WEDNESDAY, 07/12/2022 - Scope Ratings GmbH

ESG considerations for rating construction companies: industry faces complex sustainability task

Construction and construction-materials (CCM) companies are grappling with multiple and complex ESG-related challenges as a natural-resource intensive, high-emissions sector crucial for creating more sustainably built and functioning infrastructure.

Together, the building and construction industry accounted for 39% of global carbon emissions in 2021 while the construction industry uses 32% of the world's natural resources.

“This equates to 14.6 bn tonnes of CO₂ emissions, a measure of the scale of the opportunity the CCM industry has for reducing emissions and the responsibility for doing so,” says Rigel Patricia Scheller, co-author of Scope Ratings’ latest in its series of reports looking at environmental, social and governance considerations for different corporate sectors.

Europe’s construction sector has faced significant challenges in recent years, from high raw material and energy prices to project bottlenecks and labour shortages.

“Today, ESG-related challenges are climbing up the industry’s agenda. Companies are under pressure to reduce their environmental footprint and invest in sustainable materials to help the industry meet emissions and other environmental goals as part of the energy transition. Our report explains the ESG factors we consider relevant to credit ratings,” says Scheller.

“European companies in the CCM industry have improved their disclosure on governance and sustainability-related issues, suggesting that they recognise that they are issues are linked to improving returns to shareholders and are increasingly important in financing, given growing investor appetite for ESG-linked bonds,” she says.

Shift to more sustainable business model accelerates in tough economic climate

At the same time difficult economic conditions – particularly rising costs, due to disruption in supply chains caused by Russia’s war in Ukraine, and a lack of skilled professionals – are creating bottlenecks and risk holding back the CCM industry from improving innovation and sustainable practices.

“The challenges the CCM industry has to grapple with range from designing and measuring social value, implementing lifecycle and whole-asset thinking, and calculating carbon footprints to calculating, benchmarking, and reporting sustainability-linked performance across projects,” says Patrick Murphy, co-author of the report.

“The specific ESG impacts and risks for any CCM company and the industry at large relate mainly to how to treat waste and sustainable building materials, use more efficient technology, improve employee health and safety, and better deal with litigation, bribery and regulatory risk,” says Murphy.

Download the report