The environmental impacts of projects and organisations

Sustainability reporting, ESG and materiality look like a maze of mysterious terms and many organisation are in the dark about how to get through it. The matter is important, because thousands of organisation in the EU fall under the legal requirement of publishing an ESG report next year. Green Project Management has many tools needed to deal with the challenge. 

Drivers of sustainability

Organisational sustainability has become a key trend in many, if not all industries. There are several drivers of this trend that can be categorised as external and internal to an organisation.  External driver comes with the Environmental, Societal and Governance (ESG) reporting requirements, rooted in investors’ expectation of financial and non-financial transparency. It became then a legal requirement in several legal systems, including the United States, the United Kingdom, and the European Union. In the EU, the Corporate Sustainability Reporting Directive (CSRD), that entered into force in January 2023, has mandated some 50 000 of European companies to prepare and publish ESG reports, first time in 2025, covering 2024.

The internal driver is rooted more in the strategic intent and the value set of an organisation. Here we find the adherence to the global trend of strengthening the sustainability in response to the global climate crisis and the overuse of the planet’s resources.

This is accompanied by the perception that sustainability may strengthen brand attraction and market position. This business adherence to sustainability is translated into strategies, portfolios and projects to strengthen sustainability of all organisational operations, and then demonstrated in sustainability reporting, feeding into ESG disclosures.

Environmental impact mapping: P5 Ontology

A key challenge is to map the environmental impacts of an organisation, at different levels and in different areas, including operations and projects. Green Project Management has developed a mapping tool for this specific purpose, under P5 logo, where the five Ps are an acronym for:

  • Product
  • Process
  • People
  • Planet
  • Profit

The P5 framework is shown in the Picture 1. It contains two perspectives: product and process, with five lenses within these perspectives. Next to these there are three domains: People, Planet, and Profit, further broken into detailed categories of environmental impact. The tool allows us to look for the impacts of a product through its lifespan or in servicing on a variety of human impacts (People domain), environmental impacts (Planet domain), and economic impacts (Profit domain). The framework is sufficiently elaborate, to offer a comprehensive tool for detailed environmental impacts mapping. Of course, not all activities will have all impacts at the same time, so the tool allows us to be selective, letting us find the most significant impacts. This is what materiality is all about.

Environmental Impact Mapping, P5 ontology

Picture 1. P5 Ontology. The GPM® P5™ Standard for Sustainability in Project Management, Version 3. GPM Global, 2023. (CC)

Project materiality, operations materiality, organisational materiality

Material impacts are those significant to an organisation. The principle of materiality was introduced by the U.S. Securities Act of 1933 to mean all available information that may be important to an investor while considering a stock exchange investment.

That meaning of materiality was extended later to entail all significant information about an organization’s activities significant to its financial standing, in which investors may be interested. This includes now also non-financial information, particularly concerning the impacts on the human and natural environment.

Projects are a major part of any organization’s activity, they are often undertaken to improve the operations, making them more efficient and profitable. In that way they are of interest to potential investors, with the whole new trend of sustainable investing and ‘green funds’.

For these reasons, the materiality insights must integrate both operations and projects, to give a proper depth to the understanding of an organization’s environmental impacts and to the design of strategies addressing them.

Materiality will be very different from sector to sector. Companies active in the construction sector will find different environmental impacts than companies in information intensive  sectors (banking, insurance, data management).

The P5 framework has been specifically designed to help us with the project impacts, allowing us to look at project materiality. But the same tool may be used to look at the materiality of business operations. The difference is identical to the difference between project and operations. Any project delivers a specific product, which will have its impacts throughout its life spans and in servicing. That project product will be created through a certain delivery process.  We can establish the project materiality looking at all impacts through these perspectives.  

Much the same can be done for operations, but there we do not focus on a temporary activity undertaken by a temporary organisation (a project), but by permanent repeatable activities delivering large series of products. The same perspectives and lenses can used to find the impacts of the production processes, such as assembly lines, on human environment, natural environment and the economic environment. Altogether, the insight into the project materiality and the operations materiality will give us the sustainability materiality of the organisation.

Dual materiality, sustainability reporting and ESG disclosure

P5 framework is an environmental impact mapping tool useful for both projects and operations and it can drive the sustainability reporting and ESG disclosures. It also gives sufficient depth to any environmental impact insight. While it is not a template for an ESG or a sustainability report, it gives focus and it structures the information needed for it. Let’s have a look at the differences between those two kind of reports.

An Environmental, Social, and Governance (ESG) report provides information on a company’s situation and activities related to environmental, social, and governance matters. The governance element is about aspects such as (selected): board composition and independence, executive remuneration, anti-corruption measures and signaling. The environmental element focuses on atmospheric emissions and energy use, waste management, water usage, biodiversity protection and pollution prevention and climate risk management. Lastly, the social element includes: employee health and safety, workforce diversity and inclusion, human right protection in the supply chain, community engagement, personal data protection. The structures of the ESG reports respect the established standards, such as GRI.

The ESG reports are externally motivated, underpinned by materiality as an investment criterion, the original target of the ESG reports are investors, expecting to be well informed about an organisation’s environmental dealings. This has been completed by legal requirements at the international and national level.  

Sustainability reports differ from the ESG disclosures in that they are internally motivated and designed. They are not mandated by law or responding to investor expectations. The organisations are free to decide on their structure and content. These reports are often more complete and give a deeper insight into an organisation’s sustainability activities, including social, economic and environmental impacts, community involvement, and support of the NGO sector. Sustainability reports often give measures of an organisation’s environmental standing using data and metrics such as emissions per unit of production, water usage and pollution, and staff well-being. The reports also include a reference to the organisation’s sustainability strategy, comparing the actual performance with objectives to achieved. So, sustainability reports provide a way for organisations to demonstrate their commitment to sustainability and communicate that to all interested parties. The relationship between the sustainability reporting and ESG disclosures is shown by Picture 2.

Dual materiality reporting. Copyright: GPM Global®.

Picture 2. Dual materiality reporting. Copyright: GPM Global®.

Sustainability reports can be cascaded. In the project domain sustainability can be measured at the project level, programme and then at the portfolio level. Together with the sustainability of operations, that gives us the organizational level and a strategic perspective on an organisation’s sustainability.  

Practical implications

ESG and sustainability reporting is not an end in itself, and it cannot be the sole sustainability activity of an organisation. It is rather the peak of a pyramid, and at the lower level of the pyramid there is a whole range of activities at the project, programme and operational levels, which are decisional, planning and managerial, leading to sustainability and ESG reporting. The sustainability information can be integrated into specific project reports, based upon planning documents such as Sustainability Management Plan or Approach (the last document was introduced by version VII of PRINCE2 method, published in 2023, together with sustainability becoming the seventh aspect of project performance).

Materiality assessment should not leave out the project environmental impacts.

From the practical view point, planning, managing and reporting sustainability requires an adequate toolbox. Above all, the data and information needs to be collected and safeguarded in a standardised way, to be available when needed. Dedicated information systems are required for that. Secondly, sustainability is a collective concern, involving the teams within the organisation on many levels, and also the interested stakeholders.

The P5 framework can be used at the project level, programme level, portfolio level and the strategic level to identify the different materialities, and then decide, plan and manage on their bases. Data analysis is one useful technique, with the previous projects supplying invaluable sources of knowledge and information. But we also appreciate more social techniques such as facilitated workshops with the involvement of the project (programme, portfolio, strategy) teams and the concerned stakeholders. The digital and social sources of knowledge should come together to inform sustainability management and reporting.

Lastly, the ownership of the whole process is crucial. We see the ESG reporting becoming another consulting service, offered by service suppliers, large and small. Which is perfectly alright, but we suggest the deep ownership of all suitability-oriented within an organisation, going as deep down as the projects and operations. The sustainability reporting climbing up from these levels will be aggregated to give the most authentic ESG reporting possible, far away from any form of green washing.

Learn more? Have a look at our course on projects & sustainability

Takeaways

  • Materiality contains all significant impacts of an organisation on its environment 
  • Project impacts must be taken into account for complete materiality aseessment
  • Sustainability reporting is different from ESG reporting
  • Both digital and social sources should be used to establish material impacts of an organisation

Written bij Artur Kasza. Artur is a certified GPM trainer and team member of Projectmanagement-training.net