At a time of increasing market demand for construction businesses who invest in sustainable practices, RSM Australia’s survey of 40 mid-market property and construction firms found almost two-thirds (61.29%) still do not have an ESG strategy.

This is on the back of recent Project Management Institute research that shows 90 per cent of Australian CEOs are concerned about the lack of sustainable initiatives in construction.

Despite the upfront costs, ESG is a forward-thinking process which can pay dividends in the future.

In the current economic and environmental climate, banks and investors are more inclined to invest in companies with ethical, sustainable, good governance policies in place (often willing to pay a premium for this) and are starting to request ESG policies, strategies and decarbonisation pathways.

We also see clients making purchasing or investment decisions based on the sustainability of products.

RSM’s Climate Change and Sustainability Lead Tim Pittaway says for construction firms who invest early in ESG, operational savings can be gained far beyond just implementing ESG initiatives to reduce water and energy consumption.

He believes construction businesses can demonstrate significant cost savings once an ESG strategy has been developed and implemented, thanks to enhanced financial oversight.

Having a strong ESG proposition can also help construction companies tap into new markets and expand into existing ones because when governing authorities trust businesses, they are more likely to award them the access, approvals and licenses that afford fresh opportunities for growth.

It also helps attract employees and lowers the risk of regulatory and legal intervention, which can reduce costs by eliminating project delays and mitigating risk of liability. Then there’s reduced employee turnover, which in turn, increases productivity and reduces training and overhead costs.

At a minimum to remain competitive and relevant, construction companies should be implementing strategies for sustainable growth and development that goes beyond profits.

Goals to achieve net-zero emissions, the creation of an inclusive workplace and providing stakeholders with transparency around the decision-making processes are just some of the ESG principles the construction sector needs to embrace.

Steps for incorporating ESG practices

It’s no wonder many construction businesses are confused about where to start when it comes to ESG: RSM’s National Sustainability Leader Jacob Elkhishin says no globally consistent, comparable, or reliable disclosure standards are in place when it comes to sustainability.

While companies are being asked to provide metrics and targets used to assess and manage ESG risks on carbon emissions, pay equity, diversity, inclusion and wellbeing, this data is difficult to capture.

There is an expectation that ESG reporting is integrated, and granular insights are provided to help identify accompanying risks and potential opportunities, yet for many construction firms this level of detail and data is not readily available, making the process arduous and time-consuming.

Our advice is to not put it in the “too-hard basket”, just make a start.

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First, complete a risk assessment to capture accurate and trusted data so you can identify and remediate areas of weakness.

Try to incorporate ESG in the tendering and early planning state of projects: collaborate and collate as much meaningful information as soon as possible and focus more intently on nurturing a highly innovative mindset, workforce and supply chain.

Consider the environmental and/or social features and benefits of planned construction projects. Develop overarching objectives, strategy, policies, and/or processes relating to environmental and/or social sustainability.

In a climate of extreme weather events, pandemics, supply chain issues and ongoing labour shortages, assess the full spectrum of environmental and social risk that applies to your business, as well as how efficiently you operate during such events. Additionally, consider material environmental and/or social environmental and social risk exposure associated with the construction project, and how these risks can be managed in a transparent manner.

Investigate use of ‘carbon tools’, such as SAP, Carbon Trust and Sphera, to measure carbon emissions across project delivery so you can track ecological impact of sourcing building materials, use of plant, transportation methods, welfare facilities and waste output.

Considering the above, it may present opportunities to explore the accessibility of sustainable finance to fund projects.

The sustainable finance products (Green Bonds, Social Bonds and Sustainability-Linked Loans) are constantly evolving and are impacted by fluctuating price and capital market cycles and improvements in technology.

Whilst sustainable finance can be applied to all sectors in Australia, it is quickly gaining more momentum in the property and construction sector, to access favourable interest rates and margins to fund projects that can demonstrate green or social benefits.

How real estate pioneer EG approached ESG

EG, a data-driven investment manager and developer with $5.1 billion of real estate assets under management, has a ‘real zero’ carbon target of 2030.

EG’s Head of ESG Ian Lieblich said this is not the same as ‘net zero’ as it avoids using carbon offsets or bulk Renewable Energy Certificate purchases to ‘net off’ total emissions at zero.

Traditionally, carbon is reported on a monthly or quarterly basis however EG is going further, tracking the carbon content of the energy their assets are using every 15 minutes.

According to Mr Lieblich, in 24 hours that provides 96 data points, which is 35,000 data points per year that allows EG to match their building’s energy use to the carbon content of the energy in the grid at that time.

EG hopes other businesses will be inspired to make their own significant impact by prioritising environmental and social factors, enhancing the capacity to attract institutional capital and wealth, particularly from overseas.