A literature review of Environmental, Social and Governance (ESG) indicators in the Construction Industry

1. Introduction

As stakeholders continue to place a greater focus on environmental protection, social inclusion, as well as open and accountable ESG disclosures have reached a crescendo within the 21st century together with traditional financial disclosures. The construction sector, like any other sector like manufacturing, fashion, retail, and mining is significantly affected by ESG disclosures in a variety of ways. Darnall, et al. [1] and Akomea-Frimpong, et al. [2] mentioned that the built environment emits 30% or more of carbon emissions, and larger than 40% of energy consumption together with 32% of the world's natural resources. These evidences show that the construction industry should be involved in sustainability drive to minimise these challenges in the release of emissions, energy usage and the plundering of natural resources by meeting the ESG targets [3,4]. The goal of ESG in the construction sector is to improve the standards of environmental consciousness and promote more eco-friendly project design and operations [5]. The construction sector is also expected to reduce the amount of waste it produces, maximize recycling, and reuse efforts, and incorporate circular economy principles into its design decisions [6]. Furthermore, construction firms may utilize ESG reports to identify areas of poor implementation of inclusion and diversity policies. Increasingly, there is a policy shift towards a mixture of environmental and social responsibility strategies in the construction sector [7]. According to Heal [8] and [9], by showing commitment to environmental sustainability and social responsibility, construction companies may enhance their reputation among stakeholders. Moreover, the preference among stakeholders to companies with positive ESG policies is high. Thus, firms in the construction sector that prioritise ESG issues are likely to have extended sustainable effects [10]. These firms may attract investors that value ESG elements and develop a reputation for ethical business operations by sharing information about their ESG initiatives. Finally, ESG reporting is increasingly becoming a regulatory requirement in some jurisdictions (countries) [11]. Therefore, contractors may avoid legal fines and reputational damage by complying with these regulations. In the attempt to harvest the above-mentioned benefits from ESG practices and reporting, construction firms may be confronted with unclear ESG criteria (indicators) [12,13]. Without criteria to measure the implementation of ESG in the construction sector, some firms may attempt to present misleading and substandard ESG reports to stakeholders. Some firms may manipulate annual disclosures on ESG to paint a picture of embracing sustainable practices against the backdrop of self-engineered and questionable benchmarks [14]. Therefore, this article aims at identifying the key ESG indicators in the construction industry from existing literature.

The arguments for this paper are as follows. First, the current literature on ESG is skewed to manufacturing, retail, banking and other sectors with very few studies on the construction research field [15]. These industries operate differently from the construction sector. Construction projects go through a lifecycle embracing different stages and stakeholders with diverse and complex interests [16]. There is a dearth of scholarly works on ESG application to resolve these complexities in informing the measurement of ESG in construction activities. Second, practical indicators on ESG towards construction development remains not clearly defined and in some countries and industries not existent on construction sector [17,18]. With the world inching towards more sustainable zero-carbon emission and inclusive construction policies, it is evident the construction industry needs to adapt to changing social, economic, environmental and governance progress [19,20]. The rest of the sections of the study is the following: an overview of the methodology followed by outcomes of the analysis of the data including discussions of the results. Finally, the conclusions, implications, and limitations.

2. Methodology

Literature on ESG in the construction industry were retrieved and analysed following the systematic literature review approach (SLR) [21]. The steps outlined in the SLR include:

2.1. Search Strategy

The first stage involves identifying relevant literature in various bibliographic databases. A systematic search and retrieval of relevant documents were conducted in Scopus, ProQuest, Web of Science, Google Scholar, and PubMed. These databases are prominent depositories for indexing a large number of studies in [22]. The keywords utilised in the search include: “Environmental, social and governance” OR “ESG” OR “ESG disclosures” OR “ESG reporting” OR “ESG report*” OR “ESG disclos*”, AND “construct* industry” OR “building sector” OR “construction sector” OR “Built* Environment”. This search resulted in 531, 426, 5433, 3257 and 132 documents in PubMed, Scopus, ScienceDirect, Web of Science, ProQuest, EBSCOhost, and Google Scholar respectively. Supplementarily, the searches in the databases were supported by checking the citations and reference lists of articles to retrieve additional documents inclusive of grey literature (theses and reports). At this stage, a total of 178 studies were found increasing the number of studies to 9977.

2.2. Eligibility Criteria

The eligibility criteria set for the analysis of the studies identified through Step 2.1 include the following inclusion and exclusion criteria:

• Document type: Include peer-reviewed journal articles. Articles published in journals go through rigorous peer-reviewed processes against other documents such as conference papers, reports and books which were excluded [23,24].
• Language: Include studies published in English and exclude articles written in languages other than English [25].
• Full-text accessibility: Include documents available and downloadable in full-text, exclude not-found and not downloadable articles [26].
• Focus: Include articles with coverage of ESG in the construction industry especially ESG indicators [27].

2.3. Selection of Relevant Documents

A total number of 9799 documents were found in Scopus, other documents from Web of Science, EBSCOhost, Google Scholar, ProQuest, and PubMed as explained in Stage 2.1. Additional results of 178 documents from citation (or reference) search and grey literature were added to the 9799 documents. A total of 9977 documents were imported into Endnote to remove duplicates among databases. At this stage, 1572 documents were removed due to duplication. The paper titles and the summary of the abstracts of the remaining 4871 underwent screening. The eligibility criteria set in Section 3.2 was applied to screen the titles and abstracts by all the authors. A total of 4724 documents were removed after this process. Further, the remaining 147 articles were fully read in view of the eligibility criteria. In the end, 26 articles with 121 articles removed because they failed to meet the eligibility criteria.

2.4. Data Extraction and Analysis

Extraction of the relevant data from the selected 26 documents to address the research objective was performed by all the authors. Preferably, Microsoft Excel sheet was utilised to record the data extraction. Data extracted by an author was checked and rechecked by all the other authors. Data extracted includes bibliometric information about the 26 articles including author(s), document type, publishing entity and year, country of origin, the aims/objective/focus of the studies, and research design. In addition, texts and statements on ESG indicators were extracted and recorded in Microsoft Excel after repetitive reading and comparing all the articles. The identified texts, words, phrases and statements were thoroughly analysed and grouped into themes based on similar patterns and purposes [28]. The authors conferred and cross-checked the themes on the ESG indicators. The mean scores of the key groups of the ESG indicators in Table 3 were calculated using the number of articles from which the indicators were identified divided by the total indicators within the four latent variables [29]. The purpose of the calculation is to rank the order of importance of the latent variables (principal ESG indicator groups). The formula for the mean score is:

$$\sum \left({\displaystyle \frac{{RA}_i}{N}}\right)=MS$$

where $MS$ is mean sore, ${RA}_i$ is the relevant study from which the indicators are identified and $N$ is all the observed variables in a latent variable.

3. Findings and Discussions

3.1. Description of Selected Studies

As demonstrated in Figure 1, Figure 2 and Figure 3, the studies included in this analysis were made up of peer-reviewed journal articles (26 articles). The peer-reviewed journal articles are scholarly works assessed by scholars in the same field of construction management and published by academic journals such as “Sustainability, Journal of Cleaner Production and Journal of Management in Engineering” [30]. With the exception of Mukhlisin, et al. [31] and Siew, et al. [32], all the studies were published after 2015 which is after the implementation of the UNSDGs which promote environmental, social and governance practices [33]. Studies were conducted in highly developed countries including Australia, Canada, United Kingdom, Finland, Japan, United States, Russia, and Spain. China and India are exceptions, developing nations that recorded eight studies. In these developing countries, there is an increasing interest in ESG-related issues to preserve the environment, minimise climate change risks, and support projects towards attaining the net-zero emission targets [34]. While most of the studies covered general construction projects together with specific focus on buildings and infrastructure projects such as sports complex and entertainment centres.

3.2. ESG Indicators in Construction Industry

In Table 1, a total of 96 indicators of ESG on performance in the construction industry are presented. These ESG indicators are relevant benchmarks in assessing responsible and sustainable practices [1,35]. ESG indicators seen in Table 2 go beyond traditional financial metrics to provide a more complete understanding of the construction industry’s environmental, social, and governance policies and practices [36]. The prominent ESG indicators in Table 2 include the attainment of low or zero carbon emission from construction activities. This indicator measures the level of greenhouse gases emitted by a construction project, aiding in the assessment of project’s environmental impact and efforts to mitigate climate change [37]. This indicator encourages project managers to incorporate eco-friendly and sustainable project measures and smart technologies for net-zero carbon emission targets [38,39]. Employee wellbeing and turnover rate is another term for the rate at which construction workers and construction professionals are treated as well as leaving a construction firm over a given period. This ESG indicator presents the critical results of a firm’s ability to attract and retain talent. A high employee turnover rate may indicate problems with employee satisfaction, work culture, or management practices, which can have long-term consequences for the company's success and sustainability. Another important indicator is community engagement, which measures a company's level of involvement and impact in the communities in which it operates [18]. It assesses a construction firm's efforts to foster positive relationships within communities where projects are constructed and operated in the built environment. This indicator takes philanthropic activities, employee volunteerism, and community investments into account [40]. To provide a summary of the rest of the ESG performance indicators in Table 2, the explanations are in three forms of ESG: environmental dimension, social inclusion, accountability and transparency in governance. The environmental dimension evaluates the construction industry's environmental impact [15].

In addition, construction firms are assessed based on their environmental initiatives, such as the implementation of environmentally-friendly energies, net-zero greenhouse gas emissions, and sustainable supply chains [41]. Climate change policy, water management, pollution prevention, biodiversity impacts, and green building practices are some examples from Table 1.

The Social dimension of ESG indicators examine the construction industry’s social impact, including its interactions with employees, users of construction projects, communities, and other stakeholders [42]. The performance indicators in Table 2 that depict the social dimensions of ESG include the treatment of construction workers, the construction firm’s dedication to employee well-being, diversity and inclusion policies and practices, labour standards, high score of user satisfaction, community engagement, and philanthropic activities [43]. The Governance indicators assess the project management practices and structures within the construction industry. It entails evaluating a firm's leadership, project steering committees and board structures, executive compensation, transparency in decision-making processes, and adherence to ethical and legal requirements [44]. Internal systems, leadership ethics, transparency, executive compensation, board diversity, corruption policies, and shareholder rights are all evaluation criteria of ESG in the built environment. To support the various findings, several studies within and outside the construction industry have confirmed the importance of ESG framed within the performance indicators of construction firms, and an instance is the field of socially responsible investment (SRI) [45]. ESG-induced performance indicators were used as a proxy for sustainability performance in the SRI market [6]. By reporting these ESG indicators, the authors mentioned that it caused an increment in the share value of the companies, and it enhanced the priorities of societal progression, good governance, and preservation of the environment. In the built environment, Musarat, Alaloul, Irfan, Sreenivasan and Rabbani [37], posited that improved ESG performance benchmarks is seen in the climate resilience and low risks of investments. In addition, Kim and Lee [46], argued for the importance of benchmarks and ratings on ESG for the construction firms can learn from to develop project related ESG performance indicators. Using multiple firms from different industries, Hayashi, Hiyama and Kubo [16], established that companies should develop and implement risk-inspired ESG scores to assess the financial investments in construction projects. Further, it was explained in the articles that the implementation of ESG guiding framework relates and involves stakeholders in performance management. However, during times of crisis, such as the coronavirus crisis, the application, and effects ESG practices vary depending on the project and organisational policies and practices. Deamer, et al. [47] found that the coronavirus pandemic impacted the finances of firms negatively but firms with enhanced ESG practices had better performance outcomes.

The use of ESG indicators is growing in popularity in all industries inclusive of the construction industry. Well-established and holistic ESG performance indicators are helpful in assisting organisations to identify areas for improvement, manage risks, and improve corporate reputation and long-term value [35]. ESG indictors also provide useful information for financiers to make informed decisions and allocate capital to green construction projects with the focus on sustainable development [48]. However, there are some drawbacks to using ESG indicators. Studies have pointed lack of transparency and convergence to these metrics as different organisations and projects demand different ESG indicators. Different rating agencies also assess ESG performance using different methods and criteria, resulting in a lack of agreement on definition and measurement [4]. Because of these disparities, different opinions and ratings abound on the best ESG performance benchmarks for projects [18]. Furthermore, concerns have been raised on the ethical dimensions ESG indicators and inadequate integration of all the UN SDGs. ESG rating agencies pick and choose biased standards to measure sustainable practices of construction firms [45,49]. Such ratings are heavily influenced by the project managers. Critics of ESG indicators and its disclosures especially the extreme right-wing politicians in the United States, for instance, see ESG incorporation into public projects as a waste of money and “woke” capitalism. [50] Supported by corporate allies and fossil fuel lobbyists, these right-wing politicians have initiated bills and reviewed project contracts to avoid the disclosure of ESG indicators in public projects.

3.3. Conceptualising the Review Findings

In Table 2 and Figure 4, the ESG indicators from Table 1 have been classified using the three baselines of sustainability (social, economic and environmental) together with a fourth pillar of “governance” in the reference to existing literature [51]. Bose [4] argued that ESG establishes the financial, social and ecological balance in the construction projects. Moreover, ESG is also an avenue for stakeholders to realise the social responsibility and contribution of construction firms to societies [52]. Stakeholders in the construction sector pursue long-term investment and social capital development through ESG with strong support from environmental protection and governance policies. ESG is also a prime indicator of sustainability for construction stakeholder’s investment and ensures the promotion of net-zero principles [53].

Similarly, continual disclosure of ESG indicators and practices serves as an image enhancing strategy to attract responsible investors, and manage long-term sustainability into construction development [17]. Further, the importance of the four basic pillars of ESG are investment analysis and decision-making strategies in the construction industry were ranked in the order of importance in Table 3 putting on the environment indicators (1st), social progress (2nd), and governance (3rd) and economic prosperity (4th).

Environmental Indicators

In the wake of the explosion of the ESG concept in construction industry discussions, ESG disclosures/reporting is a frequently used to acknowledge the project and firm performance reports beyond the conventional financial statements [20]. Environmental reporting involves construction corporations revealing the impacts of their activities on safeguarding the environment, climate and biodiversity [1]. ESG reporting comprises a comprehensive publication of the firm's ESG actions, including the initiatives and elements of ESG performance outside the influence of management [45]. Erkens, Paugam and Stolowy [7] recounted that typically, environmental disclosure of construction firms is voluntary, and the process is not well-defined and standardised for all firms. Environmental reports advocates and increases the availability of ESG data to researchers and practitioners, and encourages construction firms to adjust their actions and conducts to minimise carbon emissions [18]. These requirements maybe project specific or requirements from the industry and currently the European Union. Bose [4] claims that, external stakeholders such as the European Union and environmental pressures groups are increasingly demanding the disclosure of non-financial environmental information beyond what is typically accessible in financial statements on construction activities. ESG reporting is viewed as a prerequisite for environmental responsibility wooing investment funding for sustainable construction activities.

Social Indicators

Brogi, Lagasio and Porretta [18] and Chen, Wang, He and Zhang [40] claimed the relevance of social ESG indicators and the possibility of substituting the bluewashing of these key metrics of progress from contractors. These behaviours of construction firms are demonstrated in the misleading information on transitioning to inclusive construction project practices. According to Lokuwaduge and De Silva [54], these deceptive practices in disclosing social sustainability practices in construction projects are common in attracting the support of traditional authorities and the public at large to execute projects. EY [55] reported that contractors within the construction sector overstate a project’s inclusion strategies with false and creative financial reporting methodologies to present diversity, equity and inclusion (DEI) metrics. The report continued that construction firms sometimes publish vague or unverifiable social claims on projects with the aim of attracting financial investments and court public support. Heal [8] also stated that construction firms are prone to using irrelevant corporate social responsibility claims to distract the public from significant and harmful environmental impacts of projects. A critical institutional account of decoupling these false claims, according to Erkens, Paugam and Stolowy [7], is to develop a well-planned and coordinated organisational strategies to promote the transition of sustainable, inclusive and green project practices. Construction firms and project management professionals should be trained to meeting stakeholder expectations on zero-carbon emissions without really altering project practices. The construction industry is heavily reliant on fossil fuel products such as coal and petroleum to support projects that have adverse impacts on the environment and future generations [56]. Project managers and project steering committees should support realistic and justifiable projects without having enough and sustainable finance to support green project development.

Governance Indicators

The rising concerns on undefined disclosing indicators of governance malpractices of firms highlight the diversion from sustainable reporting standards increase the risks of information asymmetry [57,58]. Stakeholders are misled to believe that every activity and transaction has been reported but in reality things have been hidden to the detriment of the well-being of the stakeholders concerning adhering to project and firm level regulations. Hadro, et al. [59] mentioned that poor governance systems on construction transactions are subtle authorisation of fraud and misleading reporting from the top management of construction firms. Galvin [60] and Eisenkopf, Juranek and Walz [35] revealed the commitments from the management emphasise on the genuineness of firms efforts to improve the state of the organisational and project structures for sustainable construction development. To continue to ensure continuous improvement in the governance framework, regulations and government support should be available to fine dishonest disclosures of organisations and measures to fight climate change [44,61].

Economic Indicators (4th Rank)

Construction firms should be the source of economic prosperity as projects built by this industry form the foundation of societal development [62,63].So, construction firms should present the contribution the industry has made towards the economic development of societies in their reportage [44,62]. Construction companies should desist from exclusively presenting only positive news and omit negative news related to their economic activities that are detrimental to the society. Corporate deceptions and manipulations in the process of financial reporting their environmental activities be checked with the established indicators [54]. Contractors should be wary of legitimising unethical behaviours on presentation of fraudulent financial reports to enhance their image and annual performance [40]. Investors into projects should be equipped with ESG ratings to woo public praise and private investments [46,62].

Table 3. Computation and ranking of the principal ESG indicators.

	Environmental indicators	Economic indicators	Governance indicators	Social indicators
	4	3	1	2
	2	2	2	4
	5	3	3	3
	2	1	3	2
	1	2	2	1
	3	3	5	1
	1	2	2	4
	4	2	2	3
	3	2	3	3
	1	1	2	4
	2	2	3	3
	2	1	1	1
	1	1	4	4
	5	1	3	1
	6		2	4
	5		3	1
	3		2	3
	2		2	3
	3		1	5
	1		3	4
	4		2	2
	3		4	2
	3		3	3
	2		3	1
	3		3	3
	3			2
	1			3
	4			2
				3
Sum	79	26	64	77
Mean score	2.82	1.86	2.56	2.66
Ranking	1st	4th	3rd	2nd

Table 3. Computation and ranking of the principal ESG indicators.

	Environmental indicators	Economic indicators	Governance indicators	Social indicators
	4	3	1	2
	2	2	2	4
	5	3	3	3
	2	1	3	2
	1	2	2	1
	3	3	5	1
	1	2	2	4
	4	2	2	3
	3	2	3	3
	1	1	2	4
	2	2	3	3
	2	1	1	1
	1	1	4	4
	5	1	3	1
	6		2	4
	5		3	1
	3		2	3
	2		2	3
	3		1	5
	1		3	4
	4		2	2
	3		4	2
	3		3	3
	2		3	1
	3		3	3
	3			2
	1			3
	4			2
				3
Sum	79	26	64	77
Mean score	2.82	1.86	2.56	2.66
Ranking	1st	4th	3rd	2nd

5. Implications of the Study

The findings of this research are relevant for the promotion of awareness and integration of ESG indicators in sustainable practices in the construction industry. These indicators will be relevant in ESG reporting on construction activities to investors, clients, and the public [64]. With comprehensive ESG disclosure indicators, construction professionals can confidentially regularly disclose information about their environmental and social performance against measured metrics. This will help improve the image of the construction firms and the performance of projects. Construction companies may develop risk mitigation strategies that consider ESG factors, ultimately reducing project-related risks [54]. This study will again draw the attention of the contractor to the ethical cost they will incur for their improper actions. This will make the private contractor realize the importance of ethical responsibilities in construction. Financial investors in the construction of projects will be drawn to consider social, ethical, ecological, governance and sustainable priorities in their investment decisions [13]. The integration of social and economic blind supervision will effectively curb contractor fraudulent environmental behaviour [37]. However, at present, the studies on ESG have focused largely on firm specific variables with limited focus on specific projects at the project level, extremely little is known about ESG practices comparative to firm-level measures on social, governance and environmental responsibilities. Therefore, it is essential to expand ESG models and practices on project specific indicators [44]. Projects such as sanitation, water, airports and ports and education have not received ESG-related practice models. Hence this study calls for the consideration of distinct ESG-inspired project management practices that ensures disparities between regions and project sizes.

From the results of this study, it is expected that advanced research may be considered to develop a framework for ESG reporting and disclosure [60,65]. This will ease the exercise of the firms in disclosing information regarding their environmental, social, and economic performance, to determine which firm is doing well as far as ESG is concerned and which components of the construction firms needs to be improved to meet the ESG standards. Also, the study is expected to influence the following issues relating to ESG that have received fewer investigations, and development of practice models from construction researchers. Future studies can focus on these, to include: deciphering how ESG connects with the construction industry; managing ESG risks; ESG-inspired supply chain and procurement; measuring, monitoring, and reporting ESG performance [45]. Additional topics for study include the rating, tracking, and planning of ESG indicators, use and misuse of ESG disclosures; firm culture, diversity, inclusion, and leadership changes; GHG emissions and social equity dimensions for the construction industry [10]. Moreover, the list of further research areas can embrace leadership and managerial aspects of implementing ESG; smart technologies on blockchain, digitization, and artificial intelligence for ESG implementation; insurance costs and impacts on small to medium-sized construction companies.

The outcomes of this study promote the inclusion of societal changes and social fabric within construction organisations and communities in which projects are constructed. As the world gravitates towards diversity and inclusive policies, project practices and performance evaluation will be shaped by ESG indicators [18,38]. Diversity and social inclusion policies in the construction industry will ensure everyone including communities and cultures is respected and integrated into the project management. Emphasis on reduction of wage losses, unemployment, improved education and better health and safety care are implemented within the construction sector. Greenwashing stands against societal ethics and regulations, and it is crucial that construction firms develop frameworks to address these ethical problems. The study has provided checklists for contractors to be aware and implement measures to mitigate them.

6. Conclusions

This study identified the major ESG indicators within the construction sector. The findings from this study based on past literature highlights the various ESG indicators in construction projects that aim at reaching sustainability targets in the construction industry. The results were classified into project, firm and industry (and/or national) indicators of ESG. Key indicators on ESG at these levels include lowest pollution and waste and green biodiversity (project level), present of ESG oversight and inclusive policies at the firm level, and robust regulations on climate change and government support at the industry and national levels. With respect to the four classified ESG pillars, the dominant indicators include climate resilient and green project practices (environmental indicators), high return investment and maximum current asset ratio (economic indicators), community involvement and stakeholder support (social indicators), and effective project governance and equitable labour laws (governance indicators). As explained in Section 4, these findings have significant implications for the policies, practice, society, the environment, and future studies. However, this study has inherent limitations. The main limitations of this study are the lack of application of these identified ESG indicators to practical project, firm and industry cases in construction project management. Theoretically, inadequate journal articles exist on the ESG indicators in the construction industry, and this is evident in the 26 articles used for this study. It is suggested that more studies should be conducted to deepen the theoretical underpinning of the concepts of ESG in the construction industry together with validation of empirical real-life project and firm data.