Why industry cannot afford to ignore ESG

With growing concern worldwide about the ethics of organisations, there is increasing interest from companies, investors and other stakeholders in environmental, social and governance criteria


  • Andrew Little MRICS

21 April 2022

Aerial view of high rise buildings with green roofs

The term ESG was coined in 2005 at a Who Cares Wins conference in Zurich, Switzerland, attended by institutional investors, asset managers, analysts, global consultants and regulators among others.

They gathered to examine the role of environmental, social and governance factors in asset management and financial research. Today, the term is perhaps more commonly recognised and defined in relation to a firm's environmental, social and corporate governance (ESG) strategy, acknowledging its responsibility for these factors.

In this context, each of the criteria may be defined as follows.

  • Environmental factors, and the threat of climate change, should be integral to investment choices, so that they consider more than simply financial matters. The breadth of environmental criteria can range from targeting reduced CO2 emissions to biodiversity, waste and water management. 

  • Social aspects range from diversity and human rights, through treatment of staff to supply chain management.

  • Governance refers to the structures and processes for operation, direction and control that ensure companies are more accountable and transparent, particularly to external investors. 

ESG moves from niche to nexus

The three pillars of environmental, social and corporate governance support responsible and ethical investment, and are considered key to successful decisions. Once seen as niche, ESG has become as important to investors as financial reporting and auditing.

In the past decade, the investment in ESG has been steadily growing, with various studies indicating a nexus between good corporate performance in sustainability and strong financial results. In a 2018 article entitled The Remarkable Rise of ESG, Forbes illustrated that the stocks of sustainable companies can perform up to 45% better than less sustainable comparators.

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Reporting shows increased influence of ESG

The growth of ESG has been underpinned by organisations increasingly using the Global Reporting Initiative (GRI) standards. GRI is an international independent standards body that helps businesses, governments and other organisations understand and communicate their impacts on issues such as climate change, human rights and corruption. In 2018, 80% of the world’s largest corporations used GRI standards in their business models.

Globally, sustainable funds based on ESG factors pulled in a record-breaking $20.6bn of new finance in 2019, almost four times the 2018 figure of $5.5bn. Furthermore, Morgan Stanley's 2019 Sustainable Survey signals that around 85% of investors are interested in sustainably oriented investing, up from 71% in 2015. This indicates the momentum ESG has been gathering.

Since the COVID-19 pandemic, ESG has become an ever-more prominent topic. It is seen not only as a way to do well, but also a way to mitigate risk in the short and long term and a basis to establish organisational resilience.

'The growth of ESG has been underpinned by organisations increasingly using the Global Reporting Initiative standards'

Public awareness prompts demand for ESG funds

In the UK, there has been a big increase in demand for ESG funds and sustainable investments. This has been underpinned by high-profile conferences in 2021, including June's G7 Summit in Cornwall and November's COP26 in Glasgow. Legislative and regulatory reform continues to support the environmental agenda, with The Future Buildings Standard setting rules to shape the journey to carbon net zero by 2050. Furthermore, campaigns such as Extinction Rebellion and Black Lives Matter and documentaries such as the BBC's Blue Planet have significantly increased social awareness of environmental and social justice.

In response, ESG has shot up the political agenda – particularly for many publicly listed organisations where a clear strategy may be rewarded with higher share prices and market value.

ESG strategy must, however, be clear and align with a wider corporate vision and business plan. This will help avoid drifting towards greenwashing, where certain business activities are given an inaccurate spin; this has recently attracted the interest of both the Competition and Marketing Authority and the Financial Conduct Authority.

How construction is adopting ESG

The construction industry hasn't stood still as ESG has gathered momentum. It is now recognised more commonly as a valuable property and asset management tool to encourage optimum portfolio performance, add value and attract external investors.

Global environment consultancy Longevity Partners can testify to the recent growth of ESG in the UK construction industry.

In correspondence with the author, the firm's associate director Laure Ferrand said: 'We have seen a radical uptake of our services in the past three years, specifically on sustainable building strategy and design where we become a core part of the design team from the inception of a project. Likewise, conversations on the importance of the embodied carbon on projects are louder than ever, signalling a clear reaction from the market towards net-zero aspirations.'

How is ESG relevant to RICS members, then, as construction professionals? How can we use it effectively to influence the performance of buildings we interact with on a daily basis, and wider investment decision-making?

Our opportunity for influence is far-reaching, and may touch on a variety of professional activities. These could include assessing the sustainability performance of an asset – whether part of a technical due diligence, acquisition or disposal, procurement of services, or property management.

For many surveyors and construction professionals, ESG is already being used to prevent assets becoming stranded – a topic that Savills senior surveyor Charlotte Evans will cover in a forthcoming article.

What construction professionals can do

As construction professionals, we undoubtedly have an opportunity to influence decisions on procurement of services, management of built assets and responsible investment through effective integration of ESG criteria.

By considering the following factors, we can help organisations or property portfolios strengthen their ESG credentials.

  • Third-party certification aims at setting industry-wide standards for ESG benchmarking. Schemes may include BREEAM, Leadership in Energy and Environmental Design, Well Building and Fitwell. BREEAM is currently the most common and recognised benchmark in the UK, and often mandated by a planning condition. Such building certification is becoming mainstream, placing pressure on existing poor or underperforming assets that are at increased risk of obsolescence or becoming stranded. 

  • Materials that have a low embodied carbon and a high green guide rating and environmental product declaration should be specified. Green guide rating is an environmental ranking of building materials, originally published by BRE. We should be seeking to refer as part of material or product specification to ensure low carbon proposals. Declaration documents demonstrate and support environmental performance of a product or material. This should include encouraging the sourcing of materials certified by ethical and responsible schemes recognised by BREEAM and Well Building, with a preference for recycled or reclaimed materials. 

  • Construction waste should be monitored and the quantities for toxic, hazardous or contaminated materials reported. These should be benchmarked against a pre-refurbishment waste audit and subsequent level 2 site waste management plans, in line with BREEAM requirements. Waste considerations may include no landfilling of construction waste from strip-out, and a minimum of 95% waste recycled. The circular economy can be promoted through material and product buy-back schemes, with modular or off-site construction systems used to reduce waste further.

  • Sustainable transport encourages staff to take public transport, cycling to their site or place of work, sharing vehicles and the electrification of company car fleets, alongside consideration of low-carbon delivery of construction materials to site. 

  • Biodiversity protection should support existing wildlife and natural features when there are nearby construction activities and any protected species such as bats on site are preserved.

  • Diversity and inclusion initiatives will focus on ensuring a more balanced workforce in terms of gender, ethnicity, disability and other protected characteristics.

  • Targets will be set for contractors and the supply chain in respect of local labour and apprentice levels. The potential for using cross-borough training opportunities or initiatives should be identified. Training and apprenticeships should be more joined up with a collaborative approach rather than a single borough focus. Any commitment will come at a cost and need co-ordination but outcomes include addressing the lack of skilled and aging labour force.

  • Fair and ethical working conditions should be promoted for all employees on site, including a living wage.

  • Exceptional health and safety records should be upheld and robust COVID-19 working practices implemented. Target compliance with ISO 45001 and include mandatory health and safety training, toolbox talks and the like.

  • Committing to the Considerate Constructors Scheme, contractors should also set minimum benchmark scores.

  • Engaging with the local supply chain and contractors demonstrates full support of communities by offering local employment opportunities, procurement of materials and partnerships.

  • Procurement strategies need to ensure successful outcomes around cost/value, programme and quality as three principal cornerstones

An opportunity to excel

To perform at their best and achieve successful results, companies should consider setting an ESG target with aims and anticipated outcomes as part of an overarching strategy that includes a clear reporting matrix.

Undoubtedly, ESG reporting will soon become as important as financial reporting and auditing. As such, ESG integration should be seen as an opportunity for organisations to enable the greatest value for the business and the best performance for the asset.


Andrew Little MRICS is a partner at Baily Garner
Contact Andrew: Email

Related competencies include: Client care, Sustainability

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