Where Do Construction Contractors Start with ESG?

Posted by Premier Guarantee on 25th May 2022 -

Environmental, Societal and Governance (ESG) issues continue to increase in their significance and relevance to contractors in construction.

Supply chains, led by construction frameworks and tender processes, are more and more seeking evidence that firms they choose to work with have acceptable ESG approaches, and building regulations themselves continue their march towards a “net zero” goal.

But as a smaller but growing business, where do you start with ESG?

The question was considered at a panel discussion during the recent BIBA Conference in Manchester. Although insurance brokers were the focus, many of the observations could easily apply to construction contractors and their supply chain.

 

Environmental

Simon McGinn, Chief Executive of insurance giant Allianz Commercial, said the key was education, encouragement and “starting the conversation”.

He said: “Sustainability starts with your customers, start there and that’s a very good base to work on any sustainable partnership. It’s also important to take the long term view because of course it’s not the sort of thing we can solve in the next 12 months.

“Be brave and a start a dialogue with their customers as to what it [sustainability] is, because often when we ask if these conversations are happening with customers, we find the answer is quite often no.

“Of course businesses are busy and it’s been a challenging couple of years but I think the biggest obstacle is knowing how – how do I start such a conversation with customers? This is a topic the industry needs to explore and give businesses the confidence to start that conversation.”

Simon Colvin, Partner at law firm Weightmans, added that, broadly, the initial “soft” approach to sustainability was being strengthened via more regulation that would drive collaboration across businesses and business sectors.

Vasilka Bangeova, Managing Director at reinsurers Guy Carpenter, said better outcomes would be achieved through engagement rather than exclusion and pushing too hard beyond regulation, particularly for smaller businesses “just starting out on their ESG journey.”

On the thorny issue of “greenwashing” – the term used for potentially misleading environmental claims – Simon McGinn said there was an accreditation gap and a need for a “common standard” that would ensure initiatives were achieving desired outcomes in alignment with scientific consensus, and that those outcomes could be measured and proven.

 

Societal

Simon McGinn cited typical examples of initiatives, such as supporting charities and communities, and equality, inclusion and diversity, but added that there was a need to take a more sophisticated approach and better measure the outcomes of the initiatives.

“I’m not a big fan of reinventing the wheel so this all comes back to knowing what your business does and being able to have that conversation with your customers and unpacking everything you do. You don’t have to be the experts in your customers’ space but you need to fully understand your working relationship with them.”

He added: “You don’t need to come up with new ideas or spend lots of money, it’s about thinking about what you’re already doing and how you can add more positive impact.”

 

Governance

Vasilka described the growing regulatory “pressure” acting on insurers and how that was shining an ever brighter spotlight on business governance.

“Governance is all about the culture of a business,” Simon McGinn said. “It’s going to be very hard for an organization to be authentic if they are saying one thing but their governance is saying something else. It underpins the culture of the organization every bit as much as the process.”

Simon Colvin said from a small business perspective, ESG presented challenges in adoption given its broad remit, and that work was being led by the CBI to help smaller organisations “break down” the thinking, planning and actions needed to adopt an appropriate ESG culture.