Growing Demand for ESG Reporting in Construction

Environmental, social, and governance standards, collectively known as ESG, are becoming a growing focus for construction and engineering firms.

Increasing demands for ESG come from voluntary initiatives like the Contractor’s Commitment, investors’ interest in sustainability, or companies’ own net-zero carbon goals. The SEC also is driving more attention with recently proposed reporting changes and mandates. All of these create challenges and opportunities and make ESG commitments a top concern for executives.

Their attention is warranted. It’s estimated the built environment produces 30 to 40 percent of overall greenhouse gas emissions and accounts for 40 percent of energy use. Collectively, construction consumes 32 percent of the world’s natural resources, making it a critical sector for achieving a more equitable and sustainable future for everyone.

Because projects can be vastly diverse in terms of scope, among the first tasks for any company starting ESG tracking efforts is determining what to track and how to gather that data.

The Metrics That Matter Most

ESG can encompass hundreds of data points with varying degrees of value and impact, and there are multiple frameworks available to organizations. While reporting standards at the construction level are still vague and lack consensus, check out these established ESG corporate standards for context that might fit your situation:

●     The Global Reporting Initiative (GRI) Standards

●      MSCI ESG Focus Indexes Methodology

●      SASB Standards

What is common among each framework is the focus on an organization, its employees, and its assets. This becomes a challenge in the building industry where more than half of the employee base can be in the field. That begs the question - how does ESG impact the large portion of organizations that are part of the actual construction process?

Metrics and strategy will be unique to each organization, but most of the emphasis in the built industry is on the first category, environmental impact. For builders and contractors, this means measuring and mitigating energy consumption and corresponding carbon emissions. Carbon emissions are classified in three ways based on the source:

●      Scope 1: Purchased Fuels - emissions directly occurring on the job site, e.g. gas combustion from earthmovers and natural gas for generators.

●      Scope 2: Purchased Electricity - these emissions occur hundreds or thousands of miles from your operation, but are attributed to your efforts, e.g., temporary power for running the project.

Scope 1 and 2 tend to be relatively easy to track because there is a paper trail with bills and invoices for these expenses. Not so for the third category:

●      Scope 3: Emissions from second- or even third-party transportation. This can include a vast amount of data with no easy way to aggregate it, such as:

○      Product Transport – emissions associated with getting drywall, steel, furniture, etc. from the manufacturer/distributor to the project.

○      Employee Commutes – emissions associated with getting the GC’s team and onsite subcontractors to and from the project each day.

○      Business Travel – other travel associated with the project.

Environmental impact also includes reporting construction waste, often calculated in tons of waste teams have diverted from landfills. Some ESG requirements include tracking total embodied carbon emissions, which can be complex and involve a variety of sources depending on the level of depth and scope of reporting. Finally, tracking water consumption is important and might include use for batch concrete plants on site, or for testing pipes and waterproofing.

Like scope 1 and 2 energy use, water will almost always have a bill associated with it and can be tracked easily.

For social impact, reporting participating M/WBE (Minority and Women-owned Business Enterprises) is important, and companies can include the core team as well as subcontractors and suppliers. Another important factor in this category is defining the “local” impact of the build and determining what project dollars benefit the local community. New jobs created during the build process and after completion, local business revenue generated, fees paid to taxes and licenses, etc. are all important to include.

Employee wellness also falls under social and construction companies will need to consider both offices and job site environments to provide a positive, safe work environment.

Safety also could fall under the final category, governance. For example, equipment regulations, requiring hard hats, etc. But governance doesn’t get as much attention because these metrics are largely determined outside the project or even beyond the corporate level. In the work Green Badger is seeing, most of the focus currently is on reporting metrics in the first two categories.

Again, there are currently no wrong answers when developing these metrics, but it’s very important to track them consistently and measurably.

Turning Data Into Better Decisions

For many companies, the data is an abundant resource, providing a firehose of information that is neither revealing nor actionable. That’s why there is a real difference between just measuring ESG priorities and facilitating change and improvement.

To best achieve ESG outcomes, here are three ways builders can help make progressive improvement a reality.

#1 Appoint a Leader to Oversee ESG

Having a clear, demonstrated leader at the top to champion ESG initiatives is critical to achieving company-wide buy-in and optimal results. This person or team is responsible for evaluating and orchestrating the company’s ESG strategy. Regardless of the team’s scope, ESG initiatives need a senior leader to support, promote, and guide these efforts.

#2 Turn to Proven Tools

A large hurdle is getting other companies to collect and share their data. Teams will find there is a reluctance to share information and collecting consistent data over potentially several years of construction can be difficult.

With so much out of the construction team’s control, processes must be developed and followed closely. But companies don’t have to build their systems from scratch. For harder-to-track metrics, ESG teams can turn to a growing number of companies and agencies like the Carbon Leadership Forum which are creating useful tools (the EC3 calculator is one example) to help build estimates.

#3 Report Outcomes to Promote Accountability

Required, standardized ESG tracking and reporting in construction is much like a faucet, and today we see just an occasional drop. Builders should expect that drop to quickly become a trickle and then a full stream as investors, regulators, and consumers throw their weight behind ESG commitments.

When builders are making progress on their ESG commitments, they can comfortably and confidently report company or project goals and outcomes. This allows companies to benchmark and track ESG progress and deliver results that prioritize consistent improvement.

The Time is Now

The construction industry has an outsized impact on climate and communities. Forward-leaning executives should invest time and effort today to ensure their teams are prepared and the right information is rolling up from all levels to inform all appropriate stakeholders.

In the end, incorporating construction ESG at the project level is becoming exceedingly relevant, from your own internal corporate goals to regulatory requirements. And, with so much on the line, from emerging investor interest to shifting regulatory standards, the building industry has every reason to optimize its process and accelerate its outcomes now.