ESG in Construction
The GC's Starting Point for Environmental, Social, and Governance
The purpose of ESG standards is to build a resilient construction business with predictable, long-term success.
Imagine the worst construction company you can think of, run by an owner whose only goal is to make a quick buck. They low-ball their proposals; hire workers without documentation or current certifications; skip safety checks; use cheap, low-quality materials; and stir up anger in the community by leaving trash and disrupting neighborhood streets. A contractor like that could rake in a tidy profit for a few projects, but they are not poised for long-term success. Nobody would do business with them twice.
Clearly, what makes a construction company “successful” is more than the final number on the balance sheet.
That’s where ESG in construction comes in. ESG stands for environmental, social, and good governance. It’s a way of assessing a company that includes risk and success factors, in addition to cash flow and profit. The purpose of using ESG standards in construction is to build a resilient business with predictable, long-term success.
What is ESG in Construction?
Here are some examples of ESG in construction. As you can see, “ESG” includes a combination of many different factors for construction. Together, they paint a picture of business health and exposure to risk that goes beyond the balance sheet.
|Water consumption and carbon emissions||Customer satisfaction, community involvement||Due diligence in onboarding contractors & suppliers|
|Recycling on the jobsite||Good safety practices||Equitable compensation|
|Responsibly sourced materials, mineral extraction||Hiring diverse candidates, DEI initiatives||Tax structure, fair company policies|
What are the Benefits of ESG in Construction?
There are many benefits for construction companies that track ESG-related metrics:
More competitive and better positioned to win jobs
There is increasing demand for energy efficiencies from investors, from consumers … and increasingly in the form of government requirements. (Hint: You already do this now, to a certain degree, when you follow requirements from OSHA.)
Greater long-term profitabilityWhat’s the benefit in dollars of ESG? One frequent “social” topic is DEI, which stands for diversity, equity, and inclusion. There is a mountain of ESG-related data that supports profitability, even if you only consider the sub-set of DEI. Here are just a few examples:
- Companies with a diverse workforce are 35% more likely to experience greater financial returns than the national industry average, according to a 2021 study from McKinsey.
- For every 10% increase in racial and ethnic diversity on the senior-executive team, in the United States, earnings before interest and taxes (EBIT) rise 0.8%.
- Projects with certifications such as LEED and Energy Star command a higher selling price.
More resilient, risk-proof businessSome ESG factors, such as cybersecurity readiness and adherence to safety guidelines, are directly related to the risk exposure of the organization. Other measures, such as employee diversity and fair executive compensation, are more preventative. All ESG in construction relates to a company's level of exposure to risks, and how well they are managing those risks.
Leadership and goodwill in the communityParticipation in events that benefit community groups (think sponsorships and employee fundraisers) gives your company positive PR opportunities and website references; as well as building community goodwill, building company culture, and doing good works.
Ethical considerationsIt's (not) funny how often lack of ethical business practices translates into business losses; and how "doing the right thing" translates to profit and success. Ethical considerations, such as the compensation ratio between executives and other employees; or donating goods and services to need-based organization; impact business success.
More attractive to employees and investorsFor employment, Millennials are 3x more likely to look for a company because of its stance on social and/or environmental issues, according to figures from Governance & Accountability Institute, Inc. On the investor side, 98% of investors evaluate ESG performance based on corporate disclosures, according to an EY survey. Everyone wants to do business with companies who do good.
Why ESG now? New tech advancements have made it easier to quantify the specific impact of ESG issues.
ESG in Construction: Why Now?
OK, so… What’s changed? Why ESG now? In a nutshell: the technology has finally caught up. We’re finally able to put a number on the impact of ESG issues, thanks to better data collection and analysis.
In the past, ESG questions were fringe issues communicated with passionate anecdotes! rather than facts and analysis. Today, technology advancements have made it much easier to pinpoint the specific value and impact of ESG-related factors. For example, technology makes it easy to document and even automate due diligence tasks when onboarding a new fabricator located in a different country; so you can quickly respond to audit requests and ensure a clean supply chain.
Doing good for our communities and environment has always been the right thing to do. But “doing the right thing” has an even bigger impact than we previously knew. The power of ESG in construction comes from understanding the impact of the world on our business, and the impact of our business on the world.
Take a look at the kinds of ESG factors that your company is already tracking. Look for ways to track and support environmental, social, and good governance programs in your organization. “Success” in construction is so much more than the profit margin.
Need inspiration? See what Trimble is doing around ESG issues such as sustainability; diversity, equity and inclusion; and responsible stewardship.