ESG in the Construction Industry: Electrification

The construction industry plays a critical role in the delivery of key initiatives in the Environmental, Social and Governance (“ESG”) space. After all, companies with ambitions to reduce energy consumption via more efficient spaces or lighting, electrifying their company fleet or installing solar panels need expertise from the construction industry to complete those projects most efficiently.

Integration of ESG and sustainability factors across the design, materials sourcing and implementation phases of construction allows for input and partnership across the project.

One particular area of opportunity for the construction industry is the prevalence of the electrification theme across sectors. Electrification is seen as a logical step in the advancement of the sustainability industry as it allows for inputs into the energy generation process that are not reliant upon fossil fuels. Many companies and industry bodies, both in the power generation sector and outside it, have made electrification a mainstay in their approach to tackling many ESG topics within the ‘E’ stripe. 

With the passage of the Inflation Reduction Act (IRA) in 2022, a host of incentives were made available to the public and private sectors related to electrification. These credits and incentives further strengthened the case for initiatives and programs geared towards electrification.

This article aims to identify the top electrification opportunities, risks, and next steps for companies in the construction industry.

Areas of Opportunity:

1. Electric charging station installation – The Alternative Fuels Data Center¹ lists almost 56,000 Level 2 and DC Fast charging stations in the US; this is an increase of almost 6,000 additional charging stations since the end of 2021. It’s not just growth in urban areas either – 92% of the US population now lives within ~6 miles of a charging station. With the continued demand set to increase from a wide range of different applications, construction companies can benefit from this development in multiple ways. First, companies looking to purchase electric construction equipment can be assured that there will be a continued focus on adding additional charging stations in urban, suburban and rural areas. Additionally, companies with the expertise or those looking to develop the expertise to install charging stations will know that the demand for these will be there in the future.

2. Electric vehicle usage in the construction industry – Electric vehicles utilized in the construction industry have two main advantages: one, reduced carbon emissions relative to diesel-based vehicles, and two, reduced noise. Based on your client base or the geographic area that you’re operating in, these may be significant advantages that can compensate for some of the risks that we’ve outlined in the next section.

3. Rising fuel costs and greater electrification subsidies and incentives – While diesel prices have decreased from their peak in June 2022, they are still above their five-year average. This paired with the increased availability of subsidies and incentives (based on jurisdiction) has changed the historical cost-benefit analysis that favored diesel over electric.

Risks:

1. Battery capacity within heavy-duty electric vehicles – as it stands today, current battery life for heavy-duty construction applications is limited by the efficiency and size of the battery required. This is a space where continued research and development is ongoing to improve life and efficiency but may not be ready for commercial operation yet.

2. Grid readiness for additional electric applications – utilities and transmissions and distribution companies are taking the lead in preparing for a future more attuned to electrification. However, this process will require significant spending and infrastructure upgrades over the next 5-10 years. Existing infrastructure was not built with the idea of a society reliant on electrification for many applications; load management and capacity planning remain key issues that utility providers need to solve in this space.

3. Increased regulatory and investor scrutiny around ESG claims – any company that is publicly disclosing ambitions, metrics, or targets related to electrification or other ESG data needs to be aware of the potential for regulatory and investor scrutiny of these claims. The SEC has previously mentioned that new rulemaking around greenwashing – or the advertisement of green initiatives without the action to back them up – is not top of mind. However, for companies with a presence in EMEA, there is proposed legislation² providing specific rules on ESG claims. Furthermore, any publicly disclosed metric can be utilized by the financial community as an input to investment, credit, and lending decisions. As a result, the accuracy and materiality of these disclosures should be fully vetted by internal or external specialists with the appropriate subject matter expertise.

Next Steps:

1. Decide where to focus first – with the utility of electric vehicles in construction continuing to evolve, it’s important to identify which parts of your construction business are best suited to embrace electrification first. It may be a choice to start with a lighter-duty piece of equipment or explore options with a diesel-electric hybrid while batteries continue to become more efficient over the next five years.  

2. Determine what SME knowledge you have in-house and where you’ll need help – some companies have at least one or perhaps a team of people devoted to their ESG efforts. For other companies, it may make sense to consider whether an outside expert could help with helping to convey the benefit of electrification to your company, understanding the cost-benefit analysis of electrification, or ensuring your data-capturing electrification efforts are well-governed. Schneider Downs offers a full suite of ESG services that can help with these and other ESG opportunities.

3. Create a roadmap to implementation – Once you’ve identified your area of focus and what you’ll need to accomplish it, then a roadmap can be created to understand current capabilities and identify where meaningful action can be taken to close gaps.

¹ https://afdc.energy.gov/fuels/electricity_locations.html#/find/nearest?fuel=ELEC&country=US
² https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1692

About Schneider Downs Construction Services 

Led by a diverse group of shareholders and managers, Schneider Downs provides strategic and practical solutions for our construction clients in all facets of their business. Our dedicated team of more than 350 professionals have a wide background of tax, accounting, technological and business experience in the region, specifically in Pittsburgh and Columbus. 

To learn more, visit our Construction Industry Group page.