How can the construction industry reduce carbon emissions?
We look at the shift to a “circular” building sector; encouraging the reuse of materials and reduction of waste.
The “whole life” carbon of a building includes the carbon associated with operating the building – the heating/cooling, powering, water etc. – but also the embodied carbon. Embodied carbon is the CO2 associated with the manufacturing, assembly, deconstruction and ultimate disposal of the materials which make up a building1. Ever greater efforts are being made to reduce the operational carbon of buildings (by using insulation and LED lighting, for example), partly driven by regulation and not least because it often makes great commercial sense to save money by saving energy.
The "carbon profile" of different buildings
The Buildings as Material Banks project (BAMB2) - co-funded by the EU - is exploring ways to enable the shift to a “circular” building sector; encouraging the reuse of materials and reduction of waste. “Data passports” for the materials used in the buildings will be a key driver for the shift, based on the logic that accurately documenting the value of the materials is essential if we are to recover and reuse them better. BAMB believes these passports will create incentives for suppliers to develop “circular materials”. These are products designed with their future reuse in mind. The passports will also make it easier for architects, developers and renovators to choose sustainable and circular materials and stimulate the logistics required to underpin the circular economy in construction. 70 manufacturers and a number of construction industry associations have joined the project so far.
These circular business models are still at an early stage. However, as investors we are interested, because we believe these shifts create opportunities for companies to differentiate their products and win market share. Materials passports will shine a light on the companies which are doing the most to ensure the sustainability and recyclability of their products and may well give them a competitive advantage and better pricing power over the laggards.
Further down the line, we see rising carbon prices and declining availability of free emission allowances under the EU ETS as another important catalyst for sharpening the focus on the carbon embodied in construction. If the sustainability credentials of construction can be better measured, they can be better managed, and sustainability leaders can reap the rewards.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
1. https://www.ukgbc.org/sites/default/files/Tackling%20embodied%20carbon%20in%20buildings.pdf ↩
2. http://www.bamb2020.eu/ ↩
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.