KEO INTERNATIONAL CONSULTANTS

CAPITALIZING ON SUSTAINABILITY: THE RISE OF ESG PRINCIPLES IN SAUDI GIGA-PROJECTS

BY LOUBNA HADDAD, REGIONAL MANAGER ESG SOLUTIONS AT KEO INTERNATIONAL CONSULTANTS

WITH SAUDI ARABIA’S VISION 2030 placing sustainability at the heart of the Kingdom’s future, the role of ESG (Environmental, Social, and Governance) principles in the construction industry has never been more crucial. In a world where investors, stakeholders, and society at large increasingly demand sustainable business practices, the construction and infrastructure sector, particularly giga-projects, should adapt and embrace this new reality.

Saudi Arabia, a center of such ambitious undertakings, is driving a transformative agenda focused on the dedicated pursuit of sustainable development, supported by a robust regulatory landscape.

The shift towards ESG principles is not merely a passing trend. It signifies a paradigm shift in how the investment community, regulators and stakeholders view the responsibility of businesses in addition to the increased sustainability standards that their real estate and infrastructure assets are achieving. This focus derives from the understanding that businesses integrating ESG principles contribute to global sustainability goals while demonstrating enhanced risk management, operational efficiency, and stakeholder relations. In the construction industry, where environmental footprints and societal impacts are significant, the link between ESG performance and business success becomes particularly important.

So, what does ESG integration mean for the construction industry? Essentially, it involves incorporating sustainability into every phase of the project lifecycle - from conception and design to construction and operations.

Environmentally, this means adopting strategies, best practices and ensuring third-party certification by recognized green standards and alignment with environmental risk management frameworks. Such practices include the improvement of energy efficiency, using renewable energy sources, and utilizing sustainable materials, coupled with minimizing waste and conserving water. It also involves preserving local biodiversity and designing projects resilient to changing climate conditions. These methods, alongside principles of circular economy, contribute to the design of infrastructures that minimize waste and reduce environmental impact throughout their lifecycle.

The opportunity to adopt sustainable practices and cutting-edge technologies to reduce environmental footprints has never been greater. For example, incorporating innovative and smart monitoring and operational optimization technologies, BIM Building Information Modeling with Digital Twins, and the latest solutions in renewable energy systems into the project design phase can enable the development of efficient buildings right from the start and maximize the long-term functionality of the asset. Nowadays, a digital representation of physical and functional characteristics can optimize the use of energy resources, reduce waste, and improve overall environmental performance throughout the supply chain and delivery. In the realm of giga-projects, this has the potential to considerably diminish the carbon footprint at an impressive scale. Furthermore, strategies such as centralized water recycling systems and the use of drought-resistant landscaping can aid in water conservation. The integration of green and blue spaces can help sustain local biodiversity, adding ecological value to the urban expanse of all new developments.

Socially, ESG integration involves ensuring that projects align with the welfare of local communities. This includes engaging stakeholders from the early stages of project planning, providing safe and fair working conditions, supporting local economies, and contributing to social infrastructure.

Active community engagement can help identify potential social impacts and collaboratively develop mitigation strategies. Moreover, the construction industry can support local economies by promoting local hiring and procurement, boosting local employment and business growth. Mega and Giga-projects, due to their scale, can create significant opportunities for job creation and economic stimulation. Furthermore, the construction industry, being a major employer in the region, has a key role in enhancing worker welfare and safety. They can also contribute to social infrastructure, such as local schools, hospitals, and other community facilities, enhancing the quality of life for local populations.

In terms of governance, ESG integration involves operat- ing with robust transparency, ethical business practices, and strong corporate governance structures. Within the regulated landscape of the GCC region, the adoption of best practices in corporate governance is a necessity. This means compliance with all relevant regulations, meeting international standards, and demonstrating accountability to all stakeholders.

Effective governance includes transparency in all aspects, from procurement and supply chains to the overall environmental and social performance of a project. Ethical business practices include maintaining a corruption-free environment, respecting the code of conduct, and empowering the workforce. With projects of the scale of giga-projects, the importance of robust governance is amplified and stringent checks and balances are needed to ensure high standards of ethical conduct and regulatory compliance.

1What reinforces the case for ESG integration? Take for instance a study from the University of Cambridge, which found that Real Estate Investment Trusts (REITs) with higher Global Real Estate Sustainability Benchmark (GRESB) scores significantly outperform their peers in terms of returns. In essence, they found that each 1 percent increase in a REIT’s historic GRESB scores had led to a rise of approximately 1.3 percent in return on assets (ROA) and about 3.4 percent in return on equity (ROE). This strengthens the case for the financial benefit of sustainability engagement in the real estate and construction industry.