ESG provides a framework for assessing a company's impact on society and the environment, and adopting ESG strategies also means collecting and publishing verifiable non-financial indicators that can be used to assess a company's performance on a range of environmental, social, and corporate governance. diversity and gender equality, corruption, environmental impact, and human rights.
Although relatively new to many industry stakeholders, ESG has already begun to influence supply chains. Companies will no longer be judged solely on their performance, but also on the performance of their partners and collaborators, the report found.
This change comes at a crucial time when the construction sector faces significant challenges such as reducing environmental impact, improving building safety and quality, and attracting talent in a shrinking workforce.
One of the main findings of the report is that property owners who focus on achieving ESG goals often see a higher return on investment and suggest that the faster sustainability goals are achieved, the faster the return. Activities in this sector have a significant impact on the environment and people's lives, influencing the health, prosperity, social structures, opportunities, and aspirations of the community.
Access to financing for construction projects can increasingly be based on favorable ESG scores, making ESG a central aspect of the construction business environment.
However, implementing ESG in construction presents unique challenges given the industry's mobility, limited community connections, and historical lack of transparency. Embracing ESG will require a significant cultural shift, altering recruitment practices, business terms, and interactions and possibly driving changes in regulatory frameworks.
In other words, major construction companies must embrace ESG to remain competitive as major developers and clients align with the ESG investment community.
The ESG integration process can be time-consuming, requiring third-party experts to assess data, compile reports, and align goals. In addition, it involves a significant upfront investment backed by verifiable data to confirm adherence to processes and regulations for building safe and livable buildings. The process of collecting and reporting ESG data is demanding, given the constantly evolving landscape of standards and regulations, the report states.
Investors managing a portfolio of commercial properties frequently develop approaches to increase property value and energy efficiency while optimizing maintenance expenses. Research indicates that state-of-the-art software now enables rapid cost estimation for building renovations and alterations, providing valuable decision support to investors. The thorough recording of technical data in the real estate field substantially increases the efficiency of processes such as due diligence.
Also, some construction companies are using solutions that help investors integrate the ESG strategy more quickly in the technical audit of real estate assets and better assess the costs of rebuilding the existing real estate portfolio, using the example of energy efficiency as one of the essential ESG factors.
Investors can thus make an informed decision about the profitability of the planned investment or gain an insight into the amount needed for investment in real estate to meet ESG requirements. A deeper understanding of the data guarantees a significant improvement in profitability, transparency, and construction control throughout the entire life cycle of the property.
"ESG is becoming a key driver of investments, with investment memorandums to encompass all ESG risks, mitigation strategies, associated costs, and assumptions identified during the due diligence process. Those in the real estate sector who take this corporate criterion seriously and consider the potential of digital tools to support more efficient records management, improve their governance, drive social value, and reduce negative environmental impact, giving the market a much-needed confidence boost and protecting against economic instability," says Ibrahim Imam, co-founder and co-CEO of PlanRadar.
As ESG becomes more mainstream, customers and supply chain contractors may favor companies that align with ESG principles, potentially excluding those that do not. The trust and transparency inherent in ESG reporting will encourage companies to create deeper and more sustainable relationships within their supply chains. In the construction sector, ESG will address long-standing issues and challenges that policymakers have put off for decades.
Furthermore, measuring non-financial ESG indicators and efforts to improve scores will provide managers with valuable data to better understand their businesses and improve performance, ahead of future regulatory changes. Example: a possible violation of a rule in the environmental permit could result, in addition to fines and other forms of liability, in affecting the ESG score and, therefore, in the decrease of the share price or difficulties in attracting financing.
"While ESG regulations are still developing, companies that implement effective ESG monitoring strategies will open the door to higher investment returns in the future. Comprehensive documentation of real estate assets as part of technical due diligence, is time-consuming. Digital solutions make this process much more efficient and help ensure long-term asset appreciation, tenant satisfaction, and overall company value growth. They also provide an inviolable audit trail to support alignment with increasingly stringent building regulations, giving stakeholders greater peace of mind," says Sander van de Rijdt, co-founder and co-CEO of PlanRadar.
PlanRadar is a SaaS digital land management platform that digitizes all daily processes and communication in real estate and construction. The platform connects all project stakeholders and provides real-time access to valuable project data, enabling teams to increase quality, reduce costs, and deliver work faster.