The construction equipment sector serves as the backbone of infrastructure development and economic progress in India. With its dynamic landscape characterised by diverse projects, ranging from urban expansion to rural rejuvenation, addressing the varying needs of this sector through Environmental, Social, and Governance (ESG) principles holds the key to unlocking prospective benefits for both industry stakeholders and the Indian economy at large.
The integration of ESG principles into the construction equipment sector can yield multifaceted benefits for the Indian economy. On the global stage, India’s commitment to sustainable practices positions it as an attractive destination for international investments and partnerships.
The individual elements of ESG, the opportunity and challenges the construction equipment sector is facing are as follows:
The “E’’ in ESG, environmental criteria, includes the energy that an organization takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result. E encompasses carbon emissions and climate change.
The construction equipment industry plays a critical role in infrastructure development. As the spectre of climate change looms large and resource scarcity becomes a reality, the clarion call for sustainability grows ever louder.
To address these demands, the industry is embracing a paradigm shift. Innovation is at the forefront, driving the development of cleaner, more energy-efficient machinery. Energy efficiency and real-time equipment monitoring are becoming increasingly prevalent, reducing the carbon footprint of construction projects.
From optimising fuel efficiency to harnessing renewable energy sources, the industry is pioneering solutions that resonate with the collective imperative for a greener tomorrow. A recent report by Deloitte-Shell indicates that construction accounts for 37% of global Co₂ emissions of which 16% represent embodied carbon, that is, carbon dioxide coming from material sourcing and manufacturing, logistics, and construction activities.
In the construction equipment value chain, emissions are distributed across Scope 1 (Direct Emission: 3% to 5%), Scope 2 (Indirect Emission: 3% to 5%), and notably, Scope 3 which is upstream and downstream of the value chain (95% to 97%).
Significantly, over 80% of emissions are generated during the operational lifespan of these products. This underscores the urgency of our commitment to engineer innovative solutions.
By enhancing the operational fuel efficiency of our offerings, we aim to significantly curtail energy consumption and emissions, contributing to a more sustainable future across the construction industry.
The Indian Construction Equipment sector is actively ramping up its utilisation of renewable energy sources, under the Government of India’s renewable energy policy. This involves integrating solar, wind, and other sustainable energy solutions into operations, facilities, and supply chains. Industries are investing in solar panels, energy-efficient technologies, and green infrastructure.
By embracing these initiatives, the sector aims to minimise its carbon footprint, enhance energy efficiency, and contribute to the nation’s clean energy transition, aligning its growth trajectory with India’s ambitious renewable energy targets.
There are many opportunities for procurement of renewable power and setting up of renewable power plants. Electricity Rules 2022 (Promoting Renewable Energy Through Green Energy Open Access) will certainly ease things.
The Government of India also plans to develop the Indian carbon market (ICM) where a national framework will be established to decarbonise the Indian economy by pricing the Green House Gas (GHG) emissions through trading of the carbon credit certificates.
The ICM will enable the creation of a competitive market that can provide incentives to climate actors to adopt low-cost options by attracting technology and finance towards sustainable projects that generate carbon credits.
In India, 9.46 million tons of plastic waste every year and 150 metric tons of construction waste annually (about 40% of the global C&D waste), with only a 20-25% of recycling rate, calls for major policy prescription to check not just this massive waste but also the resultant environment degradation.
The journey towards zero landfill status, underpinned by waste co processing, is an imperative step in our collective commitment to minimising waste, mitigating environmental impact, and fostering a circular economy that stands as a beacon of responsible progress.
“S”, or social criteria, addresses the relationships your Organisation has and the reputation it fosters with people and institutions in the communities where you do business. S includes labour relations and diversity and inclusion. Every company operates within a broader, diverse society.
Beyond ecological concerns, the call for social responsibility reverberates strongly. Governments, investors, and consumers want manufacturers to prioritise the well-being of their workforce, uphold fair labour practices, and champion diversity and inclusivity.
India’s manufacturing sector which accounts for roughly 16-17% of national GDP, suffers from a gender imbalance. Just 12% of the workforce in manufacturing in the country are women. But now the manufacturing sector itself is changing to accommodate more women.
Digital technology that we now call Industry 4.0 or automation is fundamentally changing how we are operating our factories and employing more women. Manufacturers are responding by transforming their sites into safe and nurturing environments. Enhanced safety protocols, worker training programs, and equitable compensation are becoming standard practices.
Initiatives that uplift local economies, provide employment opportunities, and contribute to the overall welfare are gaining traction. Through these endeavours, the Construction Equipment manufacturing sector is aligning itself with the broader goal of fostering a more just and inclusive society.
Employee well-being and Environmental, Social, and Governance (ESG) factors are integral to modern business sustainability. These programs can range from physical and mental well-being to financial wellness programs and provide professional development and learning opportunities to employees.
Prioritising employee well-being, including mental and physical health, fosters a motivated workforce and enhances productivity.
Harmonising these elements cultivates a positive corporate culture, attracts conscious consumers and investors, and ultimately contributes to long-term success. By synergising employee well-being with ESG principles, organisations pave the way for a more resilient, responsible, and prosperous future.
“G”, governance, is the internal system of practices, controls, and procedures your company adopts to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is itself a legal creation, requires governance.
Ethical governance forms the backbone of a sustainable and responsible industry. Governments, investors, and consumers demand transparency, accountability, and integrity in every facet of business operations.
Manufacturers are being held to higher standards, expected to uphold ethical practices throughout their supply chains, eschew corruption, and promote fair competition. Stakeholders’ expectations are also driving companies to develop and promote their ESG agendas.
In response, the industry is charting a course toward robust ethical governance. Stringent compliance mechanisms, ethical sourcing of materials, and anti-corruption measures are being integrated into corporate DNA. Companies are leveraging technology to enhance traceability and accountability, ensuring that every component of their products meets the highest ethical standards.
By doing so, the industry is not only safeguarding its reputation but also contributing to the creation of a business landscape characterised by integrity and trust. In this shared journey, the Construction Equipment manufacturing sector is not just responding to demands; it is championing a future where humanity and the planet thrive in unison.
Overall businesses can reap many benefits from ESG:
1. Top-line growth – A strong ESG proposition helps companies tap new markets and expand into existing ones. When governing authorities trust corporate actors, they are more likely to award them access, approvals, and licenses that afford fresh growth opportunities.
2. Cost reductions – ESG can also reduce costs substantially. Among other advantages, executing ESG effectively can help combat rising operating expenses (such as rawmaterial costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 per cent.
3. Reduced regulatory and legal interventions – A stronger external-value proposition can enable companies to achieve greater strategic freedom, easing regulatory pressure. In fact, in case after case across sectors and geographies, it has been seen that strength in ESG helps reduce companies’ risk of adverse government action.
4. Employee productivity uplift – A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Employee satisfaction is positively correlated with shareholder returns.
5. Investment and asset optimisation – A strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities (for example, renewables, waste reduction).
The article was contributed by Mr Sunil Khurana, Chief Operating Officer, JCB India Ltd.
It was first published in the September edition of CII’s Northern Insights, centered around the theme – Environmental, Social, And Governance.