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Renewing Renewal

Understanding a project’s unintended consequences can boost long-term infrastructure effectiveness and profitability.

Posted on May 2, 2014
Written by Antony Upward

Many designers and builders of infrastructure are motivated by the public good; they appreciate that their water treatment plants, sewer systems, electrical networks, and other projects are helping people live better lives.

For many years, infrastructure businesses have successfully created benefits for citizens while also generating significant economic value for themselves and their business partners. Clean water supply and efficient sewage disposal, for example, helped eradicate many diseases and supported a healthier population. Reliable road networks allow goods to be plentiful and affordable. While most of these projects were owned and operated by the public sector, the companies who built and maintained them made a profit doing so.

However, more recently, members of this sector have come to realize that while they are doing some good, the negative impacts of their work are growing—such as increased costs for design, construction, and maintenance, as well as materials shortages, deforestation, energy costs, and groundwater impacts. Secondary impacts are also multiplying, including carbon emissions and greenhouse gases from vehicles, ecosystem declines, food security, and increasing social inequality. Some have started to connect the challenge of remaining profitable with the additional risks and opportunities these unintended consequences create for those designing, building, and maintaining our infrastructure.

Accordingly, some members of the infrastructure industry started to ask: Is there a way to do even more good, by reducing these unintended environmental and social costs, while also doing better financially? Could we build better businesses, more fit   for this emerging future while reducing risk?

The state of bidding
Seeking an answer to this question requires an understanding of how infrastructure projects are currently developed. Generally, cost is a huge factor: bids are awarded based on cost, and companies involved in designing, building, and supplying projects are motivated to keep costs down in order to keep profits up. However, this model pays little attention to the unintended consequences, which can take the form of short or long-term economic, social, or environmental costs for the infrastructure purchaser, users, or community in which it’s built.

Three types of unintended consequences can result from decisions such as this:

  • Reduced effectiveness: The cost-focused model means that money saved through lower construction costs is spent through higher costs and lowered efficiencies elsewhere. In addition, since the owner is usually in the public sector, achieving other broader public policy mandates are frequently hindered by this lowest-cost approach.
  • Higher risk: If infrastructure design considers only the narrowest possible definitions of requirements (in order to keep construction costs low), it can create problems for stakeholders who may interact with it, but are not its prime users.
  • Missed innovation opportunities: Broadly considering the systems in which the infrastructure is being built and operated, including a wider range of stakeholders and their needs, is a known technique for increasing innovation and benefits.

Ultimately, these unintended consequences are a result of infrastructure designers, builders, and maintainers—in both the industry and the commissioning organizations—not taking a broader view of doing good and doing well.

Reimagining infrastructure
Infrastructure renewal and development can be done in a way that involves more “doing good” on behalf of a greater number of stakeholders—including Mother Nature and society as a whole—while also “doing well” for those involved in the process.

This comes in three ways:

1) More sustainable materials
Some materials being increasingly used in infrastructure can help mitigate the structure’s environmental effects. One such example is pervious pavement. Using larger particles than the sand usually mixed in, pervious pavement allows precipitation to flow from the surface into the ground below. This reduces runoff that would in storm events wash into nearby watercourses, causing erosion, silting, and impacts on fish habitat as well as the potential for flooding.

Using permeable pavement reduces the need for land to be taken up with stormwater management ponds, reducing land requirements and construction costs while also allowing existing natural habitat near infrastructure projects to continue to flourish.

 

2) More sustainable designs
At least one builder of housing infrastructure discovered that a number of buyers will pay more for better, more sustainable design, provided they are convinced it will save them money in the long run. In Alberta, the Landmark Group of Builders offers high-efficiency furnaces, a higher level of insulation, and other touches like a drain water heat recovery unit to recover the heat in shower water. Lot sizes may be larger, if this allows the house to be positioned to catch more solar gain through more exposure on its southern side.

As Landmark notes on its website, “You don’t notice energy efficiency until you receive your bill.” As their financial results and recent growth have proven, people will pay for this when the benefit is appropriately explained.

3) 
More sustainable business models
Companies that see that their ability to more proactively respond to the risks of unintended consequences, and exploit the new emerging opportunities to enable profitability levels to be maintained or increased, are now starting to invest in more sustainable business practices. One of the new innovations in this area is the “benefit corporation,” which enables companies to deviate from the singular obligation to provide as high a rate of return as possible.

Benefit corporations allow companies to proactively create benefits for larger numbers of their stakeholders, which in turn reduces both operational and financial risk while creating innovation opportunities to be more successful in the market. This type of business model provides companies breathing room when it comes to financing, because they attract financial sources as interested in a social and environmental return as they are in a financial return.

Companies involved in infrastructure development, given these projects’ long time frames, may appreciate patient investors, willing to wait for a sustainability-focused strategy to bear financial fruit. Given the way sustainability considerations can help mitigate the social, economic, and environmental risks of a project, the long-term approach may be more of a sure thing in the long run.

We can see this in the Ontario government’s recent announcement of green bonds as a way to borrow money for environmentally friendly infrastructure, including transit projects. “The green bonds will be associated with specific projects that would qualify for it, so they would be certified for that project,” Finance Minister Charles Sousa said in an interview with the Globe and Mail. “They’re associated only with those projects that lower the carbon footprint and enable environmental conditions to be enhanced.”

Sometimes, initial steps taken to deal with an environmental issue are not completely successful—and the learning results in even more imaginative solutions.

Consider the environmental effects of glycol, a de-icing fluid used by many airports, including Mississauga, Ontario’s Pearson International Airport. Studies done in 2004 found that the glycol levels in Etobicoke Creek, which runs along the western side of Pearson, were 50 to 100 times the levels allowable at that time. Accordingly, in 2007, the airport constructed a separate facility where aircraft could be de-iced. Regulatory authorities were disappointed to find that while the water quality in the creek improved somewhat, it did not improve as much as had been hoped. They then discovered that much of the pollution was due to the impacts from the industrial zone surrounding the airport. This led to an imaginative collaboration between the airport authority and the regulator for a way to “green” the industrial area. In turn, this led these two unusual partners to found  Partners in Project Green, the largest eco-business zone in Canada, which among other purposes, encourages businesses surrounding the airport to operate in ways that cause a lower environmental impact and enhance the social benefits.

Such innovations, risk mitigation strategies, and collaborations are a good example of the key point made in KPMG’s recent report, Expecting the Unexpected: Building Business Value in a Changing World. Since the recent economic uncertainty is showing little sign of improving, and the awareness of social and environmental unintended consequences is only growing, it is clear businesses need better business models that systematically consider these risks and opportunities.

For the infrastructure industry, that means to continue to be able to do well, it must also do more good.

 

Antony Upward is a sustainability business architect and principal with Edward James Consulting Ltd. in Toronto. He recently completed a three-year research project on Strongly Sustainable Business Model design with the Schulich School of Business and Faculty of Environmental Studies at York University.

 

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