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Subcontractor Performance Risk

Construction and Environmental, Social, and Governance Reporting

Cheri Hanes | April 21, 2023

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Since the first attempt at creating shelter, the goal of construction has been to leave the places where we build better than when we found them; to create not just basic shelter, but homes; not just places to work, but places that inspire; and not just places to go when we're sick, but places that actually help us heal. And we don't stop with the buildings. We know our work has the potential to elevate a community, empower people, and bring beauty and meaning to what was once blighted. If we're doing our jobs right, everything we touch ends up closer to the highest and best use of that particular spot on the planet.

Recently, with all the talk of environmental, social, and governance (ESG) reporting requirements, the task of construction companies may seem overwhelming, like this work is something entirely new that we need to pile on our already overloaded plates. I'm here to tell you that the building industry is doing so much of this work already, and we have been for decades. The construction industry is, in fact, relatively far along on this road. Finding ways to document what we already do and take credit for it are our most important next steps.

Let me give you some examples by looking at each letter of the ESG alphabet in turn and identifying some prevalent practices in construction that are related.

E Is for Environmental

Consider construction practices like waste diversion, stormwater pollution prevention plans, anti-idling policies, and plastics or paper reduction … the list goes on. The construction industry has been doing these things for decades, and the environmental effects of these practices are not inconsequential. They all demonstrate a positive relationship of construction firms with the natural world.

Next, think about the even larger effects of managing entire projects that create certified buildings in systems like Leadership in Energy and Environmental Design or Living Buildings Challenge. Consider how our industry learns constantly to use new materials and methods, like mass timber or modular construction, that have positive environmental effects, and how we retrofit existing structures for better energy efficiency and build durable, adaptable, and resilient structures that stand the test of time, including changing weather patterns. These are all hugely impactful, and few of them are truly new. All deliver positive effects in the "E" category.

S Is for Social

The second letter of our acronym is "S," and it is all about how businesses affect the people with whom they work and the communities where they work. Again, construction has been in this space for a long, long time. Builders have long been concerned with maintaining positive relationships and delivering good outcomes for the communities they build in. In addition to making sure construction doesn't make things worse—using noise, dust, and vibration monitoring, for example—the industry has been leading community programs; ensuring minority, local, and small business participation; local hiring; tracking fair pay; interacting with schools; offering apprenticeship or internship programs; and more, for as long as it has been in existence.

Builders also participate in and donate to local causes and perform other community outreach. I tried to think of all the projects where construction companies I've worked with have built a park or pavilion or made sure the building itself provided some green space or access for the community, but I ran out of time to count them. All these things can certainly have a positive effect on the communities in which our industry builds.

The "S" effects are not limited to the community, however. They start with firms' own workforces. The industry is committed to providing equal opportunity and good conditions for its workforce. For example, on-site medical evaluation, aimed at making sure the workforce stays healthy and gets the right treatment when needed; stretch and flex programs, aimed at preventing injuries in the first place; health and wellness initiatives; work-life balance support; and even the availability of healthier options for food in the office and on job-sites. All these things are related to the "S."

G Is for Governance

When thinking about governance, you might think of issues that would affect shareholder rights, but the modern definition of governance goes much further and additionally encompasses the way firms interact with competitors, subcontractors and suppliers, governmental entities, and other stakeholders. This is good for the people and firms involved, and, as it turns out, better corporate governance is often associated with higher returns for shareholders. These committed, diverse, and transparent leaders create policies that result in ethical and sustainable procurement, diversity, equity, and inclusion (DEI). They are focused on creating strategies to improve business performance across the broad topic of sustainability, which includes all of ESG.

Connecting the ESG Dots

If you are starting to connect the dots, you may be thinking that the "E," "S," and "G" often overlap, and you are right. In fact, many solutions address issues in all three portions of ESG. For example, using lower volatile organic compound (VOC) adhesives or paints has obvious environmental benefits including reduced air and water pollution, which is the "E." It also has the potential to improve health and safety in the form of better indoor air quality both during and after construction, which falls under the "S." And, if its use is part of an overall strategy to use specific sustainable materials, especially if you are tracking the related improvements to inform future decision-making, there we have the "G."

For another great example, consider a technology like fleet telematics. It may seem completely unrelated to ESG at first, but on closer inspection, it has the potential to impact each piece of the ESG "alphabet." Let's break that down.

For environmental, vehicle telematics may reduce greenhouse gas emissions from fuel use by identifying excessive idling and harsh braking, providing data to plan more efficient routes and reduce site bottlenecks, and informing electric vehicle transition decisions. For social, dash cams and driver coaching programs may reduce unsafe driving behaviors and increase the safety of a construction company's workforce as well as the safety of the communities in which they operate. And for governance, the reporting and data that technologies like this can provide give construction company leaders the information they need to create strategies and inform their teams, customers, regulators, and the public on how they're meeting and exceeding ESG goals. All are relevant to ESG reporting.


Viewed this way, it is easy to see that construction has been involved in ESG for a long time, and the industry is quite good at it—it's just gone by other names. That's not to say we can be complacent. Getting good at capturing and reporting on this data is its own skill. Once the industry masters reporting, what the data tells us will no doubt spur myriad other efforts. That's continuous improvement, which is another skill that is part and parcel of construction.

This effort won't be inconsequential, and we are not starting from square one. Finding ways to document and take credit for the work the industry is already doing in this space will be an excellent investment for all involved.

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