Making net-zero construction commercially viable

As the global real estate industry grapples with rising costs triggered by supply chain disruption, clients face tough decisions to keep their projects on track and on budget. Overcoming these short-term challenges needs to be balanced with staying committed to long-term net-zero carbon ambitions.

We spoke to our global net-zero experts, James Prime (Principal Consultant, UK), Kyle Goehring (Head of Sustainability, US) and Helen Cheng (Sustainability Lead, Singapore), to find out what clients can do to keep up momentum on driving down whole-life carbon.

This year’s International Construction Market Survey highlights a multitude of cost pressures facing the global sector. On one hand, the industry is navigating a post-COVID-19 construction boom. On the other, dislocation in supply chains caused by backlogs and delays are now further exacerbated by the war in Ukraine.

These challenges are refocusing business priorities on the need to build resilient supply chains and keep costs under control. Does this pose a threat or an opportunity for the net-zero carbon agenda?

Weighing up material costs and delays

Anecdotal evidence in the UK and across Europe suggests instances where procurement teams are rowing back on the selection of lower-carbon building materials such as timber, instead finding greater certainty and security of supply in steel or hybrid solutions.

James Prime argues that this presents a risk where short-term gain undermines long-term asset security:

It might feel challenging to take a hit now on building material costs, but we cannot lose sight of the big picture when it comes to carbon reduction.” Ultimately, making the wrong choices now could create a stranded asset down the line if it does not meet future expectations over carbon performance.

A better alternative for James is understanding how to mitigate supply chain challenges with more collaborative contract models: “Providing vendors with early sight of project and programme requirements can stimulate a game-ready production line that supports ‘just in case’ rather than ‘just in time’ supply.”

As illustrated in this year’s survey findings, labour shortages are also an acute challenge, not least for key markets in Asia-Pacific like Singapore and Hong Kong which are facing deficits in migrant labour. With skills in short supply, securing specialist net- zero tradespeople, suppliers and consultants is a huge challenge.

The answer for Helen Cheng lies in further investment in local skills: “With sustained pressure on construction labour availability, equally sustained efforts are required to develop the future net-zero talent pool. The commitment in the Hong Kong 2022 Budget to unlock HK$30m to train major project leaders is a step in the right direction. We need to see the same from other markets as they also battle labour issues.”

Eliminate the carbon, eliminate the cost

Gaining visibility over the interplay between carbon and cost is key in supporting decision-making to reduce carbon – here, new technology can play an important role. James, Helen and Kyle all highlight building information modelling (BIM), modular construction and design for manufacture (DfMa) as essential to helping to model and deliver less carbon-intensive design choices.

“We’re seeing a trend towards dematerialisation,” explains James.

“During the design phase, teams are looking at digital models for different options – and considering whether they can simply remove features such as raised access floors or basements to strip out whole layers of material in a building – generating a cost and carbon saving simultaneously.

Likewise, a combination of carbon assessments and DfMa can support better recycling of materials or even entire assets. The carbon and cost impacts of new development compared to reuse can be more forensically assessed, thanks to emerging tools and resources such as the RICS Building Carbon Database.

“Clients are looking much more closely at reuse or refurbishment opportunities, rather than wanting to build from scratch,” according to James. In London, a range of high-profile refurbishments are underway across the City of London and Canary Wharf, where 20th century building stock is ripe for renewal.

Carbon accounting - what gets measured gets managed

In parallel with developing a deeper understanding of the cost of net-zero construction, the industry needs to get a handle on a new kind of accounting – for carbon. Kyle argues that project teams must treat this in the same way as financial accounting, embedding processes into projects from the outset.

However, he warns over the lack of consistency in approaches between different projects and markets:

Accurate data is hard to come by and manipulation of figures is a risk. Organisations need to seek advice on how to put proper governance in place to measure and monitor the carbon footprints of their projects or portfolios.

The growing market for offsetting is a particular area of concern as organisations seek to mitigate carbon footprints through sustainable investments elsewhere. The UK Green Building Council estimates the current cost of carbon to be around £70 per tonne, but the body warns that could hit £120 per tonne or more by the end of this decade. As these costs multiply, the case will strengthen to reduce reliance on offsets.

Helen points out that, for now, scrutiny of offsetting remains light: “There are still major concerns over the validity of parts of the offset market, including over double accounting – where multiple investors or landowners are claiming the same carbon credits generated by offset schemes.”

As an increasing number of companies seek to attain a net-zero position, the financial implications of the rising price of offsets over the short to medium term needs to be accounted for. Some companies are approaching this by establishing a ‘shadow carbon price’ and incorporating this into their projects. Establishing this visibility, and integrating it at an early stage, allows companies to begin to ‘bake in’ the cost of carbon into their projects and smooth the financial transition to net zero over time.

Establishing the right governance

Early and robust engagement with budget holders who have ultimate responsibility for signing off enhanced spend associated with achieving net zero is crucial. According to Kyle:

This points to the need for governance models that incorporate net-zero decision-making and embed this in the ‘business as usual’ operation of the organisation.

An appreciation of the need to drive carbon reduction across all areas of a business must be present within all strata of organisational management, including finance teams – with a longer-term view of the financial payback periods of the net-zero investments required. When considering operational estates, this extends to initiatives that can be implemented to drive further efficiency, such as implementing enhanced energy-efficiency measures or integrating smart building technology.

Kyle makes the case for investment in technology to help bring greater control to carbon accounting, including offset credits: “Blockchain tools can play a really important role, allowing clients to piece together evidence on materials and processes, and to thereby track carbon costs in real time. Ultimately, that allows you to not only manage carbon footprints in construction, but also prove it to occupiers or future purchasers of an asset.”

Exporting expertise to accelerate progress

In navigating these challenges, the UK finds itself in a relatively strong strategic position when compared to other global markets, according to James: “Early initiatives set up to develop new standards such as the London Energy Transformation Initiative (LETI) guidelines and the UK Green Building Council’s Net Zero Carbon Buildings Framework have not only made a real impact in the UK, but have also seen international adoption,” James explains. “The UK is looked to as a global leader in engineering, which builds confidence in these tools.”

Kyle points out that by comparison, the US is displaying pockets of great ambition, with some key decarbonisation projects underway, but that widespread adoption remains elusive.

In areas including Portland, Seattle, New York City and California, we’ve seen early adoption and landmark investment in low-carbon construction. However, despite federal ambitions that have been made clear in President Biden’s Infrastructure and Investment Jobs Act, this is very far from being matched on every project, or in every state. It’s hoped that Biden’s mandate to decarbonise federal buildings will eventually permeate out into the private sector.

Public and private – a global call for leadership

Amongst all our global leads, there is a conviction that government has an essential role in driving progress through new regulation.

In the UK, James notes growing calls for UK government to introduce mandatory whole-life carbon assessments within building regulations and new standards are in development to formalise requirements. Similarly, in New York, Kyle points to the city’s ambitious Local Law 97, which will require most buildings over 25,000 sq. ft. to meet strict energy-efficiency and greenhouse-gas-emission limits by 2024. In Singapore, the government is raising carbon taxes from S$5 per tonne currently to S$25 per tonne in 2024 and 2025.

Yet, there is a view that government action will only take the industry so far. Helen points to corporate occupiers as key players in standardising practices:

Singapore’s position as a global financial and trading powerhouse continues to attract major corporates which are increasingly bound by their own governance rules to operate sustainably. What we’re seeing is these companies can command and invest in net-zero supply chains that then benefit others too.

What’s clear from our experts is that the business case for net-zero carbon buildings is only growing stronger. Clients may be tempted to row back on commitments in the short term in the face of rising costs elsewhere, but pressure from investors, governments and building users to achieve net zero does not make this a sustainable solution. Instead, the real estate sector should harness the current focus on supply chains to drive more informed net-zero conversations and decision-making, ultimately developing a platform for future success.

For further information contact:

Alice Grocott
Associate Director, Global Real Estate Business Generation

t: +44 (0)79 6665 0367