ESG IN CONSTRUCTION: What are the challenges facing the construction sector?

The construction sector, like countless other sectors, is heavily exposed to sustainability risk. But the topic of sustainability is not only a risk for the sector, it is also a great opportunity for companies to gain leadership positions and better competitiveness. The concept of sustainable corporate behaviour in the construction sector needs to be seen from several angles. ESG does not only look at topics related to environmental issues, but also corporate social responsibility and corporate governance.


Impact on the environment

The individual ESG indicators are influenced by the entire life cycle of buildings from design and construction to maintenance and eventual demolition. During the design and construction process, ESG factors can be improved by selecting materials with a low carbon footprint, ensuring worker safety and health. In the process phase, important factors affecting the sustainability of buildings are, for example, energy performance or the use of renewable energy sources. The construction and operation of buildings also has an undeniable environmental impact in terms of waste production, water consumption and the impact on the landscape.

The World Green Building Council (WGBC) reports that emissions from the construction sector account for 39% of greenhouse gases. Emissions from operational activities (energy used to heat, cool and light buildings) account for 28% of total global emissions, while the carbon footprint of construction activities accounts for 11% of total emissions. Therefore, it is necessary to look at the environmental impacts of construction from the long-term perspective of building operations and their impact on the environment.


Challenges in construction and non-financial reporting

The construction industry faces complex challenges as it must consider increasingly stringent regulations on safety, health impact and sustainability, while striving to reduce costs. It is not only these challenges that are being addressed by the greener, more environmentally friendly practices enabled by modern technology. Technological innovation has led to cutting-edge design practices
and less energy intensive buildings with a lower carbon footprint.

Another challenge for construction companies is monitoring and analysing suppliers and the supply chain. Construction companies need to know detailed information about the supply chain in order to have transparent and verifiable information about the origin of the raw materials needed and ethical working conditions.

Detailed information on the supply chain and much more needs to be gathered and analysed for mandatory ESG reporting. ESG reporting will gradually cover more companies in the construction sector. This is non-financial reporting, which also includes information about the company's carbon footprint. ESG reporting is preceded by an analysis and evaluation of relevant topics for the final reporting of the company's status.


Social challenges

The construction sector is not only facing challenges related to the design of individual buildings and their energy performance, but also to the planning of cities and their entire districts. The distribution of infrastructure in cities, green space and social amenities for residents, accessibility and safety of public transport are topics that will resonate more and more in real estate in the future. The diverse structure of society needs to be taken into account during urban planning, with people in different age groups with different interests, different needs and different uses of the city. For example, parents with baby strollers and people with limited mobility face different obstacles in cities than most others.

Urban design needs to be informed by research that focuses on inequalities in the adaptation of cities for women, people with disabilities and other minorities in terms of accessibility
and safety. There is also a need to design cities into the landscape with a responsible approach to the environment, biodiversity and sustainable management of water resources.

With increasing pressure from consumers, regulators and investors on the environmental and social impact of organisations, ESG reporting has become a business imperative. Business executives are motivated to implement processes and initiatives that demonstrate ESG performance indicators and secure long-term competitiveness in the marketplace.