The Impact of ESG in Construction
Green building, nondiscriminatory employment policies, ethical leadership — none of these are new concepts in the construction industry. However, they’ve begun to fall under the umbrella of an increasingly popular term: environmental, social and governance (ESG).
ESG might sound like nothing more than the latest corporate buzzword. But businesses today — including construction companies — are under increasing pressure to adopt sound ESG practices. And this pressure isn’t coming from only the general public. It’s coming from a variety of legit stakeholders in the construction process.
Breaking It Down
Perhaps the biggest challenge in understanding ESG is identifying and addressing all the different concepts and actions that fall under its broad banner. Here are some examples:
Environmental Practices. For construction companies, these include consumption of energy and other resources, efforts to lessen carbon emissions, jobsite recycling, and sourcing and usage of materials.
Social Practices. These include an unbiased hiring process; fair labor policies; diversity, equity and inclusion measures; and jobsite safety procedures.
Governance Practices. Under this subcategory fall things such as ethics and integrity in how business is done, anti-fraud measures, pay equity, legal compliance, and cybersecurity and other privacy measures.
Reaping the Benefits
In the past, businesses had to of course follow applicable laws in these areas. (And they still do.) But, otherwise, they were largely expected to “self-regulate.” Nowadays, as mentioned, external stakeholders are becoming more and more mindful of whether companies are covering all their ESG bases.
Paying Attention to ESG Issues Can Help You Mitigate Risks and Better Control Costs.
For example, in construction, project owners are considering ESG practices in determining which general contractors to solicit or accept bids from. And some will look into subcontractors and suppliers as well.
Today’s job seekers and employees — especially younger ones — are likely to consider employers’ ESG practices in deciding where to work. Solid ESG practices may enhance a construction company’s “employer brand,” granting you a competitive advantage in the ongoing skilled labor shortage and overall tight job market.
Paying attention to ESG issues can also help you mitigate risks and better control costs. For instance, by focusing on sustainability and green building techniques, you may be able to reduce fuel and energy consumption, streamline your supply chain, and minimize waste. Addressing social practices can help prevent employment litigation and curtail workers’ compensation costs. And tightening up governance can prevent costly fraud and data breaches.
Taking the Next Step
How big of a deal is ESG? Many of the largest and top-performing U.S. companies already include ESG updates in their financial reporting.
If you’re interested in improving your construction company’s ESG practices — and perhaps sharing progress updates with customers, employees and others — contact us or talk to your professional advisors about incorporating ESG info into your financial reports, internal communications and marketing materials.