As a foundation for this conversation, could you please explain the premise of ESG and how it has become increasingly relevant to investor concerns in the past few years? Environmental, social and governance (ESG) captures a broad range of issues, such as climate change, emissions and waste disposal (environment), human rights and community relations (social), business ethics and executive pay (governance). While each of the three disciplines or ‘pillars’ of ESG has its own set of standards and practices, together they indicate an organisation’s dedication to achieving a positive effect on society – or at least not cause harm – in addition to generating a financial return for investors. ESG investing’s beginnings were largely based on exclusion, i.e. avoiding the asset classes and sectors deemed to have a negative effect on society, thereby denying them access to capital. However, in recent years it has extended to activism, where investors directly intervene to enact positive change. The cost of failing to appreciate the significance of ESG are high, potentially including fines, criminal prosecution, loss of market capitalisation and access to finance, reputational harm, damage to recruitment capabilities and disruption from activists. Conversely, successful ESG strategies are typically viewed as an indicator of focused and effective management and the long-term prospects of the company as a whole. From my experience of construction disputes, it is not unusual for claims related to non-compliance with ESG rules and regulations to exceed the value of the claims that concern the quality and/or performance of the works constructed. What ESG concerns are particularly likely to arise during construction projects? Given the nature of construction and development projects, it is ESG: The Effects on Construction Disputes EXPERT INSIGHT 77 Construction has a greater relation to environmental, social and governance concerns than most global industries. With the focus of governments and investors shifting towards greater transparency and responsibility on the part of construction companies, it is likely that ESG disputes will colour the market in coming years. Kevin Attrill, Managing Director at Ankura, shares his sector insights on ESG and its implications for construction in this feature. Expert Insight
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