IOD Special Talk - Constructing a Tomorrow: ESG Stewardship, Technology and Leadership

Thank you for the opportunity to speak today. As we gather here amidst distinguished leaders and experts, it is evident that the challenges we face in achieving sustainability and inclusivity in our growth trajectories are significant, yet they are opportunities for transformation and innovation.

Reports that emerged from the recently concluded 28th Conference of Parties (held in Abu Dhabi between November 30 and December 13, 2023) clearly tell us that the world is unlikely to meet its emissions reduction targets set as part of the 2015 Paris Agreement (to limit global temperature rise to 2 degrees Celsius by the year 2100, preferably to 1.5 degrees Celsius). This calls for massive action by governments, businesses, and other stakeholders towards reaching our emissions reduction targets.

As a major consumer of materials such as steel and cement, and due to the energy-intensive nature of its operations, the construction industry is one of the biggest sources of carbon emissions. It is therefore imperative that the construction industry embrace ESG principles, of which sustainability and inclusivity are key components, considering its impact on the environment and the scale of construction activity foreseen in various geographies.

Sustainable and inclusive growth models for construction companies are those that ensure not just business expansion with steady profitability but also prioritise environmental responsibility, social impact, and inclusivity. Key elements of such models include the use of eco-friendly or recycled construction materials, energy efficiency, fair labour practices, local community engagement, diversity and inclusion, and compliance with applicable regulations, among others.

Reconciling growth with sustainability and social impact

In India, the already robust pace of infrastructure development is expected to be stepped up significantly given the ambitious vision set by the government for the year 2047. This, along with the ensuing economic growth, presents significant growth opportunities for construction companies, infrastructure developers, real estate developers, and other allied businesses. However,

opportunities also exist wherein these firms can adopt ESG-based strategies that ensure sustainable and inclusive growth.

ESG compliance is slowly gaining traction in the Indian construction industry. Companies are increasingly adopting grid power and renewable energy sources for their project sites, taking measures towards water conservation, and implementing strict OHSE norms and fair labour practices. However, formal ESG adoption is still yet to take place in the sector.

In the case of construction companies, the likelihood of delays and variations in their projects is often high due to reasons not attributable to them. These, combined with inefficiencies in operations and waste, lead to reduced profitability, strain on working capital, and inefficient capacity utilization. An effective growth model for a construction company must therefore prioritize operational efficiency along with project selection while building capacity. Such operations efficiency has its outcomes in the form of reduced material consumption and equipment usage, which are also the outcomes of an effective ESG plan for a construction company. Therefore, ESG and operations efficiency often have a symbiotic relationship and reinforce each other when implemented together.

Embracing ESG stewardship does not demand radical changes to construction companies' strategies and processes. On the contrary, it encourages companies to pursue operational excellence, which is often overlooked. Techniques such as value engineering, innovation focus, and technology adoption result in optimizing methods, designs, and even customised construction chemicals, yielding significant cost savings. However, this requires continuous effort and can only be achieved by companies fostering an organizational culture where employees possess domain expertise, problem-solving motivation, and stakeholder management skills.

Hence, in addition to processes, construction companies must equally emphasize their people, who are the essential stakeholders in sustained growth. Besides addressing basic needs like a safe, non-discriminatory work environment and fair compensation, companies should provide regular training to enhance employee domain expertise.

Local communities at project sites are another critical stakeholder group influencing project success. Offering local employment, prioritizing local procurement where possible, and investing in initiatives for local skill development and socio-economic welfare garner substantial goodwill and cooperation for project completion. Similar to operations improvement, stakeholder management also shares the same outcomes with relevant ESG provisions. Therefore, far from being an additional set of tasks, ESG principles, when enforced the right way, can boost the success of businesses while benefiting the environment and society at the same time.

Moreover, ESG principles not only reinforce conventional growth models for construction companies but also facilitate growth in other ways. ESG-compliant firms stand a better chance of collaborating with a growing number of employers prioritizing sustainability. Additionally, ESG compliance opens doors to a broader range of financing opportunities, such as sustainability-linked loans offering lower interest rates and favourable terms compared to regular financing options.

Role of technology and impact of Industry 4.0

Technological advancements offer unprecedented opportunities for operational efficiency and sustainability. In infrastructure projects, the design process is a crucial step that provides clarity on the scope of work to be executed. Generally, execution starts while the design process is still underway, wherein work commences based on available designs and project plans are updated as designs are completed. Moreover, project designs are often subject to revisions due to reasons such as clashes that were not identified beforehand, inaccuracies in survey data that are detected later, and value engineering efforts.

Tools such as drones equipped with LiDAR are transforming the way we survey project sites by eliminating errors common in traditional surveying methods. This results in reduced design revisions and rework, ultimately saving time and resources.

Another game-changing technology is Building Information Modeling (BIM), which creates digital twins of projects, providing a comprehensive visualization of the entire project. BIM also serves as centralised repository of all project-related data and enables real-time collaboration, bringing in great efficiencies in design creation, review, and project monitoring.

Although the construction industry has been a late adopter, the integration of artificial intelligence (AI) and augmented reality (AR) is on the horizon, promising even greater efficiency and innovation. To fully realize the potential of these advancements, widespread adoption is crucial across the construction ecosystem.

Another key impact of technology is that Digital systems are making knowledge management processes effective. They ensure knowledge is disseminated, across the entire workforce without necessitating physical interaction and greatly aid in sustaining domain expertise among the workforce of the organisation.

Role of boards of directors

In navigating the path towards sustainable and inclusive growth, the role of boards of directors is pivotal. It is imperative for boards to set clear ESG goals, seamlessly integrating them into the company's strategic roadmap. This strategic alignment ensures that sustainability and inclusivity are not mere afterthoughts but integral components of the organization's mission and vision. Further, by providing adequate resources, boards empower their teams to innovate and continually improve upon ESG initiatives.

Transparency is another cornerstone of effective ESG governance. Boards must engage in regular communication with stakeholders, sharing updates on ESG efforts and progress made towards sustainability goals. This open dialogue fosters trust and accountability, aligning the interests of stakeholders with the company's long-term sustainability objectives.

Board members must receive adequate education and training to ensure they understand the relevance of ESG in the context of the company's operation. Adequate diversity should be ensured in the board composition so that decision-making in this respect is more comprehensive.

In conclusion, the construction industry stands at a pivotal moment where embracing sustainable and inclusive growth models is not just an ethical choice but a strategic imperative. By integrating ESG principles into their operations, companies can achieve not only profitability but also resilience, innovation, and a positive impact on the world around them. Let us seize this opportunity to build a future where growth is not just measured by financial metrics but by the legacy we leave for generations to come.

Thank you for this opportunity to share my perspective. I look forward to hearing the views of my distinguished copanelists.