The COVID-19 pandemic exposed vulnerabilities in the construction supply chain and procurement process. Although the industry’s overall sustainability performance is improving—according to the fifth annual Business Sustainability Risk & Performance Index—the pandemic highlighted the importance of construction companies assuming a leadership role in integrating environmental sustainability criteria into their procurement processes.
Given the challenges of the pandemic, it is understandable that sustainable procurement, a key catalyst for mitigating sustainability risks across the supply chain, trended downward across all industries, including construction (falling by 0.4 points on the 2019 average to 37.6 in 2020).
Scores given in the index are based on more than 46,000 companies’ performance against 21 criteria across four themes—environment, labor and human rights, ethics, and sustainable procurement—based on a scale of zero to 100. Scores below 25 represent high risk, 25 to 44 represent medium risk, higher than 45 represents good performance and more than 64 is advanced.
For 2020, the construction sector achieved a 49.4 overall score, one of the highest average scores in 2020. In the labor and human eights theme, construction recorded the single highest total, at an average of 54.6. The industry performed strongly in the environment theme, posting an average score of 51.7. Performance in the ethics theme is at the cross-industry average and shows steady growth over the past five years. European firms are squarely ahead of the global average, with U.S. companies trailing behind by about six points.
In line with cross-industry trends, at 38.1, the construction industry’s performance in the sustainable procurement theme lagged far behind the sector’s overall average in 2020 and stands out as a priority area for future growth.
The ongoing lack of progress in this theme reflects the fact that companies don’t have enough visibility past Tier 1 suppliers. Procurement and supply chain leaders must proactively engage with all trading partners to address sustainability risks, improve practices and prevent a cascade effect that could disrupt operations across the value chain.
Construction firms have traditionally been required to prioritize employee health and safety management. But following the onset of the pandemic, construction workers faced unprecedented safety and health challenges, forcing firms to establish new safety precautions. At the same time, the industry is obliged to contend with additional risks such as a high global incidence of human trafficking.
These vulnerabilities exacerbated some of the key factors that have led to the current supply constraints—such as shortages in raw materials, low shipping container availability, congestion in ports and delayed port clearance and more.
All of this is occurring against the backdrop of a global surge in residential and non-residential construction—including new builds for distribution and warehousing facilities—and rising geopolitical tensions affecting global trade.
Firms that procure materials and services from suppliers that embrace sustainable business practices, will have a more resilient network and be better positioned to capitalize on future industry growth.
Some of the most significant opportunities to drive environmental and sustainability improvements in the construction industry occur upstream in the supply chain. For example, the engineering and construction industry is the largest consumer of raw materials worldwide, contributing to 50% of the total solid waste in the United States and accounting for 19% of global plastic production.
Overall, 20% to 50% of a building’s lifetime emissions occur during the construction phase. That means as much as 50% of a construction firm’s sustainability impact may be linked to third-party materials and labor providers in the supply chain.
There are concrete ways organizations of any size can improve their sustainability performance, including:
Sustainable procurement practices drive enterprise value: enhanced ROI potential, reduced material and procurement costs, reduced reputational risk and financial liability, and improved brand equity and differentiation within the industry. Regularly and proactively measuring supply chain sustainability leads to actionable insights and better performance.
The industry’s future is looking brighter as the U.S. and other countries plan to stimulate battered economies with aggressive programs and investing in overdue upgrades and repairs to critical infrastructure. In the United States, the Bipartisan Infrastructure Investment and Jobs Act includes $1.2 trillion in funding for transportation, power and water infrastructure projects across the country.
To participate in this developing upside potential, construction industry leaders must transform traditional practices to benefit from funding without allowing their environmental impact to balloon disproportionately. Sustainable procurement can unlock future value in the construction industry.
Construction companies who track and rate the effectiveness of their sustainable business practices throughout their supplier network will be well-positioned to capitalize on the construction boom ahead. They are poised to deliver more value to customers and employees, mitigate risks, deal ethically with suppliers, and create positive results for their communities.
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