ESG in Construction Risk Management: Why Is It Important?

ESG risks are a growing concern within the construction industry, but what are they, and why should they be important to your business strategy?

What Is ESG and Why Should It Be Considered When Creating Construction Risk Management Strategies?

ESG stands for environmental, social, and governance within the construction industry. This means all of the ESG risks should be taken into consideration when planning and implementing a project from start to finish.

ESG risk management and ESG reporting are particularly important within the construction industry. A good ESG strategy can streamline your supply chains, create fewer health and safety risks, reduce emissions and contribute to responsible investment.

A report by NAVX® shows that having ESG initiatives can improve the reputation of a business.

So, managing ESG risks on your construction site is a great way to attract investors, win clients and improve senior management expectations. It can also lead to a safer, more efficient workplace for your employees.

How Can ESG Factors Be Used to Improve the Safety and Sustainability of Construction Projects?

When ESG risk management is in place, it means that the health and safety of construction workers and those further along the supply chain have been considered, and a roadmap has been put in place to manage risk.

The same is true of sustainability risks. ESG risk management will identify ESG concerns that impact climate change and do due diligence to minimise the environmental impact as much as possible.

Many ESG risks apply directly to the construction industry. For example:

Environmental

These may be sustainability risks such as how many greenhouse gas emissions your construction site emits and also the carbon emissions emitted by your supply chain. It can also mean waste management and deforestation.

Social Factors

This refers to the welfare of your own construction workers and those who might be subject to forced labour or modern slavery. Social factors also consider local communities that your work might impact.

Governance Practices

Corporate governance takes into account anything related to the business. This may be ensuring sustainable finance, diverse senior management and stakeholders, bribery and lobbying.

What Are Some of the Benefits of Incorporating ESG into Risk Management Plans?

The construction industry has seen a fundamental shortage of skills from 2020 onwards. If a construction firm can build more robust health and safety practices into their business models, it’s a great way to attract better staff.

Likewise, embedding ESG considerations into your risk management can be an integral part of improving health on-site, meeting diversity targets and increasing employee satisfaction.

In addition, considering ESG factors can improve human rights and carbon footprint across your supply chain management, making your project attractive to investors and meeting regulatory requirements.

What Challenges Must Be Overcome to Ensure That ESG Considerations Are Included in All Phases of a Construction Project Life Cycle?

The challenges that each company will need to overcome will depend on the project, and a risk assessment will need to be completed for every new project or each time a project changes.

Examples of ESG challenges within the construction sector are:

  • Modern-day slavery — How can you screen contractors to ensure they’re not a victim of trafficking.
  • Use of natural resources — How can you source these from somewhere that considers sustainability risks and offsets their environmental impact?
  • On-site health and safety — How to conduct a risk assessment to minimise any dangers to staff.
  • Impact on the local community — How can a construction firm ensure it does not negatively impact the people and environment around the project site.
  • Employee wellbeing — What measures can be put in place to improve staff satisfaction?

How Can Construction Professionals Get Started in Incorporating ESG into Their Risk Management Strategies?

Best practice for construction industry risk management is always to start with a risk assessment. The easiest way to ensure your risk assessment process is robust and covers a vast pool of critical areas relevant to ESG issues is to get an accreditation, like a Common Assessment Standard.

A good accreditation scheme will provide practical advice and support when you have questions about your ESG agenda. It should also provide a database of accredited contractors.

By becoming members of a reputable accreditation scheme, those in the construction industry can better factor in environmental, social and governance risks to every project.

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