Addressing the Building and Construction Climate Challenge Sustainable Project Funding

Posted by Construction Industry News Magazine on 7th October 2021 -

It’s common knowledge that the building and construction industry is a major carbon emissions contributor. It faces increasing pressure to adapt its approach to respond to environmental goals. Here, Louise Stewart, CEO and Founder of ProjectPay, explores the ways in which construction can meet consumer and investor expectations.

The industry faces numerous environmental compliance challenges, including meeting the UK government’s NetZero target. While the construction industry is well positioned to champion low-carbon initiatives such as those currently evidenced with building materials, reducing Scope 3 carbon emissions on building projects is proving more difficult.

From a government and commercial targets perspective, where the focus was once on sustainability reporting, the preferred term now is ESG – or ‘environmental, social and governance.’

It’s no longer appropriate for investors to deliver construction projects with simple reporting of financial information. Now, retail and institutional investors expect reporting to provide transparency and accountability on how projects affect the world, the communities they touch, and how they are run. This now includes providing evidence that ethical payment practices have been implemented and that the small businesses delivering the projects are paid on time.

Media coverage of the climate-change crisis is increasing the sense of urgency around the new wider finance focused ESG objectives and market dynamics are changing dramatically. Many project funders are now stating they will only fund projects with ESG reporting in place and governments are moving to increase environmental legislation further.

Consequently, there is a growing acceptance that the culture in the construction sector needs to transform if projects are to achieve the ESG requirements of project funders to get the financing required to deliver projects and meet emerging legislation.

Traditionally, addressing this has proved problematic to implement on construction projects, due to a lack of visibility over the supply chain. There is rarely transparency across the supply chain and this has caused decades of payment abuse in the sector. This now presents the challenge of how project carbon emissions are reduced or being offset by the supply chain contractors.

For many SMEs the prospect of understanding carbon emission reduction and offsetting is additionally daunting therefore. In many cases, it also lies outside the scope of their capability. As a result, many often defer action or become exposed to scams and poorly designed carbon offset projects.

Fortunately there are technology solutions which have been designed to provide transparency across the supply chain within the building and construction industry. These can standardise and de-risk payments through Project Bank Accounts integrated with major banks.

And this solution in turn allows companies in the industry to identify reliable robust sources of supply chain carbon emissions data.

It also delivers a science-based framework for calculating carbon emissions in UK construction projects to either reduce or pay the cost to offset, ready to commercialise with chosen partners.

Using these new tools, construction companies can easily measure carbon saving impacts, and demonstrate project ESG effectiveness to UK industry and government.

They also provide transparency for investors, who can now be confident that targets including ethical payment processes and environment commitments are being delivered on, that capital is being deployed to facilitate timely payments of small businesses in the supply chain – and that carbon emissions generated by the project activities are either eliminated or offset at all levels of the supply chain.  

Using tools like these, the construction industry can meet the various challenges and transform their ability to meet the demands of projects subject to achieving the ESG requirements of project funders. This in turn helps to get the financing required to deliver projects and meet emerging legislation.

Regulatory, ESG compliance and commercial pressures to businesses have grown and will continue to do so. But developments with new tools providing project payment transparency are one of many technology examples of how they have never been better positioned to reduce their environmental footprint.