How Building and Construction Companies Can Achieve Success in Sustainability
End customers value it. Professional customers want more of it. Investors are demanding more accountability for it, while adjacent and downstream industries are upping their game.
For all these reasons, sustainability has become a priority for building and construction companies. But what, exactly, are they doing about it — and what’s been their experience so far? To find out, L.E.K. Consulting spoke with a number of executives across the industry. Here are some of the themes that emerged from our discussions.
A common refrain is that sustainability is becoming an existential component of corporate identity and strategy. “Our business and sustainability goals are linked,” a building materials manufacturer told us, “which is unique in this market. But more and more companies are on their journey to do the same.”
Companies are taking action in many ways. One is to change manufacturing processes so companies operate more sustainably (with more renewable energy, less water, etc.). Another is to switch up the product portfolio. This can include enhancements of existing products to improve the organization’s sustainability profile and development of new products with less environmental impact. Some companies are adopting next-generation green solutions that significantly surpass current product offerings.
Externally, companies are improving processes and programs to reduce Scope 2 and Scope 3 emissions across the supply chain. They’re also buying carbon offsets to support renewable energy, reforestation and other projects. Carbon trading is on the table as well.
Recently, we reviewed public announcements, annual reports, investor presentations and sustainability reports from 35 major building products companies. They reveal that companies are placing a greater emphasis on operations. More than half (54%) have announced sustainability goals with specific targets for their operations, while only 23% have done the same for their products. External investments bring up the rear, with just 17% of companies announcing goals with targets in this area (see Figure 1).
Despite these commitments, building and construction companies often face several challenges.
Long and sometimes unclear paybacks. Companies that have set rigorous project and return on investment (ROI) goals may struggle to balance these with sustainability goals. As one building materials executive commented, “A struggle we’re dealing with daily is figuring out how to sell sustainability initiatives to our higher-ups when it costs a lot of money, there’s low ROI or the payback period is unclear.”
Crowding out from day-to-day issues. Sustainability initiatives may be deprioritized as more pressing issues crop up to demand executive attention. “Getting people to prioritize sustainability is hard,” a wood products executive said. “I wouldn’t say it’s because leadership doesn’t think it’s important. But in the face of the last few years with major labor and supply chain challenges, sustainability becomes another resource drain and gets dropped down the list.”
Shifting investor and public expectations. Compliance with regulations around greenhouse gas emissions, materials usage, clean energy and other priorities sometimes seems like a moving target. That can get in the way of goal delivery if companies conclude it’s a game they can’t win.
Data collection and management issues. Companies report issues with the accurate collection and tracking of emissions and other operational data — not only across the organization but also from suppliers and partners. “A big pain point for a lot of companies is data management,” the building materials executive said. “As with most things, you want to be super data-driven. But getting to seamless, accurate data across a whole company with tens to hundreds of locations is a real challenge we’re continuing to try to address.”
Limited customer willingness to pay. Companies see price resistance for explicitly green products. “A lot of opportunities to offer more sustainable products certainly come with a cost. We’ve seen a wide variety. Some customers say they care about sustainability but aren’t willing to pay the price, so that’s quite the tough one,” a producer of steel products observed.
Executives highlight several factors as critical to progressing toward their goals.
Leadership buy-in to drive enterprise engagement. As a products and materials distributor put it, “Success factor No. 1 is having everyone from your board and executive team 100% engaged and bought into sustainability. Without this, driving change throughout the company would be nearly impossible.”
Sustainability as a routine management topic. “We declare our sustainability ambitions boldly and publicly. This helps inspire other companies to embark on similar journeys and acts as a catalyst to drive action internally,” a flooring product manufacturer said. “We’ve gone full force weaving the sustainability lens into our innovation priorities, supplier ecosystem, growth strategies and so on.”
Realistic and bold goal-setting with clear paths. “Our biggest priority was to stay away from making lofty claims with no path to reaching them,” a pipe manufacturer said. “You can have a great goal of hitting net zero in 10 years, but for us this isn’t practically possible. It’s critical to set uncomfortable but practical goals.”
Integration of sustainability into existing processes. According to an HVAC and refrigeration equipment manufacturer, “The key is to not invent entirely new processes for monitoring sustainability progress, but rather integrate with the ones you have so things are as seamless as possible and you don’t have to deal with the pains of creating and enforcing use of an entirely new system.”
External education, transparency and communication. Public, measurable goals that have some degree of longevity can draw a line in the sand, even if stakeholder expectations are shifting. Companies can also report on progress in a way that demonstrates focus, drives accountability and influences competitors (and thus a company’s comparative benchmarks) while potentially helping to recruit and retain talent. However, all this requires a commitment to data collection.
Where can building and construction companies take it from here? Consider obtaining new sources of insight to inspire leadership thinking. Success starts with systematically uncovering the needs of stakeholders — employees, shareholders and customers — from the broader marketplace all the way down to the category level. This can help your organization find common ground for sustainability goals.
Next, look into new methods for balancing sustainability and traditional growth goals, including ways to integrate them with new product development and other investment processes.
Finally, be sure to set sustainability goals that are realistic in light of the company’s revenue growth goals. By taking these steps, building and construction companies can build on the progress they’ve already made and keep things moving in the right direction.