ESG Criteria in Construction – Significance and Implementation

The Path to a Sustainable Construction Industry with ESG Criteria

The construction industry is currently undergoing major change – probably the biggest transformation it has ever experienced. Not only is digitalization advancing rapidly, sustainability is becoming increasingly important due to environmental requirements from the German government. Europe is committed to becoming climate-neutral by 2050 and taking greater responsibility for nature and people in the future. For this goal to be achieved, the industry must change in various areas.

The construction industry is responsible for a huge share of CO2 emissions. A large portion comes from the manufacturing processes of steel, iron and cement: these processes produce over 10 million tons of CO2 emissions annually (Source).

Sustainability, however, primarily means operating climate-neutrally and conserving resources. In companies, sustainability is also reflected in how employees are treated. A company's ecological footprint has a much broader reach than it might appear at first glance. But where to start? And most importantly: how?

This is where ESG criteria come into play. They can help companies operate more environmentally consciously at various levels. One thing is certain: the construction industry is increasingly relying on ESG criteria, which will have a major impact on many processes in the future.

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What Does the Abbreviation ESG Stand For?

ESG stands for "Environmental, Social and Governance" and provides comprehensive approaches to greater environmental awareness in companies. These address both environmental and climate issues as well as social and corporate challenges. These three criteria each include various factors that need to be considered. Only when these criteria are demonstrably met is a company considered "sustainable".

What the Different ESG Criteria Mean

The three pillars stand for consideration of the environment, social conditions and governance structures of a company.

ESG-Criteria-klarx

Representation of the three pillars of ESG criteria

The "Environmental" criterion addresses aspects of sustainability relating to a company's ecological environment. This includes calculating and offsetting or reducing CO2 emissions, saving energy and sustainable, forward-thinking resource planning.

The "Social" and "Governance" criteria, meanwhile, address sustainable processes within the company's internal environment.

"Social" focuses primarily on the social and societal aspects of how companies and governments operate. The focus is always on people as whole beings. Do we adequately protect our production employees? Are employee rights being upheld? Do we pay our employees fairly?

And how are our governance structures organized? This is not just about a company's structure and partnerships, but also about whether management acts improperly or withholds important information from employees and customers – information that wasn't obtained legitimately but through corruption.

What Opportunities and Risks Do ESG Criteria Bring for Companies?

But what do these criteria mean for the construction industry? Non-compliance has consequences not only for the environment but also for the company itself. In addition to construction companies, ESG targets also affect investment decisions. Project developers without an ESG strategy risk their company's long-term profitability, as investors will increasingly need to comply with EU Sustainable Finance regulations like the Disclosure Regulation, which has been in effect since May 2020. For construction companies this means: without considering ESG criteria, no investors in the future.

What Is klarx Doing About Sustainability?

klarx has been climate-neutral since 2021. We calculate and offset our emissions, our equipment is fueled with climate-neutral diesel from BayWa and our Climate Officers handle all concerns and questions about sustainability and environmental issues in construction. At klarx, we share responsibility for the social and governance areas. Employee and development conversations help us maintain transparent communication and respond to the needs of all team members.

The ongoing exchange between our Sustainability Team, People & Culture and management makes it possible to implement and successfully maintain ESG criteria.

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