Environmental, social, and governance (ESG) reporting is gaining popularity in construction as investors, stakeholders, and project leaders increasingly emphasize value-driven investment. As such, business owners and consumers see that real-world factors like climate change and worker injury rates in construction highlight the importance of achieving ESG objectives not only for the scores but also for the benefit of our environment and communities. Many question how ESG reporting is impacting the construction industry.
What Is ESG Reporting?
Environmental, social, and governance – or ESG – reporting is the process of analyzing a company’s environmental, social, and governance practices. For example, a company that dumps its garbage into a local stream would score poorly in the environmental category, whereas a company that donates a percentage of its profits and encourages employees to volunteer would score well in the social category.
These three categories give an overview of how a company demonstrates its values through its actions. While a business can readily claim to support a certain cause or charity, if they implement practices that go against the values they promote, such claims are meaningless.
ESG reporting offers a concrete, unbiased way for investors and other interested parties to assess the core practices of any company before they offer funding or support. Potential employees and partners may also research a company’s ESG reports before getting involved, especially among younger people, who tend to prioritize their values in their professional lives. Regardless, different industries may put more emphasis on certain elements of ESG. For example, the social category tends to be emphasized in the construction industry due to the manual labor nature of many construction jobs, whereas the environmental category is emphasized in the chemical industry due to manufacturing.
Additionally, the environmental category has become a major priority. In a 2020 case study, the US Green Building Council reported that their sustainable building initiatives have led to 1.85 million square feet of new construction space applying for LEED certification every day.
What ESG Means for Construction
ESG reporting can guide construction companies toward more sustainable and responsible practices, improving their impact on their communities and environment. Pursuing ESG goals, particularly in the social category, also helps make construction a safer industry.
Even before ESG reporting was formally invented, the impact of social data helped improve things like injury rates in construction. This can be seen in the decreasing injury rates and improved PPE and safety standards, such as safer construction equipment or expanding safety policies to include hot and cold weather job site safety.
In the construction industry, ESG reporting is a two-way street. On one hand, it gives construction companies valuable information they can use to better their own ESG impact. At the same time, ESG reporting gives potential clients, partners, investors, and employees an impartial look at a construction company’s ESG footprint. From both sides, it is beneficial for construction companies to conduct ESG evaluations and disclose the results. In fact, industry leaders have even begun using ESG data to recognize construction firms that are leading the way in areas like sustainability.
Even if those results are less than ideal at first, using them to create an ESG strategy is a sign of good faith for investors and clients. Demonstrating care for ESG values can help construction companies secure more new projects while also improving their local and global impact.
It is also worth noting that demand for ESG reporting will likely only increase in the years ahead. As of 2021, 98% of investors report evaluating ESG performance. Millennials are also three times more likely to seek employment with a company that matches their social and environmental values. Many high-profile organizations are also maintaining ESG or sustainability records on their facilities. For example, Harvard University publishes detailed case studies on each of its LEED-certified campus buildings and construction projects, including data on how the building’s design performs and the specific certification it earned.
Looking to the next generation of employees, Gen Z, or “Zoomers,” are actively choosing careers based around sustainability and pursuing roles that prioritize environmental impact. So, ESG performance could very well shape the future of the construction industry’s labor and skills shortage.
The social element is just as important here, as well. If young people see that jobs in the construction industry are unsafe, they are less likely to consider one of the many rewarding careers in construction. ESG reporting and ESG improvement initiatives can help address funding, safety, and employment in the construction industry.
Improving ESG Scores in Construction
With these factors in mind, many construction professionals may wonder how they can improve their company’s ESG performance.
As ESG metrics are constantly evolving and differ across region and/or country, with transparency greatly varying by company, construction faces a particular difficulty in evaluating ESG. However, there are some tips that construction professionals can implement to get started.
A great place to begin building an ESG strategy is with existing industry initiatives, ratings, and programs that focus on ESG categories. Examples of these programs and initiatives include LEED, ICP, green building standards, and carbon neutrality. Gaining green building certifications on projects can help demonstrate good environmental practices. Certification programs will offer clear metrics for construction companies to use to measure performance, simplifying the process, and monitoring systems can measure the air quality and energy expenditure.
The social category of ESG is the other important element in construction, and there are many ways construction companies can demonstrate good social responsibility practices.
For example, the US Green Building Council (USGBC) featured an in-depth case study on a public elementary school completed in 2020 that perfectly demonstrates ESG values and reporting. The building has a net-positive energy balance and is powered entirely by solar. It was built in a way that carefully considered the local residential community and the social and physical health of the students and teachers who would be using the building. This is a great example of how construction projects can prioritize multiple aspects of ESG at once.
Additionally, they can hire from programs like Nontraditional Employment for Women (NEW), which trains women for careers in construction and the skilled trades. Additionally, strong safety performance and comprehensive safety and training programs demonstrate care for employees. Good safety practices and tracking are among the most important ESG factors for construction companies.
Building Better with ESG Reporting
Construction companies can use ESG reporting to better their impact on their communities and the planet. ESG reporting can benefit the industry as well, if construction companies act on the information they gather from ESG evaluations.
ESG has always had an impact on the construction industry, sparking positive changes like improved safety standards and green building initiatives. The future of construction will be about building regenerative structures that not only have a positive impact now but consider the implications for the future.
