The current state of ESG reporting in the engineering and construction industry

Here’s how construction and engineering firms can help maximize ESG goal setting and reporting to become or remain an industry leader.

Iconic images from the 1930s of construction workers eating lunch on a girder atop 30 Rockefeller Plaza in New York may have been more publicity than normal practice, but health and safety in the construction industry have nonetheless come a long way in the last 100 years. Federal statistics show that the incidence rates of nonfatal injuries and illnesses are down significantly from just 20 years ago (1.7% in 2019 vs. 4.1% in 2000). The fatal injury rate, however, is 9.7 per 100,000 workers so, it’s no surprise that improving health and safety on the construction site remains a top focus for the industry, according to a GlobalData survey.

Core pillars of ESG for engineering and construction industry

Health and safety and the high reliance on labor mean social aspects of the environmental, social and governance (ESG) agenda have been and will remain a high priority for the engineering and construction (E&C) industry. Similarly, governance has long been a hot topic in the sector given the size and complexity of contracts, competitive bidding processes, and the need to engage with both public and private stakeholders and to prevent bribery, corruption and anticompetitive behaviors. The environmental agenda is in focus across all industries, but buildings and construction are responsible for 39% of carbon emissions globally, according to the World Green Building Council. Carbon reduction and environmental initiatives are therefore a business imperative for contractors.

Today, these areas form the core pillars of ESG agendas at E&C firms, which, like many industries, are continuing to enhance their focus on ESG and communicate the impacts to stakeholders. The focus has evolved from traditional philanthropy and employee volunteer work to more holistic integration of these topics in business strategy as recognition of their importance in growth and risk management has grown. Effective ESG programs now underlie corporate risk management and strategic business imperatives.

Materiality should drive the quality and extent of disclosure, including management approach, metrics and context. E&C companies have identified areas such as decarbonization, LEED certification, diversity and inclusion, community development, and employee safety and well-being as the most material issues.

Most leading US contractors are also reporting against goals in areas such as sustainable infrastructure, waste management, energy conservation, use of renewables, pollution prevention, renewable/recycled materials, employee training on sustainability and workplace ethics/working conditions. Examples of progress in these areas are plentiful, with impressive gains being made in areas such as waste management, where millions of tons of construction waste have been diverted from landfills, or employee safety where internet of things (IoT) sensors have been installed to allow for real-time monitoring of jobsite conditions. One other particularly noteworthy area is education, where certain E&C companies have long-standing programs and associations aimed at minority- and women-owned businesses, subcontractors, construction managers as well as smaller contractors and entrepreneurs. 

The path to credible reporting in engineering and construction industry 

Setting goals, establishing what to measure, identifying which metrics to compile and ensuring that everything is done in a way that complies with standards is a challenging process. A complex ESG landscape means, at present, that there is no right answer, but the reporting programs of leading organizations have four essential components. These hallmarks ultimately help deliver companies that are better run, more responsible and that make decisions to deliver the necessary product, service and business model innovations that contribute to a flourishing society.

ESG materiality and integrating ESG into business strategy  

Understanding where your company is on the ESG maturity curve is a helpful and important step to further develop an ESG agenda. An essential component on this journey is the shift from ad hoc reporting on single sustainability initiatives to a much more integrated approach where ESG is a central tenet of business management and planning.

For E&C firms to thrive in this new era of accelerating transformation and stakeholder capitalism, they will need to embrace ESG as a strategic business imperative. This means addressing heightened expectations by understanding how your company is viewed by all stakeholders. Delivering improved business performance from your ESG strategy will come from the development of aggressive goals, and measuring and reporting progress against those goals in order to drive stakeholder engagement and value as well as integrating ESG into broader strategy relating to capital allocation, supply chain management, marketing, partner choices and investments.