The data creating big winners and big losers in construction
There’s a new kind of data emerging that is being used to govern construction investment decisions.
Research shows that more than 30% of investments under management are now linked to environmental, social and governance (ESG) metrics. And this shift is growing.
ESG is about a company’s social and environmental impact. By collecting these metrics and opening them up to scrutiny, firms can back up their claims of social responsibility and unlock new opportunities and financing.
The big driver is risk. Bad governance, unethical behaviour, poor labour relations – they all create heavy fines and hefty legal bills. Nobody wants to invest in that.
Investors also have a growing body of evidence that companies with good ESG scores outperform those that don’t.
Even the public is paying attention and increasingly judging businesses on their behaviour. Look at the rocketing figures for Google searches for “ESG” over the past five years.
Investment is the lifeblood of construction, and ESG reporting looks set to transform the whole culture of the industry. It’s going to create big winners and big losers.
Simon Rawlinson, Head of Strategic Research and Insight at Arcadis and who sits on the Construction Leadership Council, expects that good ESG scores will become table stakes when bidding for work. “In some sectors of the market, ESG will become, in effect, a licence to trade.”
Schroder Real Estate’s Mark Callender, Head of Real Estate Research, says property investors are increasingly engaging in the “S” part of ESG (safety and wellbeing, employment quality, labour rights, community relations). They’re looking for more transparency in supply chains, and are no longer willing to accept “that’s not my responsibility.”
While Ann Bentley, who is the Global Board Director at Rider Levett Bucknall and who also sits on the Construction Leadership Council, thinks there could end up being a split between companies who report ESG – with tighter links between them and their supply chain partners – and those that don’t.
ESG is how the best contractors will fit their businesses into the future economy and continue to attract financing, customers, talent and more. Contractors will get an edge by incorporating ESG data not just from their own performance, but the performance of their supply chain partners too.
But construction is a tough nut. There are many aspects of the industry that make it hard to guard against poor quality and poor relationships.
The construction workforce has one of the lowest uses of digital technology among all industrial sectors.
Not to mention the industry relies heavily on a workforce that is dispersed and disconnected.
How will contractors gather data about wellbeing, employment quality and labour rights? And how will they ensure those data are representative, robust and verifiable?
Mobile phone apps and other digital technology provide an opportunity to facilitate the measurement of ESG because technology makes collecting, sorting, sharing and comparing data easier.
Data gives leaders, managers and workers new ways to understand their work and track performance.
And most importantly, data encourages investors to use it.
At Worker Feedback Club, we have developed a workforce engagement platform and we're looking for more contractors to work with us to co-create ESG reporting functionality.
There are many opportunities to collaborate and develop new strategies on site that are socially oriented, as well as to capture the social impact that is already being delivered on each project but remains hidden or overlooked.
For example, contractors could bolster their ESG scores by having formalised complaint mechanisms that go beyond direct reporting lines. Verbal feedback and comment cards are flawed channels for workers to report problems because they are not anonymous; workers simply move sites rather than worry about reprisals.
Another example is that many contractors now require their supply chain partners to pay workers at least the Living Wage – a key metric in qualifying a contractor’s social credentials. But although contracts may require it and have audit rights, getting evidence that it’s actually happening is difficult for main contractors and may require expensive consultants.
With Worker Feedback Club’s Survey feature, questions like “Are you being paid at least the Living Wage on this site?” can be dropped seamlessly into the live communication feed where every worker can answer it (with the benefit of their direct supervisors not seeing their response). Results flow into the Management Cockpit where leaders can see the percentages and report on findings.
By using tech like Worker Feedback Club to offer everyone on site a way to truly report problems anonymously – and, crucially, see problems get resolved – workers are empowered, management is informed, and leaders can track and strengthen their company’s ESG scores.
The future of your organisation
Reporting on ESG can enhance policies and practices around your organisation’s mission, ethics, accountability and transparency – and integrate social performance into decision-making.
Ultimately, when it comes to ESG, developers and major clients will follow the investment community. This will mean contractors on the outside find themselves starved of work.
For main contractors to thrive, ESG is becoming ever more essential. This is how big clients – both public and private – are seeing the future. ESG has the power to radically reshape the culture of construction for the better, and it will help contractors stay ahead of both their competition and future regulatory change.
If you’re a senior leader at a main contractor and you’re interested in working with us to shape ESG reporting for your organisation, we’d love to start a conversation. Get in touch with us today.
Sources: Google trends, trends.google.com; ESG Book, Arabesque S-Ray Methodology, November 2021; How ESG will change the culture of construction, AMA Research, May 2022