Construction businesses have work to do in sustainability transition readiness

Construction companies can do more to prepare for the transition to a more sustainable future, the latest Marsh data suggests.

The construction industry’s readiness finding came from comparing the results of various organizations completing Marsh’s award-winning Environmental, Social, and Governance (ESG) Risk Rating tool.

The assessment measures performance against 19 themes and provides respondents with a clear framework from which to better understand their ESG scores, make more informed investment decisions, and potentially negotiate better insurance outcomes.

The Governance score aggregates efforts relating to leadership, accountability, transparency, stakeholder engagement and risk mitigation, among other factors.

As of June 2023, more than 500 respondents have achieved an average governance score of 5.9 out of 10. Construction firms within this group recorded an average of 5.2.

Construction also performed below the overall average in environmental, social and combined ESG scores. For the environmental category, construction businesses scored 3.5 against the total average of 4.1.

The gap was slightly smaller in the social scores, for which construction companies registered 5.5, with the overall average standing at 6.0. Combining all individual E, S, and G scores into one ESG value, construction businesses returned a value of 4.8, 0.6 below the all respondents’ score of 5.4.

Specialist staff matters

Construction companies that employ a sustainability officer significantly outperformed those that do not.

The average ESG scores came in at 5.6 versus 3.8. This trend – and the sizeable performance gap – is followed in the individual environmental, social, and governance strands.

Size and revenue are a factor

From the initial construction respondent data, the best-performing companies by number of employees are currently 10,000+ and 1,001-10,000, with average ESG scores of 7.4 and 5.8, respectively. All other groups posted scores below the ESG and E, S, and G averages.

In terms of performance against revenue, three groups recorded the best scores across the board: +US$1 billion, US$501 million - US$1 billion, and US$101 million to US$500 million.

Construction companies in the +US$1 billion bracket scored highest in combined ESG (6.5), environmental (7.9), and governance (6.9), but came second in social (7.3).

Building resilience

By using the ESG Risk Rating tool, construction companies can take the first of Marsh’s six-step ESG journey designed to help them understand their ESG risks and opportunities and support them in communicating their credentials to suppliers, future partners, and insurers.

“These ESG risk ratings are reflective of a fast-growing body of evidence supporting the argument that ESG risks are increasingly important to construction companies and contractors / subcontractors, no matter how big they are. The cohort of construction company participants also suggests that the best-practice leaders understand how crucial their ESG performance is to investors, financiers, and other critical-to-success stakeholders, many of whom now use ESG risk ratings as an indicator of a company’s financial stability and survival chances. Marsh can support all businesses — wherever they are on their ESG journey — and offer needs-based solutions tailored to their specific goals around ESG maturity, climate resilience, and net zero.”

Gary Rodrigues

SVP, Risk Leader, Marsh Advisory

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