What is ESG in the Construction Industry?

In a sector that generates 39% of global greenhouse gas emissions*, integrating environmental, social, and governance (ESG) criteria has become essential to remain competitive.

Both public and private contractors now require them in their tenders. For companies in the sector, this means gaining or immediately losing access to key contracts.

According to the OECD and the Global Infrastructure Facility, investment in sustainable infrastructure is expected to reach $14 trillion by 2030. So how can you implement a promising ESG strategy for your company and thus contribute to decarbonization and energy efficiency?

ESG criteria: a must in calls for tenders

Major Québec institutions, including the Société québécoise des infrastructures (SQI), Hydro-Québec and the City of Montréal, have already incorporated explicit ESG criteria into their specifications. These criteria are becoming decisive in the awarding of contracts.

Two flagship projects are perfect examples of this trend:

• the deconstruction of the Champlain Bridge, where 90% of the materials were reused or recycled;
• the Turcot Interchange, where 80% of the original materials were incorporated into the new interchange or reused elsewhere.

The three components considered in calls for tenders are as follows:

Environmental

• Carbon footprint of the construction site
• Waste recovery
• Low-carbon procurement

Social

• Incorporating local workers
• Working conditions
• Training and safety

Governance

• Transparency
• Traceability of materials
• Regulatory compliance

Some calls for tenders also require compliance with international standards such as ISO 20400 for responsible procurement.

How can you develop an effective ESG strategy?

Investing in ESG criteria pays off. You should see it as an investment, not as an expense. Ultimately, you will see a return with a positive impact on your company's financial statements.

To implement a successful ESG strategy, you need to go through several key steps.

1- Train and raise awareness internally

As a first step, plan to train the whole staff throughout the organization. The level of ESG maturity varies considerably from one company to another. It is essential that all your employees understand the issues and buy into the approach. This training helps present ESG practices not as a constraint, but as an opportunity for growth and gaining a competitive advantage.

You need to train supervisors, project managers and even subcontractors. An effective ESG strategy starts on the construction site, where ESG reputations are earned (or lost).

2- Conduct a sector-specific ESG assessment

Before defining an action plan, you need to conduct an assessment to establish an accurate picture of your company's current situation. This review will help you determine what is already in place. Most companies have already implemented some ESG practices, particularly at the social level with teleworking and workplace wellness policies.

An ESG assessment must be tailored to the realities of the construction industry: materials management practices, green logistics, supply chain stability, and the physical and transitional climate risks, as well as financial and reputational risks, that could affect the company.

3- Draw up an action plan

Your action plan should include measurable (SMART) performance indicators to track progress over time. Focus on a few key objectives rather than spreading your commitments too thinly. This prioritization should take into account your company's current challenges and specific needs. The action plan should also make it possible to prioritize ESG issues based on their level of risk and their potential impact on the company’s operations, costs, revenue, and reputation.

Focus primarily on:

• the amount of tCO2eq per construction stage;
• the rate of reuse of materials in situ;
• the percentage of contracts that include an ESG clause.

4- Implement priority actions

Once the plan is in place, take action. Here are some concrete steps you can follow.

Carbon footprint and decarbonization plan

Measure your company's GHG emissions and establish a realistic and progressive reduction plan for each construction site or production unit. There's no need to transform everything at once (such as replacing an entire fleet of trucks with electric vehicles). Instead, move forward one step at a time.

Responsible sourcing

The Fighting Against Forced Labour and Child Labour in Supply Chains Act requires large companies to file an annual report on their sourcing practices to prevent forced labour and child labour. Beyond regulatory compliance, the goal is to identify suppliers that have a more positive environmental, social, and governance impact.

Climate risk management

Assess physical climate risks (wildfires, floods, heat waves, extreme precipitation) as well as transition risks associated with changing regulatory requirements, customer expectations, and market conditions. These factors can have significant impacts on operations, assets, costs, and the supply chain.

Supply chain optimization

Look for more sustainable alternatives in terms of materials and logistics.

Energy transition

Gradually adopt renewable energies, where possible.

Circular economy

Reduce your waste and encourage the reuse of materials, reuse platforms and reverse logistics.

5- Plan for monitoring and continuous improvement

The ESG approach is part of a continuous improvement process. The carbon footprint, for example, must be measured on a regular basis to track progress.

Creating an ESG committee that includes internal representatives (construction, quality, management), possibly with the help of external experts, will help ensure this monitoring.

It is important to remember that the ESG approach is comprehensive and affects all departments of the company, not just finance or operations.

How can you maximize the impact of your ESG approach in the current context?

Prevent greenwashing

Since 2024, Bill C-59 has regulated environmental claims. In construction, this means that "green" promises must be measurable, traceable and auditable.

To avoid greenwashing, which is targeted by Bill C-59, adopted and signed into law in 2024, you should:

• focus on realistic and achievable goals;
• ensure that all external communications are factual and supported by verifiable data;
• avoid multiplying commitments that cannot be kept.

Take advantage of financial incentive programs

There are many financial assistance programs available to support you in your ESG transition, at both the federal and provincial levels, including:

• ÉcoPerformance financial assistance program for energy transition projects
• Technoclimat financial assistance program for technological innovation projects
• Innov-R
• Bâtiment durable Québec

These programs may take the form of grants, loans, or other financial assistance.

Capitalize on Québec's favourable environment

Even though environmental policy is changing around the world, including in the United States, Québec remains strongly committed to ESG practices. Major contractors, such as Hydro-Québec, Sépaq as well as government departments and agencies, continue to include ESG criteria in their calls for tenders.

The financial sector also supports this transition: banks and investment funds (such as Fondaction) offer green loans and advantageous financing for sustainable projects. In a context where ESG issues are increasingly factored into financing and investment decisions, a structured approach makes it easier to demonstrate a company’s resilience and its ability to manage long-term risks.

Anticipate global trends

Several global trends confirm the importance of integrating ESG practices into corporate strategies:

• European Corporate Sustainability Reporting Directive (CSRD) for large construction companies (ESG reporting requirement);
• Net zero emissions for new buildings by 2030 (European Union);
• Canadian green taxonomy under development to provide a framework for sustainable investments;
• ESG integration into insurance standards and applied rates (Swiss Re, Aon in Canada).

Leverage ESG criteria strategically

Integrating ESG practices into strategic planning is no longer an option, but a necessity for companies that want to remain competitive, strengthen their resilience, better manage their risks and gain access to public procurement opportunities as well as favorable financing. This approach should not be perceived as a constraint. Rather, it provides a real catalyst for transformation and value creation.

Integrating ESG criteria is not about compliance, it is about winning tenders, accessing financing and enhancing your image. It is about transforming every construction project into a showcase for responsible innovation.

*Source: GlobalABC/UNEP, 2022.