Guest Post by Colleen Theron, Director Ardea : Published by Lexis Nexis
Environmental and social issues driving change in the construction industry
Since Russia and Qatar won their bids to host the FIFA World Cups in 2018 and 2022 respectively, the construction industry has come under the spotlight for their human rights violations—from late or missing payments, poor living quarters and unsafe working conditions and forcing employees to work for lower than agreed wages. In Qatar workers are also left vulnerable to the Kefala system, tying them to an employer who keeps their passport and leaving them powerless to protest their treatment. However, the spotlight on the role of the construction sector in mega sporting events is not the only issue facing the sector. More broadly, issues such as the growing emphasis on responsible sourcing, increasing demand by investors and consumers for the adoption of environmental, social and governance initiatives (ESG) and the drive to lower environmental impacts to address climate change risk are causing the sector to have to reconsider its approach to these issues.
The construction industry represents six percent of global GDP. An estimated seven percent of the global workforce is engaged in the construction industry, but with a growing skills shortage this is becoming a more acute global problem for the industry and arguably lends itself to being vulnerable to growing forced labor, modern slavery and bribery and corruption.
The construction sector consistently ranks among the top industries affected by bribery and corruption. This is perpetuated by the fact that the lack of supply chain transparency for goods and services and the selection of suppliers on large scale projects may be decided or influenced by individuals within an organization. Moreover, the World Economic Forum says, “No two construction projects are the same, making comparisons difficult and providing opportunities to inflate costs and conceal bribes.”
In light of the developing global sustainability and human rights agenda, what are the key factors that will influence the construction sector to adopt a different approach to managing its social and environmental issues.
Key drivers for developing a new approach to CSR in the sector
In the report ‘Hidden in Plain Site: Modern slavery in the Construction Industry,’ the construction industry‘s responsibility to respect human rights emphasizes one of the means that the industry can manage its social and environmental impacts based on the UN Guiding Principles on business and human rights (UNGPs).
The role of the UNGPs in introducing a set of principles for business to demonstrate their duty to respect human rights is growing. NGOs, academics and regulators acknowledge that self-regulation by companies to ensure they are managing their social and environmental risks is inadequate and that legislation is necessary to drive change.
- Legislative drivers—Around the world, governments are responding to broader social issues, like forced labor, climate change and sustainability by introducing a number of mandatory instruments. Since 2016 there have been over 100 mandatory instruments introduced across 64 countries. Companies bound by legislation are required to take action and report on these issues, failing which a mixture of criminal and civil sanctions exist.
- Investors—An increasing number of investors are showing an interest in integrating CSR and ESG into their decision making. According to researchers at the Kellogg School of Management at Northwestern University, “When a company devotes resources to a CSR program, it sends a signal to investors about the overall health and financial performance of the company. Specifically, companies whose CSR spending exceeds investor expectations experience positive stock returns.” Research also shows a negative impact when companies fall short of those CSR expectations.
- Climate change and environmental impacts—The construction industry is a ‘conspicuous user of resources.’ A briefing by Wilmott Dixon suggested that “Around half of all non renewable resources mankind consumes are used in construction, making it one of the least sustainable industries in the world.” UN data also indicates that this sector is responsible for more than 40 percent of global energy use and 33 percent of greenhouse gas emissions.
Benchmarking CSR data
Protecting and enhancing reputation is another key driver for companies in the construction industry encouraging the development of sustainability reports, CSR programs and providing material information on their ESG impacts. The release of the Corporate Human Rights Benchmark provides a ranking order of companies on their human rights disclosures. Although it does not currently cover the construction sector, this type of benchmarking is gaining momentum.
As the demand for greater transparency within the construction sector continues to grow, it seems unlikely that the drive to become more sustainable will diminish. The report, ‘Building a Fairer System: Tackling Modern Slavery in Construction Supply Chains,’ explores how the industry, NGOs, clients and governments can collaborate to create more ethical supply chains globally.
It is however, key that construction companies begin by addressing ESG by spending the time and resources to map their impacts and ensure they implement robust processes to underpin any disclosures.
Actions you can take now
1. Take a closer look at forced labor in the construction sector in our Hidden in Plain Site eBook.
2. Read “Building a Model CSR Strategy Brick-By-Brick” on our blog.
3. Share this post on LinkedIn to keep the conversation going.