News & Publications

Sector Reports - 17/12/2018

The Building Materials Sector: emerging human rights challenges for a sector that is expanding in new markets

New Vigeo Eiris report reveals the weak performances in the management of the sector’s wide-ranging environmental impacts, but some players such as Wienerberger, Toto and Kingspan Group have made efforts to supply green and sustainable solutions, including insulation materials and energy-efficient products.

The report provides Vigeo Eiris’ exclusive opinion on sector vulnerabilities, controversies and emerging risks, as well as strengths, innovations and best practice in terms of CSR. The report highlights sector ESG challenges and provides advanced indicators on critical issues such as energy transition and the management of environmental impacts, including the development of green products, as well as social and human rights risks within the supply chain.

Key Findings:

  • Composed of 62 companies in Europe, North America, Asia Pacific and Emerging Markets, the Building Materials sector’s key activities include the manufacture and trade of construction materials (such as cement and cement-based products, aggregates, concrete & ready-mix concrete, sand, glass, insulation, plastic, bricks, ceramics and roofing materials, amongst others). 40 companies from across all regions (representing 65% of the sector) quarry raw materials, whilst the others source their materials from suppliers.
  • Vigeo Eiris awarded an average overall score of 33.4 to companies in the Building Materials sector, on a scale of 0 to 100. The sector’s performance is stable compared to our previous analysis.
  • The sector ranks 11th out of Vigeo Eiris’ 39 sectors, which cover a total research universe of 4,500 companies. Previously, the sector ranked 10th.
  • Sector leaders are concentrated in Europe and Emerging Markets such as CEMEX (Mexico) and Titan Cement (Greece), whilst laggards are mostly listed in North American and Asia Pacific countries.
  • European companies remain the most communicative with a reporting rate of 83%, whilst for North American companies this rate is only 48%. The sector’s overall reporting rate is 63%, which is above the universe average (55%).
  • Our level of assurance regarding Building Materials companies’ ability to identify and mitigate their ESG risks is limited in relation to all criteria, with scores as follows: reputation (33/100), operational efficiency (35/100), human capital (31/100) and legal security (36/100).
  • The sector displays an overall weak energy transition performance with an average score of 27/100. 61% of companies display a weak performance, and there are notably no advanced energy transition performers within the sector, leading to a very low level of assurance on the sector’s response and ability to adapt their business models and manage the risks and opportunities associated with the transition to a low-carbon economy.

The sector faces 92 controversies affecting 48% of companies: 5% are involved in critical cases, 26% in high severity cases, 13% in significant cases and 5% in minor cases. The most recurrent controversies concern anti-competitive practices, health and safety issues and relations with local communities.

Key Takeaways:

  • Rapid and growing urbanisation – especially in developing countries – is increasing demand in the construction market. The Building Materials sector recently witnessed a wave of transnational mergers and acquisitions as well as market expansions. These trends represent numerous challenges for companies; notably social risks in the supply chain as companies are directly and/ or indirectly exposed to human rights breaches. 58% of companies show no commitment to preventing forced labour and/or child labour in the supply chain and only 27% of companies include social aspects in their supplier audits. The recent investigation into terrorist funding allegations by LafargeHolcim’s French unit in Syria is a spotlight.
  • Despite the role that companies are expected to play in improving the environmental performance of infrastructure and buildings, they show a weak average performance in addressing the environmental impacts of their products (28/100). Committed firms (such as Wienerberger, LafargeHolcim and CRH) are more prevalent in Europe: their green product portfolios include insulation materials, water efficient building materials and renewable energy technology.
  • Protecting employees’ health and safety remains a significant challenge within the Building Materials sector: although 93% of companies are committed to improving health and safety conditions, work accidents and fatalities are still common. The sector’s performance is limited in this regard (39/100), with 11% of companies not reporting on measures to address this issue.
  • Building Materials companies are failing to adequately manage the social and environmental impacts resulting from quarries and plant production on local communities, such as atmospheric and local pollution during extraction and production processes. 11 companies (18% of the panel), mostly from Europe and Emerging Markets, are involved in conflicts with communities over land and environment issues. In addition, 83% of companies owning quarries fail to conduct social impact assessments.
  • As the main suppliers to the contract-based construction industry, Building Materials companies face legal risks while participating in the procurement process. Anti-competitive practice accounts for the highest number of controversies within the sector, mainly concerning price-fixing, bid-rigging and cartels, and is concentrated in Europe and Emerging Market countries. The sector shows a limited capacity in addressing anti-competitive behaviours, with an average score of 31/100.
  • Significant progress has been made in biodiversity protection although the average score remains limited (38/100). Progress has mainly been driven by the efforts of a small number of companies, including Votorantim Cimentos, Asia Cement Corp and CRH, whose good practice includes the development of biodiversity management guidelines, rehabilitation plans and environmental impact assessments.

Best performing areas:
o Respect for shareholders’ rights
o Environmental strategy
o Audit & internal controls

Worst performing areas:
o Management of environmental impacts from transportation
o Management of atmospheric emissions
o Responsible Reorganisations

Top Performing Companies:
o Europe: CRH (65/100)
o North America: Owens Corning (51/100)
o Asia Pacific: Asahi Glass (50/100)
o Emerging Markets: CEMEX (52/100)

Companies making best progress since 2017:
o Europe: CRH (+7)
o North America: No progress
o Asia Pacific: No progress
o Emerging Markets: KCC and Asia Cement Corp (+8)

To view an excerpt of our 2018 Building Materials sector report, download the document below.
To enquire about accessing our sector reports, please contact the relevant team below:
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Keywords : ESG