Climate action is good business w/ Heather Taylor

Jen Hancock: Climate change action isn’t just a “nice to have.” Ignoring it could cost a fortune or leave the economy in the dust.

According to the Canadian Climate Institute, the last ten years have already cost Canada $25 billion dollars in lost GDP. In five years, we’re facing a loss of $35 billion. And by 2055, the losses are projected to surge from between $80 and $130 billion dollars.

Every time the government has to step in to help rebuild damaged infrastructure or pay for increased healthcare in the wake of climate disasters, capital is diverted from initiatives that would normally increase the economy’s growth. Basically, we’re stuck playing defense when we want to be playing offense. And the problem’s only getting worse, with all signs pointing to hockey stick growth.

According to Canada’s Changing Climate Report, by 2100, global temperatures could warm between 1 to 3.7 degrees celsius. And with the rapid loss of snow and sea ice, some statistics show that Canada is warming more quickly than the rest of the world — two to three times more quickly, depending on the region.

With warming temperatures come more extreme weather events: floods, heatwaves, and wildfires, all of which can disrupt the supply chain, increase costs, and compromise the integrity of building structures. Vulnerable Canadians are likely to be the first impacted, and the ones impacted most heavily.

It all seems too much to think about. But it’s not certain. There is still time. If we reduce our emissions and invest in climate initiatives, we can dampen the impacts of climate change. For every dollar spent today on adapting our infrastructure and our industries to be more resilient, we can add $13 to $15 back into the economy. 

But for every dollar we hesitate on spending towards a future that seems too scary to think about, we’re almost certainly placing a bet against ourselves. And in the private sector, it’s going to hurt the bottom line, with companies losing out by not considering sustainability in their project planning.

Meet Heather Taylor.

Heather Taylor: I’m Heather Taylor and I am a partner in Toronto with EY Canada, and I am focused on climate change and sustainability. What we're trying to do is get organizations to think longer term and understand that the ROI is — the return on investment — is going to be over a period of time and what we are anticipating being the volume of weather-related events are also going to increase over time. And so it's cost of doing nothing. If you do nothing, investor demand for your product, or investor demand in the sense of how appealing your company is to invest in, will decrease. And if investor demand goes down, the value of your organization will eventually be impacted.

Jen Hancock: Flood-proofing, fire-proofing, and reinforcing cooling systems are just some of the considerations going into making Canadian infrastructure more resilient to the impacts of a rapidly-changing climate. All over the world, the standardization of sustainability measures are changing industry best practices.

Heather Taylor: No one person could ever keep up with the change. 

Jen Hancock: But there’s profitability to be found.

Heather Taylor: This is an economic opportunity. And so if you decide to pay attention to this, it changes your profile. This really is about economics. It's not driven by compliance.

Jen Hancock: I’m Jen Hancock, and today on Building Good, our producer Katie sits down with Heather to talk about the compelling economic argument for paying attention to climate change.

Katie Jensen: When you're liaising with the government and the public sector, what kind of conversations are you having?

Heather Taylor: So I think, as you can appreciate, when you talk about climate change and sustainability, it becomes a little bit polarizing. Whether you're looking at here or to the south of the border, where our neighbors are, climate change is polarizing, full stop. So I'm actually pivoting that conversation and looking at the aspect of sustainability, knowing full well that it actually can become an economic advantage. 

Globally right now, there is far more advancement in Asia, in Europe, in Australia; they're far more advanced than we are in their thinking around climate and how they are driving businesses to think and report on climate.

And so, if a company is actually doing business in a global sandbox outside of the North American borders, they're going to be subject to different rules and regulations. And because of that, they have an opportunity to either stay in value chains or perhaps in the future, be eliminated from those opportunities.

And so what I'm doing is trying to highlight that there are some risks associated to us being a laggard. There are economic advantages for us to stay competitive, market share, et cetera. And so having that empirical data to actually validate that narrative is really, really important.

Even if you haven't been directly impacted by a flood, a wildfire in the sense of air quality, or the actual wildfire itself, I think what we have to do is look at how we're impacted from the flow of our goods.

Do you remember a couple of years ago when the province of B.C. had massive, massive flooding and highways got wiped out? Well, all of a sudden, supply chains, their transportation route, which was the connection point for goods and services to flow, all had to be rerouted through the U.S. while these roads and major highways and bridges were rebuilt.

And I do wonder if people are paying attention to the fact that they're far more impacted here in Canada than they realize. I mean, two summers ago, here in Ontario, our air quality was impacted virtually all summer. The air quality was impacted by the smog from the wildfires, the smoke from the wildfires. And we didn't get sunshine for a very long period of time. 

These are the types of things that, unfortunately, with predictions of where weather-related events are going, they're gonna become more the norm. 

And so what does that mean? That means the buildings that you live in have to have the ventilation ability to filter that smoke out. Or, heat-related events where you've got more heat days — where are you going to get cooling? And I think it's just about… the light bulb’s going on for folks and people connecting the dots and saying, “Okay, this is impacting us, even though we're not in the direct line of the weather-related event.”

I was recently talking to a private equity firm and I asked: “Who here thinks sustainability is a nice to have?” Lots of hands went up. “Who here thinks that this reporting stuff that is being required is a compliance activity?”

More hands went up. It's like, “Okay, so what if I actually told you that it's actually a business opportunity, a growth opportunity for those firms that you're helping support go to the next level?” And it was, you know, the look at me was sort of like, “What are you talking about?” 

And then it becomes that same conversation with government. This is an economic opportunity. There's economic opportunities in the sense of market share competitiveness. And so, if you decide to pay attention to this, it changes your profile. It changes your profile, how you're going to be evaluated in larger markets like Asia and Europe. And so, as much as how I approach it might change, the bottom line or the narrative around it is, this really is about economics. It's not driven by compliance.

Katie Jensen:  Can you tell me about the work that EY does with clients within kind of the broad construction sector? You know, anything from architecture to material supply, to engineering, any of the clients that EY touches on that have to do with construction and what kind of services that EY provides.

Heather Taylor: So I'm sure you can appreciate the size of EY. We have many different types of clients. What we do is we look at services from a value chain perspective. And so in the construction industry, we might start talking to the planners and we might start talking to the planners in government in the sense of understanding their policies, their regulations that are going to impact the construction industry. We might be talking to the actual supply chains and helping supply chains map out supply demands, cooperative supply behaviors. We might be looking at the tax aspects of those policies and the construction industry on how they can apply those tax policies to better the cost of their investment to enhance the use of money, the value of money.

But we actually look at the whole supply chain. And so the construction industry is so vast, right, from planning through to development, the type of development, where that development is happening. And I'd like to think that our services from a financial perspective, from a consulting perspective, do deals, you know, that include the planning, the financing, the reporting and it is the value that the firm brings to tie that and knit that all together to service an industry.

Katie Jensen:  So in terms of regulation, it's really hard to get people to do things without consequence and having kind of like a consequence that may come to pass, but it's hard to say how fast it's going to happen, who's going to be affected when it's going to happen, the scale of the effects. How do you convey the urgency that's needed to make changes now?

Heather Taylor: That's a loaded question. 

Katie Jensen:  I know. What’s the language that you use?

Heather Taylor: Okay, so I'm going to backpedal just for a minute. When I was in government, we did a lot of evaluation around consequence versus incentive, and when you look at policy levers that government considers, it's really the carrot or the stick, and depending on what you're trying to accomplish with regards to behavior change, the carrot or the stick can be more effective.

So, I think as far as a policy lever, consequence, but incentive have to both be considered. So, with regards to sustainability, I think we're experiencing both. And there's a couple of examples that I can give you there. If we think about the behavior that we want to drive in the sense of changing how businesses make decisions to better prepare them for climate-related events, resiliency components, there are opportunities for them to take advantage of tax policies around how to invest their money.

So to me, that's an incentive. If we look at the consequence, a set of standards has been rolled out with regards to sustainability. And it's understanding your risks. So doing scenario modeling and anticipating through a set of assumptions, what does your business look like down the road under certain conditions that really is raising awareness around potential consequences. Hopefully that information is being used by organizations to evaluate and prioritize. So I really do think that you have to look at consequence as well as incentives both to actually really assess where behaviors are going to change.

Katie Jensen:  I imagine that if you just tell a company that they need to do something. There will be an element of pathological demand avoidance, like what happens to kids when you say you have to clean your room or else. They just absolutely will shut down. So you have to say, “This is what you need to do and here's how we're gonna do it together.” Is there like an element of, you know, “We want this for you. We want to help you get there and here's where we'll be with you every step of the way.”

Heather Taylor: So standard setters who are kind of creating that “you shall,” standard setters are doing it not to be the “you shalt,” but to ensure that as people do it, it's consistent, it's comparable. And so, many are pointing to this, the standard setters and saying, you know, this is completely compliance driven. The true role of standard setters is just to make sure that everyone is following the same set of rules.

It really is the regulators that are coming in and saying, we must do this. The piece that might be missing is the education and understanding what really happens if you don't, and that's where I think then we get into the political jurisdiction, perhaps the polarizing opinions of whether or not the facts are justified and validated.

And so, I think we're in this very difficult, challenging, unprecedented period of time where the concern around the future is based on a set of assumptions, of which to some are very valid. But I think that the denial of it creates the deferral, creates the dissension around whether or not people want to, organizations want to comply.

So I think it's a series of facts right now that are challenged in becoming or being perceived as supportive. Because I think businesses might be saying, “Listen, I've got competing priorities: slow down in the economy, high inflation, high interest of what we've seen over the last few years coming out of a global pandemic. I've got other challenges.”

What we're trying to do as a firm is provide that awareness and provide that education. And I think that support in the scenario modeling is incredibly valuable to organizations. So I do think that that is a piece in the ecosystem that is missing by the regulators, by the policy setters.

I don't think that piece is unique because this is such an unprecedented aspect of our evolution, but I do think that we as consulting firms have a role to play in enhancing the information that's out there by providing that education and that support to say, “You're not on your own. You're not the only one going through this. Here's what's happening in the markets.”

Jen Hancock: We’ll be back with Heather Taylor after this…

At Chandos, building is about more than concrete and steel, drywall and windows.  It's how we build and who we build with that determines the legacy we leave behind.  Our commitment to a more diverse and sustainable future is built into every aspect of our business:  the people, the processes, the projects, and every community we're part of.  Let's build better together. Find out more or join our team at chandos.com. That's C-H-A-N-D-O-S-dot-com.

Katie Jensen: I'm wondering if you can kind of give me like, very broad strokes, some of the things that you look at in scenario modeling and do you kind of like, divide it into costs that are just predictable but will increase or random events?

Heather Taylor: All the above. So, okay, great question. So the thing is, what we try and do is say, what does the working environment look like today? So I'll give you a fun fact, Toronto, when the downtown core was built, it was built on a zero floodplain, meaning floods were never anticipated. Fast forward several decades from a climate scenario perspective, we know that that floodplain has changed, and I think it's 0.8 meters now. So part of the scenario modeling is weather related events are going to do what to our number of heat days, our air quality, our ability to manage weather-related events in a shorter period of time. And so we've run scenarios like that, to say, what does your HVAC system need to look like to deal with heat-related days, day after day after day. Air quality — is it able to actually clean the air to ensure that its occupants have clean air to breathe? There is a prediction that in the future, commercial real estate will be a safe haven for people if they don't have the air conditioning at home, if they don't have the ability for clean air at home because of the fires.

But the building's ability to withstand, let's say a flood, we have to look at if you don't do anything to flood proof your building, you are going to have the cost of a crisis of a flood to deal with. And so, we incorporate all those factors to say what happens to your operating costs. Your operating costs go up.

Now, if you change from, let's say, a gas HVAC system and you go to a heat pump, your energy costs go down. And so it's just taking the climate related aspects and ensuring that they can be moved into a quantitative financial metric and looking at that overall business case on a combination scenario.

Katie Jensen: Your brain must be on fire with all of these variables. I can think of like, okay, it must also change in terms of the models of all of the technology that's coming out constantly in terms of efficiency, getting all of those standards delivered. How do you and your team keep up to date?

Heather Taylor: When I consider the pace of tech change, the pace of the standards with regards to sustainability, we haven't seen anything like this. This is really happening, it's unfolding at an unprecedented pace. So to your point, how do we stay up on it? I think it's a great thing that we have such a vast team of academics, of practitioners because everyone is contributing to the knowledge base, and no one person could ever keep up with the change. Just even in the last eighteen months, the International Sustainability Standards Board released their standards. There have been certain states in the U.S. that have released their requirements. Canada has released its draft standards which are going to be made public very soon. The International Public Sector Board has released theirs. Europe has released theirs. All in eighteen months, and if you think about the ability to understand and apply, you know, organizations are absolutely challenged to keep up and I will say that that's where I think that firms have a role to play. Not all organizations have the ability to have people that are only focused on sustainability and the associated costs with it.

Katie Jensen: Why is it important to have a benchmark?

Heather Taylor: Standards are essential to making sure that information is calibrated in the exact same way so that it's consistent. And standards are important in producing language that is spoken in the exact same way. So comparable information and consistent information is vital to know how we're tracking against other organizations, other jurisdictions, other markets. And without standards, there's absolutely no consistency or comparability.

Katie Jensen: It reminds me of this conversation I had with this professor at Brock, Amir Mofidi. He's working on basically bringing engineered bamboo to the Canadian construction industry, but the reason there hasn't been more uptake is because the standardization needs to happen. The certification needs to happen.

And so the barrier is basically prototyping it enough that it can get standardized and then incorporated. So that totally reminded me of it because the cooperation between Canadian academics is vital because obviously it's the government making it like an appealing place for global minds to come in terms of sustainability to say that this is a progressive forward-thinking country where you can, you know, think big about how to make a difference and then that eventually feeds back into the private ecosystem as well.

Heather Taylor: Yeah, and I think, I mean, it's great to hear that there are people that are leading the charge in those areas. We have to look at how we are seen and perceived internationally. And unfortunately, Canada is seen as a laggard. I mean, that is, that's honest, it's the inconvenient truth some might say. But the fact is that we also have an enormous role to play.

I mean, we are an economy that's driven off of fossil fuels, but fossil fuels are not going to go away and they're not going to go away overnight. So instead of saying, shut them down, empower them to be part of the solution to either enhance the cleanliness of our fossil fuels, but how do we help them transition to the new economy?

And I will say internationally, you know, we're perceived as dirty because of our fossil fuels. But, I mean, at the end of the day, we know that people are not going to just turn the pumps off. It's just not going to happen. It's not realistic. But I do think Canada has a huge opportunity to be a global leader.

And how do we transition and clean fossil fuels? Carbon recapture is a big new opportunity. And the fossil fuel industry absolutely can be leading in that arena. As much as people criticize us, I'd love to flip that upside down and say, we can actually use that economic driver and become a leader in approaching the way that we need to function and operate in the new economy.

Katie Jensen: I want to talk around human pressure, specifically, how do you quantify something that's very qualitative like construction worker productivity? Investor pressure? General attitudes towards a company? The brand perception? How do you factor that into scenario modeling in terms of if you don't do anything and just keep systems go, don't make any sustainability changes, these things will be inevitable and they will have X, Y, Z financial impacts on the bottom line.

Heather Taylor: In economics, there's what they call a supply-demand curve. When you increase demand, you have to increase your supply in order to maintain an appropriate pricing model.

And so my simple example will be if you do nothing, investor demand for your product or investor demand in the sense of how appealing your company is to invest in will decrease. And if investor demand goes down, the value of your organization will eventually be impacted. 

If I look at it a little bit differently, and you're in a supply chain, and you're told that if you do nothing, organizations do not want to purchase your goods, then that means that there is less demand for your goods and that will hit your value. So there might not necessarily be a direct correlation to doing nothing to a quantitative number, but there's aspects of how that can be interpreted.

And so many people can actually quantify productivity into dollars, because it becomes your cost base, but doing nothing from a sustainability perspective, it really changes the supply-demand dynamic that you're currently experiencing through a set of assumptions we can predict where we think supply demand impacts will in actual fact catch up and have a value impact.

Katie Jensen: Are there any kind of predictable factors or is it much harder to quantify?

Heather Taylor: It's much harder to quantify. Where we would look at it differently is say, “Okay, out of the available capital market where investors are putting their money, what percentage is saying we're happy to do any type of financing” versus what percentage of the market is actually mandating, “I'm only interested in climate,” or “I'm only interested in sustainability,” or “You have to follow these particular ESG criteria.”

So I think it would be more from how does it correlate to the access of funding. Like if you think about, it really is your risk profile. And if you think of general insurance, when you have a higher risk profile, the cost of your insurance goes up. When you have a higher credit risk, the cost of interest goes up. And so, this really just becomes part of your risk profile to organizations that are evaluating you from, either a credit-worthiness perspective, or, do you meet their criteria to invest their funds. So I think it becomes more of a risk profile correlation than it does a very direct metric.

Katie Jensen: I'm wondering if you can kind of highlight some of the arguments or the hedges that you hear when you're talking to folks in the construction industry about why it's so difficult to change or what their reluctancy is? Maybe that's, “We only have this much money, we only forecast this far into the future.” Can you just tell me about some of the common arguments you hear?

Heather Taylor: Well, you just nailed them, you know, “I can't afford that today.” Or, “We're only predicting out” — to your point — “we're only budgeting out, we're only forecasting out a couple of years, rather than a longer term forecast.” And so it's harder to show the business case in a one or a two year period as far as what is the ROI. So that is very common. What we're trying to do is get organizations to think longer term and understand that the ROI, is the return on investment, is going to be over a period of time and what we are anticipating being the volume of weather-related events are also going to increase over time.

And so, it's cost of doing nothing. You might not have that expertise to do it, but there are organizations that can help you with that horsepower so that you're making more informed decisions. I mean, we live in a society that wants instant results, we're so used to instant gratification and this is longterm. This is the long game. And so it's making decisions today that are going to benefit us today, but benefit us in the longterm.

Katie Jensen: It's like Earth's succession plan.

Heather Taylor: Yeah, exactly. I love that.

Jen Hancock: That was Heather Taylor, a Partner at EY in the Climate Change & Sustainability Services practice. Thanks for listening to Building Good. If you want to keep hearing conversations about the future of architecture, engineering and construction stay subscribed on any podcast app. Building Good is a Vocal Fry Studios production in partnership with Bird Construction and Chandos Construction. The producers are Jay Cockburn and Katie Jensen, with production assistance from Jessica Loughlin and Joanne Hignett. I’m Jen Hancock. Thanks for listening.