Construction experts suggest being proactive with ESG policies

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By Kevin Oklobzija
BridgeTower Media Newswires

As employees, tenants and investors give more consideration to a business’ environmental, social and governance (ESG) practices, construction and real estate companies need to be proactive with their strategies and policies, according to industry experts.

“Incorporating ESG into a corporate strategy is not only a response to social and regulatory expectations, but it’s also a strategic move that can contribute to long-term success and efficiency,” said Nancy Cox, industry leader for construction and real estate at New York-based The Bonadio Group.

Traction for ESG concepts is increasing and the willingness of a business to embrace implementation can attract workers, tenants and customers while also providing long-term cost efficiencies.

That’s why The Bonadio Group is suggesting that real estate developers, property owners and construction firms analyze their policies and practices to see if they reflect ESG trends in the industry.

“While ESG certainly isn’t a new concept, it’s definitely gaining more and more attention, especially as it pertains to construction and real estate companies,” Cox said. “Embracing these changes can be difficult, but we want to stress why it’s important to start thinking about it now.”

Two big reasons to do so center on possible regulatory compliance. More of the world is moving toward ESG regulations and a company’s policies and practices could someday be considered when borrowing money. Those ideas have already been discussed.

In July 2023, the European Commission adopted the first set of sustainability reporting standards. Closer to home, the U.S. Securities and Exchange Commission in March 2022 proposed regulations relating to disclosure of greenhouse gas emissions and climate-related risks by public companies.

For now, it’s just a proposal, but it’s very likely to gain momentum, and not just for publicly traded companies.

“It will take years for it to happen, but it will happen,” Cox said. “There has been a lot of discussion in the banking industry regarding ESG considerations as part of the loan review process. That’s another reason that businesses should start considering putting some of these policies in place, because if lenders are going to start caring about it, then they have to start caring about it.”

There’s also the risk associated with ESG-related matters.

“There’s potential reputational risk, financial risk and the inability to attract talent or tenants,” Cox said. “So ESG risk has become a regular business risk.”

But that’s not difficult to address, she said; in fact, many companies follow ESG guidance already without necessarily knowing it.

“Most likely companies have policies or are practicing certain policies related to ESG, there’s just no formal, defined ESG program,” Cox said. “So, formalizing the program and putting it into policy form, that just makes it sure it’s clear to the entire organization: your customers, potential employees, potential customers.”

“That’s why we think it’s important to consider from a risk standpoint.”

At the same time, the policies adopted by a company can make a firm stand out within the market to investors, employees and customers. And any edge in employee retention or attraction in the construction industry is important, Cox noted.

“Implementing ESG policies — for instance, related to health and wellness and DE&I (diversity, equity and inclusion) — they can help in attracting and retaining talent,” she said. “As far as new customers or tenants go, a healthy and sustainable environment is what people want when deciding where to work and live.”

Air filtration methods, natural light and green cleaning standards often are considerations for job candidates as well as tenants. Also, global real estate investors and real estate investment trusts increasingly are looking toward ESG-compliant companies.

“So real estate organizations looking for outside investment would want to make sure they have policies in place,” Cox said.

Building upgrades can come with a cost, but those costs are recouped over time in many cases.

“If you’re thinking about sustaining your business into the future,” Cox said, “you have to think about ways to reduce costs, because quite frankly it’s not going to get any cheaper. This is a big way of doing that.”