Sustainability, Article Critique Example

This research report looks at a group of construction companies, primarily in the U.K. and attempt to get a general idea of the progress made by the construction industry towards adopting sustainable business practices. The sample group of 42 public limited companies came from the Financial Times ‘building and construction’ sector that also subscribed to Financial Times Service. The sample equals approximately 5% of the 910 companies in the sector listed on the stock exchange as of 2003(Myers).

The article concludes that the construction sector in the U.K is quite behind other sectors in adopting sustainable business practices. The article emphasizes that in terms of negative social and environmental impact, the construction sector is one of the leading sectors yet very little progress has been made in modernizing business practices to achieve efficiency, reduce work injuries, and improve social image. The article succeeds in convincing the readers because the source of sample is a reputed business newspaper The Financial Times and most of the companies listed in both The Financial Times Service as well as stock exchange can be assumed to be one of the major market players. Only five non-U.K companies were in the sample of 42 companies yet the non-U.K group produced a French company Vinci that has taken serious steps towards sustainable operations. This could be said of not even one U.K company. In addition, the authors found common descriptions in many Corporate Social Responsibility (CSR) reports which led them to conclude that CSR reports were more a public relations act rather than serious efforts on the part of the construction companies to modernize their operations.

The authors assumed in selecting the sample that companies listed on stock exchange as well as The Financial Times are the leading players in the sector, thus, they can be expected to employ the best business practices of all in the sector. Smaller players have fewer resources and it is very unlikely that their business practices will be any more efficient than the leading players. Thus, the business practices of the sample firms are a reliable indicator of the state of construction sector in the U.K. The authors concluded that most U.K firms use CSR as a publicity stunt because the firms failed to provide specific details of sustainable activities and the descriptions in the CSR reports were standard rather than specific. The authors also noted that the average organization devoted very little space to CSR as a percentage of an annual statement. This is probably due to the fact that they had very little to report due to negligible progress in the sustainability practices.

U.K construction sector may share certain characteristics with Australian construction sector but more data is required to reach a reliable conclusion. As of late 2010, U.K construction sector had over 300,000 firms employing over 2 million workers (Department for Business Innovation & Skills). In comparison, Australian construction sector employed a little over million workers as of mid 2010 (James). The difference in labor size becomes less when the respective populations of the two countries are taken into account. A research report noted that Australia’s construction industry is also fragmented like U.K construction industry (Vandenberg). But major industry innovations are driven by large players with more resources. It is not clear how many of the major players in the U.K construction industry are also involved in the Australian construction industry. In addition, we will also need to compare U.K and Australia’s respective regulations governing the construction sector. Moreover, data on the best practices in both the U.K and Australian construction sectors will also be helpful in determining the similarities and differences between the two countries’ respective construction sectors.

Theoretically, it has been argued that the construction industry in the U.K has made little progress towards sustainable business practices. Empirical evidence supports the argument. United Nations Environmental Program (UNEP) and Standard and Poor (S&P) together have published three publications in which they have identified the top 50 international companies for progress in sustainable business practices and not a single U.K firm made the cut (Myers). According to U.K Environment Agency 2003 report on the construction sector, approximately 13 million tons of construction and demolition waste material delivered to sites is never used. In addition, construction and demolition is responsible for 21% of all the hazardous waste in the UK. Moreover, construction sector uses approximately 10% of the national energy consumption and the energy consumed in building services accounts for about half of the UK’s emissions of carbon dioxide(Environment Agency).

The authors imply that the 42 companies in the sample are the leading players in the construction industry but they have failed to include the market share of these 42 companies of the total U.K construction sector. Unless the sample companies together own a significant share of the U.K construction sector, their business practices may be a poor indicator of the overall state of the industry in terms of sustainable business practices. The authors might also have assumed that most if not all leading construction companies list on the stock exchange. It may be the case in most sectors but in some sectors, private companies lead the industry in terms of revolution. Private companies don’t have to disclose their financial information and they do not face the pressure of meeting market’s financial expectations which could lead to distraction from the main operations of the business. Private companies can also escape expensive compliance costs that a publicly listed company has to borne. Many leading private companies achieve growth through internal means such as profitability and can reach enormous sizes over time through consistence performances. Thus, they may not feel the need to go public to access equity funds. The authors blamed the sector for not investing in sustainable technologies but they ignored the importance of legislation. Other countries may have stricter regulations regarding sustainable business practices which force firms to innovate. In some case, the government also gives incentive to firms to achieve efficiency in terms of subsidies and tax breaks. These incentives may be absent in the U.K thus, U.K firms have little incentive or regulatory pressures to adopt sustainable business practices.

It is also possible that construction companies believe their current business practices are serving them just fine. The fragment nature of the market indicates that competition is tough and most companies serve only limited markets. Sustainable business practices may improve social image but the additional benefit will be more than offset by the costs involved. In the face of competition, profit margins face a downward pressure that makes adopting sustainable business practices even less appealing. The consolidation may help the adoption of sustainable business practices because it will lead to few major players in the industry who could take advantage of their scale to increase profitability and explore sustainable business practices to gain long term competitive advantages. Because consolidation will lower the intensity of competition by reducing the number of industry players, the industry may be able to afford higher research budgets.

Both U.K and Australia’s construction sectors are fragmented. Thus, even if few leading players succeed in adopting sustainable business practices, they may not have huge impact on the prevailing business practices in the sector. In addition, regulations also make difference thus, the extent to which regulations government construction sector in both countries are similar, the structure of the sector will have some similarities. U.K has higher population than Australia thus, the market economics may be little different. For Australian firms to achieve the efficiency levels of U.K firms, the sector will need more consolidation so that the remaining players can achieve economies of scale.

The U.K construction sector may have been slow to adopt sustainability business practices because the business economics might not have been there and moreover, there were no regulatory compliance pressures. The sector is fragmented thus, any single player has little impact on the overall business practices even if it adopts sustainability business practices. But doing so would require additional costs that would put the firm at a competitive disadvantage. Thus, the government needs to introduce regulations as well as provide incentives to the organizations to speed up the adoption of sustainable business practices.

Bibliography

Department for Business Innovation & Skills. Construction. 31 May 2011 <http://www.bis.gov.uk/policies/business-sectors/construction>.

Environment Agency. Sustainable Construction: Position Statement. August 2003. 31 May 2011 <http://www.environment-agency.gov.uk/research/library/position/41239.aspx>.

James, Craig. Construction becomes third largest sector. 18 June 2010. 31 May 2011 <http://www.switzer.com.au/business-news/news-stories/construction-becomes-third-largest-sector/>.

Myers, Danny. “A review of construction companies’ attitudes to sustainability.” Construction Management and Economics October 2005: 781–785.

Vandenberg, Monica. “Strategic Foresight in the Built Environment – an overview.” Research Report. 2007.