Episode 2: Sustainable Capital Projects 

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Transcript

Hello, my name is Eoin O’Murchu and welcome to the Deloitte’s podcast series Futureproofed where we explore the opportunities, innovations and challenges withing the capital project and real asset sectors. Today, I’m delighted to be joined by two experts in their respective fields Devin-Paul O’Brien, a director in Deloitte major programmes and the ability and climate change lead supporting clients across the capital project oil and gas, parent utility and transport sectors. I am also joined by Jo Hills who is a Director in Real Assets Advisory specialising in environmental sustainability and climate. She’s a fellow of both the Institution of Civil Engineers and the Chartered Management Institute and has recently worked in public sector carbon reduction and sustainable transport.

Welcome to you both.

Devin-Paul O’Brien: Thanks very much, good to be here.

Jo Hills: Yeah thanks.

Jo first to you. What are the biggest sustainability issues currently facing capital programmes?

That value and competition point and the tension around it is really interesting, particularly when we consider the challenges in delivery across the wider supply chain at present. How can we best drive value in that supply chain in a consistent manner?

Jo Hills: Well, so, I think the main thing is there’s a huge drive to net zero and the climate crisis, which is obviously hugely urgent. So, there’s a real push for urgent change. And sort of looking at that long term vision, we’ve really got to start thinking about projects from the point of a whole life course as well as just energy savings in operation and not just the build as well. So, it’s about really sort of taking that business and project efficiency right from the early planning stage, integrated all the way through the building life all the way to its end. And how is it going to be taken back through to its new life in as a new building if it can possibly be dismantled, reused, recycled and so on? So, it’s really that planning process has to happen up front all integrated through the supply chain.

What’s you view Devin?

Devin-Paul O’Brien: Oh, I tend to focus more on the embodied carbon side of it. And one of the issues I think is that historically operational carbon has been where they had the most solutions, where people have focused their time, and now there needs to be a huge shift to a focus on embodied carbon. And people are not used to thinking about that. So, 16% normally of the total emissions we’re building is from the embodied carbon and specifically the manufactured materials so hard to abate activities. Big issues in shifting to that. I suppose the other one as well is just the sheer size of it. The total impact of this across the world is big and that can make it seem daunting. Some of the other issues, again, if I just look more on the embodied carbon side of things include lack of regulation. So, no carrot, no stick. You’re moving organizations forward and a bit of a lack of connectivity. So, construction happens in very local ways. Small companies knitting all of that together to achieve global outcome is challenging.

Is there a cost challenge in terms of like the margin and turnover to companies face and reinvesting?

Devin-Paul O’Brien: Yeah, so, typically a construction outfit will be operating about a 2.5% margin. Maybe in the UK it would be bigger but globally, but not much more than 5%. So that’s supermarket region of margin and that’s incredibly tough it makes it difficult to invest in sustainability.

So, looking at this from a bigger picture, how do we recognize and address the opportunity in capital projects to influence ESG outcomes? And I guess what I mean, how do we make capital projects and programmes more sustainable? What is an approach we can adopt?

Devin-Paul O’Brien: I think that when we do our best work with our clients and it’s typically on the asset owner side of things, we do tend to look at it as five pillars of sustainability. Our first one is carbon emissions going after that. Second one is water stewardship, third one waste management, fourth one is biodiversity net gains so, pulling back or enabling more habitat after you’ve done all of your work, whether it’s green or brown site. And then the last one is social value, so, making sure that there is an employment element, a health element, a long term capability element to the work that’s left after the capital project. And so those are the pillars that we tend to put in place across those. We’ve got big ticket items obviously like stimulating and scaling demand for low carbon solutions using adaptive alternative methods, so mass timber, things of that nature. Then investing in low carbon cement now so carbon and steel are about 58% of total emissions from the embodied carbon. And then rolling out low emissions equipment which most - where we see it tends to be where people are making more headway. But those are some of the big ticket items and we tend to do great work helping clients think of it across those five sustainability pillars.

And Jo, building on some of Devin’s descriptions there, particularly the five pillars. Really interesting concept, I think, to measure progress against what are some of the key business drivers that programmes need to consider and be mindful of?

Jo Hills: Well, it’s really interesting hearing those five pillars from Devin, actually. Then one of things that struck with me while you were talking there was about particularly how the locality can also influence some of those things. So, for instance, with water, you’re talking about, you know, a need for water neutrality in certain parts of the country now, as we’re coming more and more under pressure from climate change as time goes on. And obviously the transportation is going to be different in different parts of the country as well. So just you know that sort of locality and your local supply chain and how you connect with people and what you can do to work with other businesses and bring in other partners is really important. In terms of business drivers, there’s obviously the need to demonstrate value and you know, through that sort of value chain, that’s a really important part of demonstrating to the business what they’re going to get out of this and what we have found is quite often so just as an example, we have had a case of a sort of major, quite high energy using building that’s not being designed currently to net zero standards. And a lot of people are doing that. But that’s just due to what appears to be an initially high outlay. But when we’re looking at what kind of operating costs it’s going to incur from the high energy intensity that’s going to be happening in there once it’s operating and the costs of retrofitting later on, we’re finding that quite often those impacts balance out and it’s really important to the business to take that whole life view and not just be looking at the immediate short term.

So, decisions like that should be embedded within the business case.

Jo Hills: Absolutely, right from the start.

That’s really interesting Jo because Devin and I caught up with Deirdre O’Connor, who was a safety and sustainability senior manager if Pfizer’s Global Supply Capital Projects team based in Dublin, Ireland, before recording here this evening. Deirdre leads the capital projects team sustainability programme and is here to talk about some of the sustainability challenges she is addressing across her capital projects portfolio. So, let’s listen to that conversation.

Deirdre, great to be talking to you again about your large Capital Projects Sustainability Programme. Could you give is an overview of what a large capital project is, what the portfolio is like, and what promoted this sustainability programme?

Deirdre O’Connor: No, thank you Eoin and I’m delighted to be here to be talking about our Capital Projects Sustainability programme. Our capital project team design and build by those new manufacturing facilities and we have direct ownership of capital projects over 75 million in total capital spend. At any one time we would have a number of large capital projects in flight, and these would be at various stages of the project lifecycle. These projects are located across the world, in North America, Europe and Asia. In June 2022, Pfizer announced their commitment to achieving net zero across the value chain by 2040, and this is ten years ahead of the 2050 timeline. So, this is quite ambitious. Pfizer is taking action to reduce their greenhouse gas emissions and to mitigate the risks associated with climate change. Our capital projects team are equally taking action to reduce greenhouse gas emissions by designing and building energy efficient and low carbon manufacturing facilities so we can contribute to Pfizer net zero by 2040 goals and in doing so, we can make an impact on climate change. Though individual capital projects have been incorporating sustainability into their designs for many years but what I wanted was a standardized process that could be replicated on projects in our different operating units and across all geographical locations. So, what we needed was a formal sustainability programme that was more than just tools and resources but had a purpose and a time bound strategy that had the five pillars of sustainability and objectives and metrics and the organizational capabilities that are required to enable and embed the programme into the projects. And that’s what we have today. This is our sustainability programme, and this is what we’re currently deploying across our capital projects.

Devin-Paul O’Brien: That’s great Deirdre. Which of those five pillars of sustainability resonated the most in your business? Which ones were the more challenging ones?

Deirdre O’Connor: So, different parts of the business resonated with each pillar. So, our waste management SMEs were drawn to pillar three eliminated waste while those involved in water stewardship gravitated towards pillar two. But overall, pillar one accelerating net zero definitely has resonated most with our business, and this has been the most impactful to date. Pillar four, a biodiversity net gain is more challenging because we’ve got a bigger lift to do here. That there is an understanding that we want to do more than just leave the site in the same condition as we found it from a biodiversity perspective and there’s very much a desire that the team want to do this, but there is an education that is required here on the how we do this and basically we need to upskill our team on biodiversity and how we actually go about making that 10% net gain, and for this reason, it’s a challenge, though, the desire is there, which is great start and we need to nurture the desire with the skills and the tools that they need to make this a reality. So right now our team is just a little bit more comfortable talking about the different types of heat pumps that are out there, then species of flora and fauna. But you know what? We make this change, and we’ll get there.

Devin-Paul O’Brien: That positivity around just making a change and getting there as one of the things that really impressed me when we were working together, not just you would like everybody that was getting involved in this and that willingness to just crack on with applying the strategy. How would you say you got the buy in to dive in straight to the deep end like that so quickly.

Deirdre O’Connor: Yeah, and thank you Devin, for Net-Zero commitment which came from the top of the organization, gave clear and unambiguous commitment to achieve net zero by 2040 that the whole organization can get behind and Pfizer, the leader, and it’s in our DNA to rise to the challenges put to us and the net zero by 2040 ambition is no different. So, this is the same leadership as was demonstrated during the race to develop the vaccine during Covid. So, once we have that leadership, commitment and vision, then it was easy to cascade it down through the capital project team and our Pfizer stakeholders. One of the key elements in getting buy in was involving leadership in building the sustainability strategy. So, leaders from engineering, from EHS, from procurement and our own capital project team and we did this through interviews, workshops and endorsement sessions. So, having this endorsement from our senior leaders empowers the Capital Project team to make sustainability a priority on our project.

I got a question to you both and thanks Deirdre that was really useful context about the great work and scenes like yourself and Devin did together. I tend to find from my experience that the typical barriers of sustainability in the construction world are really around to perceive prohibitive costs and the challenges that this brings. Devin, what’s your view on this based on your experience?

Devin-Paul O’Brien: So, this is a good one. Fact is, when you’ve got a big headline innovation like green cement, for instance, the ones that are made with biologically grown limestone. We got the low carbon bricks or lower carbon steel they all currently have a bit of a higher price tag just because they’re not yet at scale. The producers aren’t there in all the countries that are needed, for instance. However, there’s also cost savings from applying some of these sustainability principles to design, such as really big shifts towards mass timber wherever possible instead of steel. When we were working with Deirdre in the team, we use the range of about 1 to 2% potential increase in costs. That resonated with people that we were speaking to, and it was supported by projects that Pfizer had done in other places as well. We, but also that increase in costs because we’re at the beginning of this transformation and the transformation that we need in the construction practices. Um, a lot of the levers for these five principles are already in the market and they just need to be applied consistently to begin making a difference so, it’s not about spending loads of money on innovation. It’s actually just about applying stuff that exists right now. So that’s not necessarily a higher cost and also these construction materials, typically more durable, require less maintenance over time. So, you can build that into business cases or doing capital projects more sustainably. I think in Pfizer’s case, they’re excellently targeting the fossil fuels on their manufacturing sites in a not very distant future. So, they need to get started now and figure out how to build that into the construction process as well as the building running process. So, otherwise they’ll be hit with lots of retrofit costs.

I’m sorry to interject Devin, can you get Deirdre’s view on that and how the costs are actually being considered from a Pfizer perspective, particularly when rolling out sustainability programmes?

Deirdre O’Connor: Yeah, and Devin I agree with everything that you said here and this is a conversation that I’ve had many times with members of the Capital Projects team and also with our supply chain partners as well and it is exactly that, it’s perceived cost and the solution to this is education around perceived costs versus the actual costs of sustainability. And as you said, Devin as sustainability actually cost between 1 to 2% of the capital project budget, while the perception here that it’s far greater than this. So, we use an energy hierarchy on our projects and first we start out with looking to where we can reduce the energy requirements, and this can lead to reductions in building footprint and equipment costs. So, for example, opportunities to reduce the amount of cleaning in a process could lead to less equipment being installed and less energy being used and then less water being consumed, all which adds up to costs being reduced. So, these savings need to be taken into the cost when calculating the cost of sustainability. Another example here is in Ireland, installing energy efficient equipment is a requirement of local code so here it is not an extra sustainability cost energy efficient equipment must be installed as part of the project, but as the project is labelled sustainable, its cultures as a sustainability cost, while in fact only equipment cost above the requirement of the local code, should be included as a sustainability cost. So, there is a change required here on how we are defining what a sustainability cost is.

And Florence just picking up on that. I guess from what Melissa has talked to, there are a lot of practicalities of it, but what are some of the risks associated with that?

Devin-Paul O’Brien: From the very beginning, you and I have talked quite grandly about harnessing the power of the supply chain and I think we must use that phrase tens of times. Has this become a reality? Were there any bumps in the road on that?

Deirdre O’Connor: Yeah. So, we have we’ve had many a conversation on this and our partnership with our supply chain is so very important to successfully design and build sustainable manufacturing facilities, especially that partnership with our architectural and engineering design firms. So firstly, it’s so important that the outset of a project to express Pfizer’s commitment to sustainability and to make it very clear that a sustainable design is a deliverable of the project and this is paramount. And what is equally important is how we work with our supply chain partners. So, there must be a one team approach to sustainability.

Deirdre it’s great to hear that sustainability has become embedded as part of the fabric of Pfizer and it’s operations going forward. What have been the biggest successes from your perspective in the implementation of successful Capital Projects framework within Pfizer?

Deirdre O’Connor: So, one of the biggest successes we’ve had is how our teams are challenging historical designs and how they are pushing the boundaries. So, we are seeing how previous technology using fossil fuels have now been decarbonized and the greatest success I’ve seen is the mature discussions are utility engineers and our process engineers are now starting to push the boundaries, though, as well as decarbonizing utility equipment. We’ve been able to decarbonize some of the process equipment as well, which we really didn’t think would be a possibility and notice that this success is the shift that’s happening on projects where initially there was a mindset of, you know, that’s not possible, no, you can’t do that. When we start achieving some results, you can see that the team then starts pushing the boundaries more and more. It really is all about fostering a possibility mindset and for me, the great success in realizing our ability to push the boundaries and to be open to what is possible.

So lastly, my last question to you both is do you have any recommendations to others starting out on a sustainable capital projects and what they should try and achieve? And what are the dos and don’ts at a high level? And maybe Deirdre you go first.

Deirdre O’Connor: My recommendation is to just get started. Start implementing your programme today. However much of it you can start implementing today will make a difference, regardless of how small that is and then just keep building upon it. So, don’t wait for perfections that will come over time with experience and the whole sector here is learning and evolving and we just need to adapt and evolve with it.

Devin-Paul O’Brien: I would go with that 100% and also to say get stuck into it early with the supply chain and as Deirdre just said tell them what your goal is and just say we’re all just getting on board and get the ideas flowing. So much of the innovation and the concepts come from the supply chain. So, it’s about tapping into that and then secondarily, don’t get hung up on a baseline because it gets in the way of just making progress.

That’s brilliant. That’s brilliant insight guys, thanks very much and Deirdre, thanks very much for joining us on this, that was a really interesting insight and we look forward to hearing about your progress in the future.

Deirdre O’Connor: Thank you. It was my pleasure.

So, it was great to hear from Deirdre on her implementation of the Sustainable Capital Project Pillars. Jo, what do you see the biggest challenge in implementing sustainability initiatives on capital programmes and what can be done?

Jo Hills: Yeah, Thanks. So, I think the biggest challenge is really at the moment are, well, there’s data for a start. How do we, how do we measure things? How do we monitor? How do we capture and report? And I think particularly because we’re looking at not just that sort of capturing of the baseline, but also all the way through the work and is quite complex work when you’re doing construction and you’ve got all the supply chain people coming in and out and so on, and then monitoring that and reporting on it at the same time. But then also we’ve got the skills challenge. This is new. This is quite a new thing for us all and we don’t yet have the skills coming through from the training from the universities, it’s only just starting to come through and we don’t really have that sort of breadth and depth of skills in the sector. And then there’s the immaturity of the supply chain and, you know, are there enough companies out there doing this work yet? And frankly, no, there aren’t and there isn’t that level of expertise. An example of how this impacts on the sector is a project I’ve been working on a while back which was around social housing and with the economic crisis when it hit the costs went up between doing the design and spec and actually procuring the project, costs went up about 30%. And it’s just untenable really that with that sort of and that’s to do with not just the economic climate, but also the fact that the supply chain is not resilient enough.

Devin-Paul O’Brien: I think your point about data as well is really important because you’ve got this across all of the construction landscape. You’ve not got a single way of measuring carbon or measuring emissions or measuring biodiversity. So, everybody, so one of the challenges is not just how you know, how to get started with the counting is fundamentally what do we even do as you have to invent it and that can seem like even more of a stumbling block. But there are increasingly organizations doing it and again, it comes back to this regulation concept. How quickly can we have some global or just national pushes to standardize things or make things easier?

I’ve heard the term and I touched upon what you just said there, Jo, the Green Skills Initiative. Is there a baseline understanding Devin in the industry or is that something we need to work on?

Devin-Paul O’Brien: I think that there’s good work being done to define what it is. We have one in Deloitte, we had a report that came out last year around the same time as COP and there was lots on the green workforce, green collar workforce reports that we had coming though in the US. But I think that if you look at organizations like Shell they’re trying to do some great stuff up in Aberdeen around green skills in the future. But no, there’s no consistent view of it but I think if you again, one of the things that really is important here is it’s having a skills based workforce rather than a role based workforce as well, which is an increasing trend that we’re seeing in the human capital landscape and I think that lends itself well to green skills. But no, no consistent method or framework at all.

So, picking up on that skills base and keen to understand from your perspective Jo, where do you see the biggest opportunity from a sustainable capital project perspective and applying that skill base that Devin was mentioning?

Jo Hills: Oh, there’s a huge amount of opportunity actually, because there’s all sorts of new technology coming forward for a start. So, for instance, there’s new digital opportunities, AI machine learning. You’ve got modern methods of construction, modular build. All of these are offering us really quite exciting opportunities, basically whole life costing we’re only really getting to grips with that whole embodied carbon understanding, you know, whole life carbon modelling to help with the decision making is something that we really need to be taking a bit further. And you know what, what do the materials bring with them to in embodied carbon and obviously building information modelling, it has been around a long time now but it’s maximizing that to make sure that we’re doing the maximum efficiency we can with the materials and resource management.

Devin-Paul O’Brien: I think also there’s lots of good databases to build your BIM model on, the famous BIM and I think it’s also good work that organizations right now can do with not for profits to access into the databases in a shared way. So. Lots of stuff can be done there to help people along.

Financial benefits to that as well?

Devin-Paul O’Brien: Yeah, there are, and I think that some of the biggest benefits are in just in reduction of materials. I think so taking a sustainable approach to the design of your capital project can reduce loads of material costs. So, a famous one here in the UK is on a train station build a 27% reduction in total steel, £7 million reduction and again, if you think about the margins we’re talking about earlier for a construction firm, a good 2%, 2.5% margin, £7 million reduction on your steels is going to be massively impactful. So, I think a gradual cottoning on to that is helpful and is happening. But also, I think that as we move on, the lower carbon solutions will reduce costs only at scale but they will because so many of them are based upon byproducts or recycled materials and that’s just cheaper because and right now in some cases almost free because, you know, people don’t really know what to do to get rid of their waste products.

Jo Hills: I think that things will become a lot easier as well as policy becomes clearer coming from government because at the moment obviously we’ve got the net zero ambition for 2050, but we’ve not got a huge amount of clarity on the steps along the way to that and I think as those come forward, they’ll drive changes, but also that’ll enable us to get that clarity on okay we can calculate now how do we meet this objective in a slightly shorter, more manageable timeframe.

Devin-Paul O’Brien: Yeah, I don’t want to put it all on policy because other organizations making their first move but it’s just it really is fundamental and I think actually if you’ve got an organization involved in capital projects, whether it’s on client and asset owners’ side or the delivery side I think you’re getting together to agitate for change is very, very important.

So finally, out of all the topics that we’ve discussed and listened to today, Devin what do you think is a key element to setting up a successful sustainable capital project?

Devin-Paul O’Brien: I’ve said it once, I will say it one more time because I know I said it when we were with Deirdre, but I would say it’s harnessing the innovative power of your supply chain and just linking up all of your existing initiatives so you can get some scale from what you’re doing.

Jo Hills: I totally agree with that. I think that’s great but to add to it, it’s not long-term vision and just the planning from the very outset, building your business cases really carefully, across the whole life, a whole life of that final asset and arguing the case to avoid expensive mistakes that need to be retrofitted and remedied at a later date.

Devin-Paul O’Brien: That’s where the benefit is, right?

Jo Hills: Yeah, absolutely.

Brilliant. I think that’s a great place to leave today’s conversation. My thanks to our guests Jo, Devin and Deirdre offered her insights and perspectives. It’s fair to say that Sustainable Capital Projects is really a fascinating topic that is only going to grow in interest and importance over the coming years.

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