by Lauren Richardson
Sustainability Associate at Green Badger
GBCI Pro Reviewer
Growing Importance of ESG Reporting in the Construction Industry
Environmental, Social and Governance (ESG) reporting is of growing importance within real estate and development. Long a mainstay of existing buildings, capturing ESG data from construction and development activities is becoming increasingly necessary in today’s world.
As a general contractor or developer, if you haven’t been asked for it yet, you will. From the growing number of sustainable impact investor relations and client demands to corporate ethos and brand management, acting on ESG data drives value across an organization. While ESG reporting is growing in importance, companies are still learning about how to track and report ESG metrics across their construction portfolio and how to measure ESG impact and success.
Why is ESG reporting gaining importance now?
The business world is being increasingly called upon by regulatory, reporting, and customer demands to address the social and environmental impacts of their operations, and the construction industry is not exempt from this trend. ESG reporting has gained importance for investors looking to invest in more resilient companies, businesses looking to improve efficiency, decrease resource dependency, and attract new customers and employees, as well as employees actively looking to work for employers whose values align with their own.
The ESG Landscape
The Players
- Stakeholders like asset managers, wealth managers, banks and insurance companies produce information (company financials, ESG Facts, figures)
- ESG software providers help structure information
- Auditors check what information was reported
- Intermediary users, like data aggregators, create analytics platforms to analyze and rate the information
- End users (public institutions, private investors, individuals) use the information to make decisions
The construction industry’s move towards ESG reporting
Given its role in shaping our communities, and its impact on climate, the construction industry has an opportunity and responsibility to lead the way in applying ESG considerations into the way business is carried out.
- The built environment generates 30 percent of total greenhouse gas emissions and 40 percent of energy use
- Construction uses 32 percent of the world’s natural resources
The design-build industry has influence over how raw materials are harvested and reused by specifying products that take the environment into account. Manufacturers that sell to construction companies can influence the embodied carbon, and other ecological impacts of their products. In addition, insurance companies are now looking at the environmental impact of projects before committing to providing coverage.
Where is ESG reporting required?
Currently, ESG data is required for annual CSR reporting mainly related to environmental performance. It is also used to disclose how a company’s board considers diversity in identifying director nominees. In terms of impact investors, this means ensuring that the investment or activity to be financed complies with all applicable regulations and financing standards (Environmental and Social Management System – ESMS).
Within the construction industry, more and more owners are requiring this information as it rolls up into their own ESG reporting. For example, if Company A needs a new data center, they will require the general contractor to report the energy and carbon emissions related to the construction process, as those are incorporated into Company A’s ESG reporting. While the contractor may have generated the emissions and used the electricity, it wouldn’t have happened if Company A didn’t decide to build the data center – thus, it is within Company A’s scope for reporting.
The Goal of ESG Reporting
The goal of ESG reporting is to harmonize the multiple frameworks, ratings, assessments, lists, indices, standards, metrics, and public reporting demands and deliver unified and tailored ESG data to raters, investors, and stakeholders. Streamlining sustainability reporting and simplifying the data management and disclosure process is vital to making this work. This requires offering tools to plan, collaborate, oversee, respond, disclose and report ESG data.
Current ESG Reporting Draws From:
- Global Resource Initiative – GRI
- Dow Jones Sustainability Indices – DJSI
- Sustainable Development Goals – SDGs
- MSCI ESG Focus Indexes Methodology
- Sustainalytics
- SASB Standards
- … and many others
How does ESG reporting and transparency help the industry as a whole move forward?
Companies are now expected to deliver investor-grade, high-quality ESG disclosure to allow stakeholder managers to make good decisions. Companies who embrace ESG opportunities and disclosure can improve their image with the public, stakeholders, and employees. This means that companies that adopt ESG disclosure have a chance to control their brand and reputation.
Tracking ESG Metrics in the Construction Industry
Issues with ESG Reporting
As it stands, ESG reporting in private markets is fractured and lacks consistency, has no single set of standards for measuring and sharing data and offers no industry wide benchmarks. There isn’t a central data repository allowing investors to compare and analyze the information they receive, which requires partners to cull through mismatching sets of data they can’t easily analyze. This means that partners have to provide different types of reports to different investors.
So what should construction companies be tracking in regards to ESG on their projects?
- For many, the “E” of ESG relates to the environmental impact: how much waste is generated, energy and water consumed, and carbon emitted.
- The “S” is growing, including women and minority participation, dollars kept in local communities, and the health and wellness of everyone on site.
- The “G” is the least represented, as most governance issues are not specific to an individual construction project – these tend to be corporate, organizational governance approaches.
Regardless of which metrics are chosen to benchmark within construction, having an easy to use platform to track and analyze the data is key. This becomes yet one more responsibility thrust onto project teams, and without a program in place to guide, it could become a missed opportunity.
As an owner, construction activities fall into your scope of reporting. As a general contractor, your organizational or project goals require accurate reporting and instant availability. Green Badger’s construction ESG software provides a scalable, intuitive solution that isn’t a time burden, whether you’re tracking on an individual project or across an organization.
Hey Lauren Richardson,
It is really a helpful post about ESG reporting. There had big confusion about the application of ESG reporting in my field, this blog helped me to know more about it. Your Growing Importance of ESG Reporting in the Construction Industry well fit my requirement. I couldn’t find a better blog than this. Thanks a lot