Area Development: ESG: The New Metrics in Construction and Real Estate

ith engineering and construction making up more than 11 percent of global domestic product, there is a growing focus on how the building industry conducts business. What started as a movement among institutional investors and their financial partners has expanded across almost all sectors, and environmental, social, and governance (ESG) considerations now impact many real estate decisions and capital project planning. Consumer behavior is partly responsible for the change. So is the fact that investors and lenders increasingly view a company’s ESG policies as indicative of how that company is positioning itself for success in the marketplace.

Regulatory decisions further heighten the importance of ESG. A change that will soon make itself felt is the Securities and Exchange Commission (SEC) release of ESG disclosure rules for Scope 3 emissions. (The Environmental Protection Agency defines Scope 3 emissions as “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.”) Combined, these factors mean one thing for developers and corporations undertaking capital projects: not only will they have to institute, track, and report their own ESG efforts, but they will have to include those of their contractors and other project partners.

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