and driving technology towards more sustainable products and methodologies. Climate change has most commonly led to improved operational efficiency in buildings, with the focus on energy use reductions. However, decarbonisation is a particular concern, as commonly used construction materials such as cement account for a significant percentage of carbon emissions. Social factors concern a company’s engagement with its workers, customers, supply chain and the community. It covers human rights, diversity and inclusion, health and safety and its impact on the communities in which it operates, particularly those in developing economies where environmental and labour standards may be less robust. Infrastructure and built assets are generally considered to improve the local community by providing spaces and amenities. However, the public perception of projects during construction must also be considered. Prolonged construction projects may impact local communities, attract negative media attention and have harmful consequences. Given the hazardous nature of activities on a construction site, workplace safety is paramount both during construction and in the use of built assets. Inattention to social factors can cause reputational damage and bring legal and regulatory penalties. Governance factors concern how a company uses policies and controls to inform business decisions, manage risk, comply with the law and meet moral obligations to stakeholders as well as promote transparency and accountability by management. Governance failures like tax avoidance, bribery and corruption, excessive executive pay, or lobbying cause reputational harm and loss of trust. The construction industry has above average exposure to governance issues due to the inherent complexity of projects, which exposes companies to contingent liabilities and litigation risks. An area of high vulnerability is the supply chain. A lack of transparency into supply chains often exposes construction What can companies involved in construction do to demonstrate their ESG credentials and avoid potentially costly disputes? Construction faces particular difficulty in demonstrating its ESG credentials. ESG metrics are constantly evolving and differ across regions and countries, with transparency varying greatly by firm. Identifying which standards to follow, what to measure and which metrics to compile is not a straightforward task. Currently it remains largely up to individual construction companies to identify both their ESG baseline and the mix of areas that they will measure and report. Nonetheless, companies should explain the basis, and importance of, the metrics and topics reported. At project level, several organisations provide measurable achievement and independent ratings for the design and construction of buildings that allow those involved to demonstrate their ESG credentials. Such certification organisations include BREEAM, WELL, LEED and WiredScore. Certification programs offer clear metrics that construction companies can use to measure performance and simplify the process. Monitoring systems can measure the outcomes of, for example, air quality and energy usage. Weak ESG credentials might result in the development being considered a distressed asset. How do you expect ESG developments to influence the construction sector and the emergence of disputes in the next 10 years? As one of the world’s largest polluters, the global construction industry has become a particular focus for change in respect of its ESG impact. In late 2021, COP26 brought greater focus to climate issues – EXPERT INSIGHT 79 companies to hidden and uncontrollable risk that negatively affects ESG such as depletion of natural resources, human rights abuses, corruption, and more. In fact, the greatest exposure to falling out of ESG compliance can occur in the supply chain. Therefore, businesses should not only look at their own ESG credentials but also those of their supply chain. Meaningful ESG-related innovations and improvements can be most effective when developed in the early phases of project planning and design, so it is likely that this stage will take longer and require new capabilities and technologies. At Ankura, we observe that the implementation of new and untested technologies on renewable energy projects such as wind and solar plants is proving to be a fertile ground for disputes as ESG regulations and standards continue to evolve. Meaningful ESG-related innovations and improvements can be most effective when developed in the early phases of project planning and design.
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