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ESG targets and the AEC Industry: Understanding its needs and challenges ahead

The Architecture, Engineering and Construction (AEC) industry, which is estimated to annually consume 50% of natural resources, 40% energy and responsible for 50% of total generated wastes (Khodeir & Othman, 2018), has long been reluctant to major changes in their business models. This might be explained by its difficulty to standardize processes, its high complexity deriving from the idea of a "one of a kind" project and interlinked stakeholders; globally the AEC industry is distinctly profitable and plays a big part in providing jobs in local communities.

The current efforts towards shifting to a sustainable development (adoption of the Paris agreements, definition of the UN 2030 Agenda and the Sustainable Development Goals) has shaken up some of the world’s biggest companies and industries' approach to doing business, forcing AEC industry stakeholders to shift and follow the current global trend.

 

ESG as a powerful tool for stakeholders in the AEC industry

Rapid improvements and changes are not characteristics we can easily associate with the construction industry; but some frameworks such as Lean Construction, aiming to boost efficiency and reduce are seemingly not sufficient for the current trend. Just as the founder of the engineering and construction management US-based firm McKissack & McKissack stated, doing things the “right way” now has a name: Environmental, Social and Governance Practice. ESG targets bring a new paradigm for measuring and approaching the needs of clients, employees, suppliers and local communities. Sustainability is not only related to green construction and certifications but it rather has evolved into becoming a boost for smart growth, embracing sustainable design, construction and green infrastructure that can cover a wider number of environmental and social interests.

 

The future of ESG in times of a global pandemic

In 2018 the Global ESG assets were estimated at $30.7 trillion Global ESG assets according to the Global Sustainable Investment Alliance. COVID-19 brought unforeseen challenges to the world and also to the AEC industry which not only saw a huge blast economically speaking but understood the need for quick adaptation and resilience. As Ms. McKissack mentions “the COVID-19 pandemic has reinforced the importance of ESG and accelerates its transition”. The industry is starting to recognize that companies which perform well in ESG are paving a road towards long-term success; AEC investors and financial institutions have found in ESG a compass that helps them to drive away from seemingly unsustainable companies heavily invested in unfeasible practices and lack of diversity in their corporation staff.

During the Groundbreaking Women in Construction virtual conference held earlier this year, Jamie Cook, a director manager at the investment firm Credit Suisse highlighted how a public and private sector construction rebound could boost more sector firm investment in the industry “investors are weighing whether and how companies meet stated commitments for workforce diversity and climate change reduction among other ESG targets” Ms. Cook clearly believes that firms complying with ESG are already getting more attractive valuations in the market.

Nonetheless, the undeniable gained momentum these past couple of years, the AEC industry requires heavy structural changes; ESG targets and criteria need to be better understood, translated and verifiable in the context of a Built Environment project. Financial institutions and main investors have gotten the memo on what ESG means for their current and future endeavors, “those who hold the money are pushing and asking questions” according to Ms. Angyal, North America’s CEO for ERM, an environmental consultancy firm. These questioning from major investors is a good sign of ESG adaptation and acceptance in the AEC industry, it is now time for the rest of the involved stakeholders to start acting in the face of an ESG potential evolution for the sector

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References

Khodeir, L. M., & Othman, R. (2018). Examining the interaction between lean and sustainability principles in the management process of AEC industry. Ain Shams Engineering Journal, 9(4), 1627-1634. https://doi.org/10.1016/j.asej.2016.12.005

McKissack Firm Website. (2020). Doing Right in the Built Environment: Why ESG is No Longer Optional in AEC.https://www.mckinc.com/insights/doing-right-in-the-built-environment-why-esg-is-no-longer-optional-in-aec

Bousquin, J. (2021, February 8). Socially responsible investing is poised to intersect with construction. Construction Drive. https://www.constructiondive.com/news/socially-responsible-investing-is-poised-to-intersect-with-construction/594659/

Rubin, D. (2021, May 4). Best GDP Rise Since 1984 Seen This Year, Credit Suisse Expert Tells Industry. Engineering News Record. https://www.enr.com/articles/51699-best-gdp-rise-since-1984-seen-this-year-credit-suisse-expert-tells-industry

​About the Author

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Daniel Tapia, an environmental and civil engineer, currently based in Taipei, collaborates as a freelance writer and researcher for the Taiwan Architecture and Building Center. Daniel’s main research topics are on Sustainability, Smart Growth, Building Information Modeling and Circular Economy.

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