There’s no one solution to the environmental and social challenges that we face, but many across the infrastructure value chain are looking for ways to improve their environmental, social, and governance (ESG) impact.
Whether approaching ESG from the perspective of a company operator or an investor, the participants that make up the built environment offer a major contribution to the overall ESG equation. As construction is expected to reach 13.5% of global gross domestic product (GDP) by 2030, engineering and construction (E&C) firms play a fundamental role in how ESG investments and operations are prioritized.
Opportunities stemming from this growing focus on ESG priorities and goals are prevalent for those in the heavy civil sector. Disruptions are coming from many different sources, including shifts in energy generation and related utility infrastructure and demand from public and private entities to reduce carbon footprints across the construction cycle.
With all the changes underway, now is the time to think about how your firm can capitalize on these opportunities and best position for future growth.
Increased Interest in ESG Appears to Be a Baseline Requirement
For many heavy civil firms, the topic of ESG receives scant interest. Those paying attention to shifting trends will note the increased focus from large owners such as utilities, hospitals, universities, and public agencies, and should seek new opportunities to meet the shift in demand.
Many parties who are searching for opportunities to impact ESG-related goals, specifically the environmental and climate components, are turning to previously overlooked areas in the built environment to meet their objectives.
With today’s investors’ goals being viewed and measured through the thematic lens of ESG investment, the focus on the construction value chain has risen significantly. Many heavy civil contractors are looking for opportunities outside of their traditional sectors to take advantage of the influx of money from capital investment as well as private market priority shifts.
Opportunities for Heavy Civil Firms
There are certain segments of the market where the COVID-19 pandemic, the focus on ESG, and the new and proposed infrastructure spending have led to considerable opportunities for heavy civil firms.
Examples include:
- The energy transition has proven disruptive to certain segments of the traditional energy industry as well as industrial markets, which have been impacted by both the volatility in the oil and gas space as well as the emphasis on ESG demands imposed by various stakeholders.
- Major utilities across the U.S. are focused on increasing their renewable power generation. This requires a major and continuous programmatic build with supporting service to achieve formal goals.
- Environmental improvement is a significant focus in the construction materials space. Progressive ready-mix concrete producers are working to reduce their carbon footprints, the hot-mix asphalt industry continues its efforts to use recycled asphalt products in the mixes, and many aggregate producers are putting more emphasis on recycled materials such crushed concrete that reduces carbon footprints and input costs alike.
This will all play out for heavy civil contractors through construction put in place between today and 2025, which FMI forecasts will be $131 billion for highways and streets by 2025, $139 billion for power, $39 billion for sewage and waste disposal, and $28 billion for water supply. Spending on communication construction is expected to be $30 billion by 2025, $125 billion on educational construction and $60 billion for health care infrastructure.
The $1 trillion infrastructure bill passed by the Senate in July 2021 would reach large metropolitan centers and rural communities alike, with earmarks for roads and bridges ($110 billion), passenger and freight rail ($66 billion), broadband ($65 billion), electric and power infrastructure ($73 billion), and environmental remediation ($21 billion). While there will be a lot of competition bidding on these projects, contractors who understand the dynamics of their regional markets will be poised to capture work.
Construction Materials
Environmental improvement is a significant focus in the construction materials industry. The National Ready Mixed Concrete Association (NRMCA) put this topic front and center at its national conference in 2021. Looking across the subsegments of this vertical, there are two common focus areas:
- Carbon footprints: Ready-mix producers have spent a lot of time trying to reduce their carbon footprint.
- Recycled products: Hot-mix asphalt has focused on introducing recycled asphalt products into the mixes, allowing for big cost savings and creating a more environmentally friendly footprint. Aggregate producers as well are putting a lot of emphasis on recycled materials (crushed concrete, etc.).
Owners are paying more attention to how materials are produced, sourced, and transferred to job sites. Those producers and contractors who can show a lower carbon footprint or more sustainable business practices have the chance to compete on something other than price in this highly commoditized area. Many owners are starting to pay attention to the carbon footprint of their entire value chain and looking for ways to achieve ESG goals from the outset when sourcing materials.
Making investments now in ways to demonstrate and quantify the steps taken to mitigate environmental damage will help first movers gain a bigger share of the market and develop a reputation for being at the forefront of these changes.