FIRST Construction Council explains how to unlock value through ESG
Real estate sector, the second largest employer in India, is projected to reach $ 1 trillion by 2030, accounting for 18 to 20 per cent of the country's GDP. However, the sector accounts for over 22 per cent of all national emissions. Hence, for India to achieve its long-term goal of becoming net zero by 2070, the construction sector must lead the way in implementing sustainable practices.

With the rise in demand for sustainability, many companies are taking steps to become ESG (environmental, social, and governance) compliant. In fact, ESG has become an important metric in the market and companies with good ESG performance are proven to have lower risks, higher returns, and are more resilient in times of crisis.

Even, India has introduced new ESG reporting requirements for the top 1,000 listed companies in the country by market capitalisation. So, what does going "Green" means to the construction companies and how it can deliver long-term benefit to them and their customers? 

To delve deeper into the topic, FIRST Construction Council - an infrastructure think-tank dedicated to promoting the construction industry’s causes and needs – recently hosted a virtual discussion forum on the theme of “How construction companies can unlock value through ESG”.

Following experts shared their thoughts during the event:
? Dhwani Talati-Padiyar, Director and Head of Technical Due Diligence, ESG & Sustainability Consultancy for the Project Management Group of CBRE, India
? Dr Inderjeet Singh, Partner and leads the ESG, Climate Change, and Sustainability practice within Financial Advisory in Deloitte India
? Aditya Patwardhan, Chief Manager - ESG & Sustainability, KEC International Ltd

Relevance of ESG for construction sector
Shelter is one of the basic human needs required for survival. With the growing population, the demand for shelter and infrastructure is also growing exponentially in the country. According to Aditya Patwardan, the construction industry is responsible for 40 per cent of global energy consumption, around 30 per cent of greenhouse gas emission, and 30-32 per cent of natural resources consumption. As per studies conducted by IIT Delhi and NIT Surat, around 48,000 people are killed in accidents at work (that does not include deaths on roads) in India every year and the construction industry accounts for 24 per cent of such deaths, which is alarming for the industry. Also, it is no secret that construction is a male dominated industry.

Elaborating on ESG’s importance for the construction industry, he said, “Nowadays more and more companies are being asked by the investors to disclose their ESG data and ratings. Since ESG is fairly new concept, there are lots of ambiguities in it, and some people are concerned about its effect on the future of construction industry.”

ESG is first and foremost a combination of ESG financial and ethical considerations for company’s investors and secondarily stakeholders. ESG helps construction companies to win business; build & maintain a positive image; improve risk management; build community goodwill; reduce operating costs; discover new ways of doing business; reduce regulatory delays; increase access to financing; attract, retain and motivate employees, etc.


But, there are also some concerns about ESG such as reduced productivity; cost to consumers; greenwashing; subjectivity; and E (economics) versus S and G. "There are concerns about reduced productivity (due to ESG) in construction compared to other industries like manufacturing and cost implications for consumers. Retail and manufacturing sectors have reinvented themselves, but construction seems to be stuck in the past. Productivity in construction has averaged only 1 per cent a year over the past two decades compared to 3.6 per cent in manufacturing. Additionally, greenwashing is a potential issue where companies make false claims about their ESG responsibility. The company management often face the challenge of balancing economic profit with social and governance issues. Subjectivity is also an issue in ESG ratings due to different methodologies used by agencies. But, companies can derive value from these ratings if executed properly,” Patwarthan added.

How real estate developers and occupiers perceive ESG
In her presentation, Dhwani Talati-Padiyar presented the current status of ESG in the Indian real estate industry and discussed how investors have adopted ESG criteria as part of their investment strategies, with a focus on regulatory compliance and asset valuation.  She said, “Investors continue to find imbibing ESG matrix and their strategies beneficial, driven not only by need to comply with regulatory requirements and environmental protection regulations, but also to preserve future asset valuation and enhance brand. According to the CBRE APAC Investor Intentions Survey released in January 2022, an increasing number of large investors are integrating ESG criteria into their strategies. Some of the approaches include prioritising the purchase of buildings with green certifications and retrofitting existing properties to enhance energy efficiency, water usage and importantly wellness as well.”

There is also a lot of emphasis and focus on energy savings and net zero goals. A lot of investors have already built in these goals as part of their strategy such that the developers, their land acquisitions, and the final occupiers of their properties have to tie into this larger goal. They are also talking about benchmarking and reporting with their peers, which is a very essential parameter for the investors. There is also emphasis on the adoption of green construction materials. 

“Pressure on developers is very high from the investors and the occupiers of these buildings. The developers have not only strategised and theorised about how to go about the ESG compliance, but have actually now started getting into the details at every level - building, asset, design, and procurement & construction methodologies (that span across the project). When you talk about the building as an asset, we are looking at different aspects such as standard floors, common lobby areas, amenities, how social values and experiences can be implemented, and other aspects of the building. This becomes a plug and play model or even some of these become part of their green leasing models when they talk to the occupiers,” stated Dhwani Talati-Padiyar.

Developers are also responding to occupier demands by implementing ESG practices throughout the project lifecycle, including design, construction, and operation. Key areas of focus for developers include energy efficiency, wellness amenities, sustainability certifications, and touchless technologies. Occupiers prioritise wellness and technology when selecting properties and expect green open spaces in their return-to-work strategies. Many large public companies have committed to net-zero emission targets.

“Asset enhancement initiatives focus on key drivers such as touchless building technologies and contactless lift buttons. These initiatives align with the buzzword of ‘Digital Transformation’ and cater to the requirements of differently-abled individuals. ESG regulatory requirements will continue to tighten, and technology will play a critical role in achieving ESG goals. Green finance and green building initiatives will gain momentum in the future," she added.

Relevance of ESG accountability
India’s Business Responsibility and Sustainability Report (BRSR) — a framework for environmental, social and governance (ESG) reporting — came into effect in 2023. The Securities Exchange Board of India (SEBI), the regulatory body for securities markets in India, has designed the new BRSR - the first framework in the country that requires Indian companies to provide quantitative metrics on sustainability-related factors, as of fiscal year 2023 for eligible companies.

SEBI has mandated that the BRSR will be applicable to the top 1,000 listed entities (by market capitalisation) for reporting on a voluntary basis for FY2021–22 and on a mandatory basis from FY2022–23. Consequently, SEBI mandates the top 150 listed companies in India by market capitalisation to provide “reasonable assurance” on Environmental, Social, and Governance (ESG) metrics starting FY 2023-24.

“Out of the nine principles of National Guidelines on Responsible Business Conduct (NGRBC), SEBI is asking for responses (reasonable assurance) on the five principles from the top 150 companies by market capitalisation in the first year itself, beginning April 1, 2023,” stated Dr Inderjeet Singh, Partner, Financial Advisory, Deloitte India.

Under 'Gender parity' principle, the only requirement till last year was to talk about what is the male-female ratio in an organisation. However, SEBI recently brought out a notification, as per which the company have to also disclose how much salary has gone to male vis-à-vis female. 

With respect to "Environmental" principle, the companies, those who are making disclosures, will have to talk about not just the energy that they are consuming, but also about the specific energy and water consumption - right from the time when the site is acquired till the project is delivered year on year. "These requirements will be part of the disclosure ecosystem,” he said.  

Explaining the relevance of ECG accountability for creating long-term value for companies, Dr Inderjeet Singh discussed the increasing importance of environmental requirements in business, such as energy consumption and water usage. "They emphasize that companies need to disclose not only their own energy and water consumption but also specific details about wastewater treatment. With the SEBI's notification, you need to explain and disclose as to what percentage of the company's total procurement is happening from MSMEs. MSME procurement is now a materiality requirement for companies, meaning they must disclose the percentage of their total procurement from MSMEs,” he informed. 

Dr Singh also highlighted the assurance requirements related to data breaches and supply chain coverage. "Reasonable assurance is needed for company disclosures while limited assurance suffices for supply chain-related emissions," he said. 

It was highlighted that benchmarking and reporting are essential for comparing performance with peers and improving metrics year on year. Companies can explore industry benchmarks and reporting frameworks such as GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), and GRESB (Global Real Estate Sustainability Benchmark) to enhance their reporting practices.

Dr Singh mentioned the importance of developing materiality metrics for tracking progress and demonstrating commitment to ESG. Companies can consider developing or revisiting their materiality metrics to ensure they include relevant key performance indicators (KPIs) related to ESG goals and targets. He emphasised the requirement for reasonable assurance and compliance with the disclosure regulations. “Companies should review the disclosure requirements specific to their industry or sector and ensure they have appropriate assurance mechanisms in place,” he added.