Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
What is ESG?
ESG stands for “environmental, social, and governance,” specifically corporate governance. The abbreviation refers to the standards that enable organizations of all kinds to measure and track progress toward ESG-related internal and external initiatives, such as net-zero carbon goals.
Today, ESG standards are most commonly used by investors looking for socially conscious companies to invest in. ESG standards help them determine a company’s:
- Commitment to safeguarding the environment and preserving the natural world
- Consideration of people and their interdependencies, including treatment of employees, management of supplier relationships, and impact on the communities within which they operate
- Logistics and process for operating the business, such as leadership practices, executive compensation, financial transparency, and shareholder rights
Taken together, these factors reflect a company’s commitment to sustainability and accountability, which are growing concerns for all organizations, including those in the construction industry.
Why Is ESG an Issue in Construction?
Project owners, investors, lenders, developers, and building contractors all have good reasons to consider ESG standards. For example, construction firms might rely on ESG compliance data (their own and others’):
- To make the company more attractive to potential clients, investors, and lenders
- In deciding which subcontractors and suppliers to do business with
- To increase the company’s workforce diversity and attract new employees, especially younger ones who tend to seek employment with companies that get high marks for ESG
- To position the company as ethical, responsible, and a good choice to execute larger construction projects
- To demonstrate the company’s ability to handle LEED and other energy-related requirements
- In ensuring cybersecurity and safety compliance
ESG standards related to environmental issues are particularly important in the construction industry because of its impact on the natural environment. For example, construction accounts for 32% of the world’s natural resource consumption.
What ESG Data Should Construction Companies Track?
Measuring the performance of a construction company against social and corporate governance standards is not greatly different from how they are measured by companies in other industries. Much of the data in those categories are readily available from a builder’s human resources and financial accounting records.
Data for tracking compliance with environmental standards may not be as easy to come by. Builders routinely document expenses associated with water, electricity, and fuel consumption for income tax purposes. The extent of recycling on the job site may be documented through financial transactions with a waste management company or recycler. But reporting on embodied carbon and greenhouse gas emissions is not quite as simple. Data would need to be obtained from suppliers to prove that materials were responsibly sourced and minerals were responsibly extracted. And reporting emissions due to second or third-party transportation of construction materials and products, employees’ commuting, and business travel requires aggregating data from a multitude of sources.
Tools for ESG Reporting
ESG reporting in the construction industry is a developing science, and ESG standards in construction are not well defined or agreed upon. But while it can be difficult to define the metrics to use or to collect and aggregate data, there are some helpful tools.
ESG Reporting and Surety Bond Capacity
The ability to obtain construction surety bonds at a good premium rate is essential to growing a contracting business. When you apply for a construction bond, the surety company—the bond’s guarantor—will perform an underwriting assessment. The underwriters will look closely at your personal and business financial strength and stability, industry experience, and other factors related to the likelihood of claims being filed against the bond.
ESG reporting can help you demonstrate your company’s long-term sustainability and level of professional responsibility. For example, it can show that your company is unlikely to incur large fines for violating environmental regulations, or for OSHA safety infractions resulting in bodily injuries and possible civil lawsuits. It can also demonstrate your commitment to fair and equitable treatment of employees, which aids in employee retention and workforce stability, both of which are key to successful completion of construction projects. And ESG reporting can substantiate responsible company governance, which leads to long-term business success.
Over time, ESG reporting can support long-term relationship development with a surety bond guarantor willing to increase your company’s bonding capacity. With higher dollar limits on individual bonds and a higher aggregate limit, your business will be poised to exceed even your own expectations.
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