Greater ESG compliance will help to address cost and reputational problems in building contracts

​​​​​ESG compliance is essential to address some of the environmental, social and governance problems that have beset the South African construction industry in recent years.

Buildings have a massive impact on global resources and social wellbeing, which makes it critical that the highest environmental, social and governance (ESG) principles are ap- plied by developers of new buildings and owners of older buildings.

Infrastructure more broadly, such as roads, dams, and telecommunications, can have even more far-reaching and long-lasting effects on the environment and communities.

Some of these issues are addressed through compliance with the National Environmental Management Act (NEMA) and the regulations thereunder, which requires environmental impact assess- ments to be conducted for certain projects before they can proceed, and which are monitored throughout.

These measures notwithstanding, there remains an increase in incidence of community protests and so-called business forum interventions around projects (large and small). Apart from the failure to address the expectations of the community, this can also arise from poor governance. Collusive tendering or corruption in procurement processes results in projects not being delivered at the right cost, the right quality, or sometimes not delivered at all.


According to Architecture 2030, buildings generate nearly 40% of annual global CO2 emissions. Of this, building operations are responsible for 28% and building materials for 11%. ​​Over the past decade, considerable progress has been made in reducing the greenhouse gas emissions associated with new buildings in South Africa.

In 2007 the Green Building Council of South Africa (GBCSA), a member of the World Green Building Council, was established. It awards Green Star certification to buildings that meet certain criteria. In 2011, the South African Bureau of Standards introduced the South African National Standard, in which Part X deals with environmental sustainability.

There have been changes to the Income Tax Act which incentivise green projects. The capital costs of installing certain green technologies such as water and energy can often be tax-deductible. Green building certification may also be a requirement for property lenders, both traditional and development financial institutions (DFIs). The DFIs may introduce requirements from their global head offices, for example applying the Equator Principles, which provide a risk management framework for assessing environmental and social risks in projects.

The need to reduce greenhouse gas emissions is one driver of green buildings. The other driver is the imperative for energy efficiency to control costs and ensure security of supply. Today, fit-for- purpose office blocks are cheaper to build and run than their smaller predecessors because of more efficient use of space, water, and power. There is pressure on property owners/managers from tenants of older buildings who want to occupy more environmentally friendly spaces, and so contracts and leases may impose sustainability obligations on the property managers. Alternatively landlords may find themselves compelled to make the shift to greener buildings or face losing tenants.

Developers of green buildings are now taking a holistic approach to development, which goes beyond constructing buildings that are energy/water/waste efficient to the lifecycle of the raw materials used. For example, cement companies now use captive power in manufacturing, are adopting new ways to mine, and consid ering circular economy opportunities to use alternative waste products rather than new cement.


Managing the impact of new construction activities on local communities is crucial to protect assets, particularly given the ever-present danger of intervention by the so-called construction mafias (often acting under the guise of business forums). These practices, which rely on extortion to ensure certain connected businesses and indi- viduals receive a disproportionate share of the project works, and measures to combat them ought to be front of mind to anyone embarking on project works.

In a recent example, the developers of a large-scale private hospital in the greater Johannesburg area took steps to ensure that the immediate community enjoyed visible benefits during the construction period, such as jobs and procurement, which helped to provide security against intervention by less savoury elements.

Multinational companies operating in South Africa must balance their local and corporate obligations in creating these opportunities. Companies with US or UK parents are subject to anti-bribery legislation that requires due diligences to be performed before appointing contractors or third parties.

There have been numerous examples of social opposition to or community protests around construction projects in South Africa, often because locals have not experienced the job opportunities they expected.

Recently, Amazon in Cape Town had to stop work on its new local head office after objections by indigenous communities that they had not been consulted. As desirable land becomes less available for development, the onus on developers of new projects to check prior claims is intensifying.


Sometimes, systemic failures and checks and balances built into selection procedures fail to pick up inappropriate and sometimes illegal conduct because of lack of oversight or the complexity of commercial crimes. This can result in costly litigation and the cancellation of contracts.

A recent example was the setting aside by the Special Tribunal of two software licence contracts, signed in 2015 and 2016, between the Department of Water and Sanitation and global software giant SAP. The Special Investigating Unit found no needs analysis had been conducted, there was no budget for this purchase, and the payments were not approved. In a second example, an independent report has recommended that the contract awarded to Thalami Civils, which built the shoddy Lesseyton Stadium for a tender amount of R15 million, be set aside.

To address issues such as these, it is possible for contracting entities to put in place governance structures that are proactive and industry specific. It is also essential that building and engineering firms that win contracts check whether, and are comfortable that, a proper procurement policy and process was followed prior to starting work on a project.

This article was first published in Civil Engineering.


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