The rising need for ESG reports in Australian architecture and civil engineering

Environmental, social, and governance (ESG) principles have become central to the way businesses operate and strategise in the modern world. 

Companies are increasingly expected to be responsible stewards of the environment, contribute positively to society, and maintain robust governance structures. This shift is driven by evolving regulatory requirements, investor expectations, and societal demands for sustainable development.

What is ESG?

ESG stands for environmental, social, and governance. It is a reporting framework for measuring an individual or commercial impact on environmental, social, and economic resources. ESG is a broad term that covers many varied factors. People might use the term ‘ESG’ when referring to an investment strategy, to evaluate business impacts, to rate the risk of ESG factors on a business, or even to describe the concept of sustainability itself.

Regulatory changes and compliance requirements

The rise of mandatory ESG reporting in Australia

Australia has witnessed significant advancements in ESG legislation over recent years. The government has introduced a range of laws to promote sustainable business practices and ensure transparency.

Australia is progressively aligning with global sustainability standards, with regulatory bodies such as the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) emphasising ESG disclosures. The Australian government and the Green Building Council of Australia (GBCA) are introducing stricter environmental regulations, particularly for carbon emissions, energy efficiency, and sustainable materials in construction projects.

Recent legislative advancements further emphasise ESG compliance. The Modern Slavery Act 2018 mandates businesses to report on modern slavery risks within their operations and supply chains. Additionally, the National Greenhouse and Energy Reporting Act 2007 requires companies to disclose greenhouse gas emissions and energy consumption. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures Bill 2024) introduced mandatory climate-related financial disclosures starting from financial years commencing after January 1, 2025. Moreover, there have been recent discussions on implementing stricter environmental regulations to address climate change and biodiversity loss.

These regulations reflect Australia’s commitment to ensuring transparency and accountability in sustainable business practices.

Learn more about mandatory ESG reporting in Australia >>

Sustainability reporting requirements from international financial markets

Australian businesses must also be cognizant of ESG laws in other countries, as these often set precedents that local laws may follow. The European Union, for instance, has been a pioneer in ESG regulations with the Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR). These laws require extensive disclosure of ESG-related risks and opportunities, pushing businesses towards greater transparency.

In the United States, the Securities and Exchange Commission (SEC) is increasingly focusing on ESG disclosures, particularly concerning climate-related risks. The UK has also introduced mandatory climate-related financial disclosure requirements for large companies.

The Australian Stock Exchange (ASX) and international stock exchanges such as the Singapore Exchange (SGX) have established guidelines that require listed companies, including large construction firms, to disclose sustainability-related risks. As these regulations evolve, professional service providers will need to produce ESG reports to meet compliance requirements.

These international standards influence Australian ESG laws, pushing them towards more comprehensive and stringent regulations. Businesses operating in or trading with these regions must stay updated on these developments to maintain compliance.

Learn more about ESG requirements throughout the APAC region >>

The impact on architects and civil engineers

Large-scale infrastructure and construction projects have significant environmental and social impacts, necessitating greater transparency and accountability. As a result, ESG reporting will become essential for industry professionals to ensure compliance, secure contracts for large-scale projects, and maintain reputational integrity.

Reducing carbon footprint and environmental impact

With Australia’s commitment to achieving net-zero carbon emissions by 2050, the construction sector is under pressure to adopt greener building practices. ESG reporting will be crucial in tracking progress toward sustainable construction goals, such as:

• Using eco-friendly materials with lower embodied carbon
• Implementing energy-efficient designs and renewable energy sources
• Reducing construction waste and improving resource efficiency

Additionally, the Climate Change Act 2022 reinforces these commitments by setting legally binding net-zero targets, further pushing the construction industry towards more sustainable practices.

Enhancing social responsibility and community engagement

Beyond environmental concerns, ESG considerations encompass social factors such as:

• Labor rights and fair working conditions
• Inclusive design that prioritises accessibility and public welfare
• Community impact assessments to ensure minimal disruption and long-term benefits

ESG reports will help architects and civil engineers demonstrate their commitment to ethical practices and social responsibility.

Investor and stakeholder expectations

ESG criteria in project financing

Banks, investment funds, and private equity firms increasingly factor ESG considerations into their decision-making processes. Large-scale infrastructure projects often require external funding, and investors are prioritising projects that align with sustainability goals. ESG reports will serve as a critical tool for securing financial backing by providing transparency on a project's sustainability impact.

Meeting client and public expectations

Whether government bodies or private developers, clients are demanding greater sustainability accountability. The public is also more conscious of environmental and social issues, leading to increased scrutiny of construction projects. Producing ESG reports will allow architects and civil engineers to demonstrate their commitment to sustainable practices, enhancing their credibility and competitive advantage.

Risk management and long-term business viability

Identifying and mitigating environmental risks

Extreme weather events, climate change, and resource scarcity pose significant risks to the construction industry. ESG reporting enables firms to assess and mitigate potential environmental risks, ensuring long-term project viability.

Avoiding legal and reputational risks

Failure to comply with emerging ESG regulations could lead to legal repercussions, project delays, and reputational damage. By proactively producing ESG reports, architects and civil engineers can demonstrate regulatory compliance and commitment to sustainable development, reducing the risk of lawsuits and public backlash.

How to implement ESG within your business

To navigate the evolving landscape of ESG regulations, businesses can take several proactive steps to ensure they are prepared and compliant.

1. Conduct a thorough ESG risk assessment, considering all the needs and expectations of stakeholders within your value chain. For example, your clients, your client’s customers, investors, financiers and insurers.
2. Implement robust ESG policies and practices
3. Enhance transparency through reporting. Expect there will be data and information requests from your stakeholders such as your clients, regulators. Scope 1, 2 and 3 Greenhouse Gas Emissions, human resources data, governance documentation.
4. Foster a culture of continuous improvement

Get expert guidance

The shift towards mandatory ESG reporting is inevitable for professional service providers in Australia. Regulatory pressures, sustainability goals, investor expectations, and risk management considerations all point to the growing importance of ESG disclosures. By embracing ESG reporting, industry professionals can ensure compliance, enhance their reputation, secure funding, and contribute to a more sustainable future for Australia’s built environment.
 

FOR MORE INFORMATION

Need expert guidance on ESG compliance? Speak to an ESG consultant at RSM today to ensure your business stays ahead of regulatory changes and industry expectations.