic and it's okay. You're doing all this other stuff about like your sourcing and that's great. But at the end of the chain, at the far, the consumer end of it, you have waste products that useful life is measured in minutes. And.
That is not acceptable. We gotta find a way to get away from that kind of stuff. So we gotta watch for vague language. We gotta watch for miss goals. And we gotta watch for companies that are not sharing this information publicly because I think it's really brave and bold for companies that are willing to make these declarations and share their information publicly. I have some clients that are crazy serious about this stuff and that just makes me happy.
And I have clients that talk the talk and don't walk the walk. They do a lot of stuff, but yeah, as soon as there's a little bit of pushback or inconvenience or a little bit of cost or effort associated with implementing something, they back off and don't do it. And then we got to watch for the companies that are talking out both sides of their mouth. They're making all these public declarations and then using greenwashing in their marketing. think there's a lot of that going on out there.
I totally agree. That brings me back to this project I did in my first masters at Stanford for the Lifecycle Analysis Project. We were assigned a home builder and they wanted to know whether it was more life cycle cost effective to build a house the way we conventionally build houses out of two by fours and insulation and drywall than it would be to build it out of a laminated, structurally insulated
Speaker 2 (36:55.96)
panel system house where you've got styrofoam core in the middle and then plastic and plastic protecting that styrofoam. And we did the numbers. There was this great database we were able to use that had a bunch of figures and facts about how many emissions are involved with lumber and drywall. It turns out drywall is one of the worst materials in the world when it comes to emissions. The amount of heat you have to generate to make drywall is enormous. Same thing for concrete.
But anyway, did all math, did all this accounting type analysis and proved out that, it's still 10 % more efficient to build a stick framed house than it is to build a laminated house because you have to bring these heat guns to the job site for these laminated panels to seam them together. And the heat involved in producing the plastics and in the manufacturing of the glue and all the harmful, volatile organic compound or VOC emissions associated with that are pretty bad.
But that was the way it was at the Prius too. At the very beginning of the Prius, the emissions as the result of the battery manufacturing were so harmful. They were causing so much acid rain that they were not unmet good in terms of environmental sustainability. They were worse for the environment than driving a Hummer for this like 100,000 miles, whatever it was gonna be. In a study I read. So technologies are emerging, which we need to pay attention to that will one day
be more efficient to the point that they are more sustainable to use. The cost of making an electric vehicle is going to come down as battery efficiency improves, as battery technology improves. And eventually that might be all we're driving. Structurally insulated panels are going to become more efficient to build. But if you don't do that math, if you don't get down to the weeds on it to make the right business decision from a cost and a sustainability standpoint, you're not going to have the right outcomes. You're not going to making as much money as you could. And somebody else will.
somebody else will make the right decisions and they're going to last longer than you will because they're going to have the cash on their books to sustain the next recession. Bringing it home as a what does this all mean for me as somebody in the construction industry, as a middle manager, as an owner of a company, what do I do about the sustainability? I think the takeaways that I would grasp from this podcast are that you can do the math to make a business case for a financial endeavor. That same thinking
Speaker 2 (39:22.606)
goes into the kinds of sustainability decisions that these big companies are making and may, in the case of your company, be impactful on your bottom line in the form of reducing waste, in the form of reducing the emissions that you create, in the form of reducing the fuel consumption of your vehicles, or in other ways. So don't throw sustainability accounting out as a unachievable, totally pie-in-the-sky thing.
Think about it from a high lens and see if you talk to your employees. We're burning through this. We don't need to be spending this much money on this thing that we only use once and throw away every time. Or boy, these trucks are just costing us money. We're sinking more into these dozers to keep them on the job site than it would cost us if we bought new ones now over the next five years. Making those kinds of financial decisions also has a sustainability impact that you can go report to your clients to be the kind of company that people want to do business with.
If you can make an argument that you do this kind of critical analysis on every decision you make, you're going to have a better time getting clients to say, nobody else is doing that. You're planning a flag as an analytical, thoughtful manager, somebody who understands the ramifications of all of their actions in every which way and makes great decisions as a result of that critical thinking. That would be where I come to this from. Dee, do you have any thoughts?
Yeah, I will say the thing that I say to every single one of my clients is that whatever you're doing, shout it from the rooftops. I see a lot of clients doing some great stuff out there and making some very thoughtful decisions and careful consideration on their projects, on their daily operations, on their reducing their water use, their energy use, whatever they're doing. And they're very quiet about it. I think that it is, it's such good press.
to take credit for the good that you're doing and the thoughtful consideration that you're giving to all these things. If you're considering some of these things or embracing either the newer stuff or evaluating whether you can go back to the old stuff that might be better, get out there and do something. This isn't just something for
Speaker 1 (41:45.77)
really big corporations. This ESG reporting that we're talking about is for really big corporations. I don't want to forget about the small businesses. The majority of businesses are small businesses. Whatever your business is, is there something that you can do in your small business? I see things every single day with the small businesses that I interact with that they could be doing different better. And I'm just going to go back to the bags thing one more time.
If you're a small retailer and your staff is bagging a single purchase for every client that comes in, you're not even paying attention. You're not being thoughtful about what you're doing because I see that kind of waste, that kind of packaging waste, the kind of bag waste, the kind of, let me wrap this in bubble wrap for you and then put it in a bag. If you can carry it to the register without a bag.
You can make it out to your car without a bag. Come on. There's a million little things that we can do as small businesses that are improving, giving your employees a reusable coffee cup, a reusable water bottle, instead of providing disposable cups and things like that in your office, at your job site.
I've done all these things at my job sites. There were no disposable plates, disposable silverware, disposable cups. You can make an impact on a small scale. It's fun to track some of this stuff. If you look at how many cups were you buying from the sparklets water guy or the disposable coffee cups that you were buying every month from staples or whatever, and compare that to the cost of what you're buying in one month, you could easily buy everybody.
a reusable one that they keep there at work.
Speaker 1 (43:44.12)
You never have to buy it again. You're done. And now you're saving all that money. Just a tiny little exercise like that is powerful and useful. And you're like, why am I doing that?
And reducing waste makes everybody happy, makes the client happy, makes the people around you happy, makes the bottom line happy. We're all here for a business purpose at the end of the day. We're all here to make money. And if you can reduce waste, you're going to make more money.
Well, forget about the trash removal costs. We haven't even talked about that. You're not filling up a huge trash can with daily waste that you now don't have to remove to pay to remove. So maybe your trash pickup can be reduced, which is expensive.
When I looked at some of those bills for this time, I was like, my gosh.
Yeah, it's crazy how much waste removal costs. So if you're not creating the waste, you don't have to remove it. So these are just small things. So I don't, talking about these big, huge fortune 500 multinational. Yes, absolutely. Those guys can make small changes that will really move the needle in sustainability because they're creating, they're consuming so much and creating so much waste every day. But those of us that are smaller businesses,
Speaker 1 (45:05.186)
we can move our own needle pretty good too, just by doing some small things.
Absolutely. Save money.
Thanks for joining us, everybody. It has been a wonderful to see you today and we'll see you next time.
Speaker 1 (45:24.258)
Watch us on YouTube at YellowstoneProfessionalEd.co. Don't forget to like, share, and follow us. Apple, Spotify, everywhere you listen to your podcasts. You can email us with questions, comments, and suggestions at heyd at management under construction, H-E-Y-D-E-E to get me or Brad at managementunderconstruction.com.
