ESG: It’s Not Just for Big Construction Companies Anymore

ESG: It’s Not Just for Big Construction Companies Anymore

As you make summer plans for your business, consider adding ESG assessment, measurement, and management as a priority.

ESG stands for environmental, social and governance – three areas growing in importance to investors, project owners, lenders, customers, suppliers, regulators, employees, insurers, and communities. This October, the Security and Exchange Commission (SEC) is expected to issue rules to standardize how companies assess, measure, manage and disclose ESG related risks, including emissions resulting from assets not owned or controlled by a reporting organization. So, even if you aren’t subject to SEC rules, someone may be asking for your ESG measures for their own reporting purposes. Now is the time to prepare.

Construction is recognized as a key industry for driving ESG progress globally, especially since it uses over 30% of the world’s natural resources, and is responsible for 30% to 40% of greenhouse gas emissions, and 40% of energy use. (Linstroth, Tommy. Growing Demand for ESG Reporting in Construction. November 4, 2022. Forconstructionpros.com.)

Investors want information about it. Clients are looking for it. Lenders and credit rating agencies may consider it and it’s becoming a growing part of insurance and regulatory conversations. Communities judge by it, as do employees and recruits. It can impact business valuations and capital raising, and increase interest from larger organizations looking to grow through mergers and acquisitions.

Some say it’s about risk management, while others assert the focus is environmental and resiliency. There are those that say it’s about current and future performance and sustainability. It’s broad, measured and defined in multiple ways encompassing hundreds of data points.  According to an issue of Mckinsey Quarterly published in August of 2022, more than 90% of S&P companies publish some form of ESG report, as do 70% of Russell 1000 companies. Progress is being reported using different frameworks like the  Stakeholder Capitalism Metrics, the United Nation’s Sustainable Development Goals, MSCI ESG Focus Indexes Methodology, SASB Standards, and more.

Perhaps the best explanation we came across was on Groundbreakcarolinas.com, which reported: “Many project owners and financiers are now requiring construction companies to report on ESG measures because activities completed by contractors are considered part of the owner’s value chain and must therefore be incorporated into their own ESG reporting. In addition, ESG aspects of projects are increasingly becoming part of the project financing evaluation process. While ESG reporting is growing in significance, contractors are still learning how to track, measure and report ESG metrics across their organization.” (Gallagher, Brian and Palys, Michelle. What Construction Firms Need to Know About ESG. January 23, 2023. Groundbreakcarolinas.com.)

Overall, it promotes environmental sustainability, social responsibility, and good governance which can enhance reputation, mitigate risks, ensure regulatory compliance, and create value for all stakeholders. To learn more, check out:

If you need time to focus on ESG plans and other work, remember, you can count on RBT CPAs to handle your accounting, tax, audit, and business advisory needs. We believe we succeed when we help our clients succeed. To learn more, give us a call today.

 

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