How to sew the ‘green thread’ through sustainable public sector investments

The role of sustainability in investment decision-making

At the last Spending Review in 2021, HM Treasury (HMT) required qualitative commentary against the government’s 25 Year Environment Plan and net zero ratings for all capital and high-impact resource spending bids. This also demonstrated an ambition to increase departments’ ability to report effectively on sustainability metrics in future spending rounds. That same year, the introduction of the Environment Act placed a legal requirement on departments to pay due regard to Environmental Principles when developing policy.

This means as well as a compelling golden thread of strategic alignment, investments will also need a green thread that provides a clear narrative on how the proposal supports a net zero future. Simply paying lip-service to sustainability will make it increasingly difficult to secure investment.

Acting sustainably means meeting the needs of today without compromising the ability of future generations to do the same. Public sector investments follow HMT Business Case and Green Book guidance, which all expect environmental impacts to be clearly presented to decision makers.

However, many business cases consider sustainability too late for it to meaningfully influence the result. Thereby missing opportunities to reduce environmental impact while delivering the same (or better) outcomes, and compromising the government’s sustainability targets, such as net zero carbon emissions by 2050.

Here are some practical ways for leaders to sew this green thread across the five dimensions of any business case:

1. The strategic case

Set the expectation that environmental impacts are an essential part of investment analysis. This means ensuring all projects include sustainability ambitions within their spending objectives on a ‘comply or explain’ basis. Spending objectives drive all aspects of the business case so, if sustainability is absent, it will be judged as a nice-to-have rather than a must-have in any cost-benefit appraisal.

For example, the ongoing Buckingham Palace Reservicing Programme has six equally weighted objectives, one of which is to “Improve energy efficiency of the Palace – reducing carbon emissions by 554 tons through reducing annual energy consumption by 40%”. This has seen the project team prioritise this during design, alongside mitigating the risk of fire and flooding which were the initial drivers for investment.

In the early stages, it might not be possible to agree specific, measurable, achievable, relevant, and timebound (SMART) sustainability-related objectives, especially if the costs of doing so are unknown. You can work with your portfolio teams to identify each investment’s contribution to wider organisation and department targets. Even setting an overall intention – such as to reduce carbon emissions – will still allow sustainable impacts to be given the right emphasis during decision-making. A specific target can be agreed later in the development process, once the trade-offs are known.

2. The economic case

Identify options that offer varying degrees of sustainability (for example, from minimum compliance to industry-leading) as part of developing a longlist of potential interventions. This ensures environmental impacts are considered early and can highlight less expensive ways to deliver the same objectives, such as nature-based solutions and opportunities to repurpose assets at the end of their lifecycle. This avoids the sub-optimal approach of retrofitting environmental mitigations to a preferred option. For inspiration, our sustainability experts and the Ellen MacArthur Foundation Network co-developed a practical guide on circular economy opportunities.

HMT’s Green Book, and supporting annexes, already offer comprehensive guidance on monetising sustainability impacts. This can identify important investment impacts that otherwise might be ignored – such as the significant reduction in carbon intensity of cloud-based data storage solutions versus on-premises. Use the appraisal to highlight the likely future cost of inaction by testing scenarios where tougher penalties on polluting activities have been introduced, which will likely have a significant impact on value for money. Tools such as the Department for Transport’s carbon summary table and carbon benefit cost ratio are effective ways to play back this analysis to decision-makers and ensure sustainability is considered alongside other trade-offs.

3. The commercial case

Engage early with the market to reduce the baseline environmental impact of delivering on objectives. Suppliers can provide advice on innovative green technology – for example, we helped the Centre for Regenerative Design and Collaboration (CRDC) create lower carbon concrete from plastic waste using state-of-the-art testing equipment at our Global Innovation and Technology Centre. This early engagement also ensures that requirements and incentives match the market’s capability to deliver, without pricing in significant risk or shutting out smaller suppliers.

4. The financial case

In a constrained cost environment, decision-makers’ default priority is often to minimise upfront capital expenditure. This can lead to compromises on sustainability that unintentionally invite the risk of future costs. Investment today that is inconsistent with a net zero future is likely to incur retrofitting expense that could have been avoided through appropriate funding upfront.

Ensure you provide decision-makers with a detailed whole-life cost view to make better informed trade-off between lower initial capital expenditure and higher long-term expenditure from more resource-intensive operations.

5. The management case

Embed key metrics such as carbon emissions and biodiversity net gain into your benefits realisation and governance processes (as you already do with costs) so decision-makers have visibility of evolving sustainability impacts and can manage related risks and issues. We took this approach in our work with the UK’s Department for Environment, Food, & Rural Affairs (Defra), developing a bespoke framework of performance indicators to enable Defra to easily and accurately measure benefits realisation within their £675 million tree-planting programme.

Give confidence your programme plan has considered ways to minimise resources, for example by sequencing activities to minimise movements of people and materials and avoid wasteful temporary structures. Track changes to the initial baseline programme to show progress to decision-makers.

Public sector investment guidance already encourages sustainability considerations in decision-making, but it’s up to leaders to make it a default priority and sew the green thread throughout the business case. Only then will we have the right evidence base to make robust decisions that deliver value for money and support the government’s net zero targets.