11 September 2023
How are carbon reduction targets changing the UK construction sector?
Former UK energy minister Chris Skidmore has stated that infrastructure is the key that will unlock net zero. Target dates for achieving this hallowed status vary widely across the construction industry – from 2025 to 2050. Yet the seismic shift is reverberating through construction, from low carbon materials to new technology, sustainability breakthroughs are occurring with increased regularity across an industry that is primed for transformation.
Over 220 organisations are now sharing good practice as business champions or partners of CO2nstruct Zero after demonstrating carbon-reduction leadership. The result is undoubtedly progress toward net zero and a more sustainable future, but a change of this magnitude does not occur in isolation – how are these targets impacting construction and altering the industry’s future risk profile?
Carbon reporting and the demand for sustainable certification
There has been a growing expectation for companies to share their carbon data. Voluntary green building rating systems such as the Building Research Establishment Environmental Assessment Method (BREEAM) and Leadership in Energy and Environmental Design (LEED) offer the opportunity for companies to gain formal accreditation for sustainable construction best practices.
Under PPN 06/21 suppliers who are bidding for central government contracts valued at over GBP 5 million per annum must commit to achieving net zero by 2050 and publish a carbon reduction plan which details their organisation’s UK greenhouse gas emissions. Many contractors’ plans are now readily available online, including Balfour Beatty, BAM Construction, Galliford Try, Kier, Laing O’Rourke, Logan Construction, Vinci Construction and Wilmott Dixon.
In order to demonstrate their carbon reduction, many businesses have started to collect and produce more sophisticated data. Data gathering and reporting should follow recognised industry standards, but there is still much room for improvement here. The government has called the reporting of Scope 3 emissions (detailed below) a “major information gap” and is expected to launch a call for evidence on how best to close it.
Aggregate Industries UK, Balfour Beatty, Morgan Sindall and Galliford Try are getting ahead of the game by trialling a new technology to provide real-time reporting of embodied carbon. The industry leaders have partnered with Causeway Technologies and are developing a software solution to measure Scope 3 emissions in real-time using invoice data. Initial tests have sampled 25,000 invoices from the cohort, focusing on the materials with the highest carbon impact. The system can capture line-level items such as tools and plant purchases, and the range will continue to improve as the project evolves and more suppliers and contractors sign up.
The Net Zero Carbon Building Standard is expected to launch later this year and it is hoped that it will provide standardised metrics to demonstrate and verify net zero buildings in the UK. Independent environmental think tank and charity Green Alliance has also been lobbying for the development of “material passports” for buildings to track information about the materials, components and products used in them.
The Greenhouse Gas (GHG) Protocol is a global framework to measure and manage GHG emissions, which fall into three scopes.
- Scope 1: direct emissions caused by an organisation’s operational functions and onsite energy use, construction waste and landfill, maintenance of structures during lifetime and demolition
- Scope 2: indirect emissions generated when energy is produced on behalf of an organisation from a utility provider – energy purchased to operate and maintain a site – gas, electricity and oil
- Scope 3: indirect emissions produced by supply chain and at customer level; extraction of steel, aluminium and concrete, transportation, activity from supply chain, waste management
The industry has become increasingly aware of how supply chains contribute to scope 3 emissions and contractors are developing procurement strategies with this in mind. When leading contractors carry out supplier assessments, they should examine and evaluate all potential carbon emissions. The location of one supplier may be more advantageous for instance as the necessary transportation will create less carbon.
In April this year, Laing O’Rourke announced that it would be exclusively using low-carbon concrete for all new UK projects in a bid to reduce its Scope 3 emissions.
An innovative example is Vinci Construction’s use of its custom in-house virtual reality (VR) technology in The Apex 1: a “highly sustainable, near net-zero” London residential 26-storey tower with 201 apartments and retail and amenity space. The project won “Best Use of Augmented Reality/VR in a Construction Project” at the Building Innovation Awards last year and involved using VR to visualise the complexities of constructing a tower directly above two tube lines in New Covent Garden market in a very restricted space.
Reduce, reuse, recycle
Government policies have been focused on reducing buildings’ operational emissions. To date, embodied carbon has not received the same level of attention, but this is set to change. The government and industry are increasingly encouraging developers to refurbish and re-purpose existing buildings rather than demolish and in favour of new builds. Taking into account that 80% of the buildings that will exist in 2050 have already been built, retrofitting existing buildings is a fundamental part of meeting carbon reduction targets.
The government has recommended contractors consider how they can promote increased levels of reuse and recycling in their projects; this could be achieved by altering tender requirements to include certain new standards. The Framework Standard for Responsible Sourcing, known as BES 6001, enables product manufacturers to prove products have been produced with responsibly-sourced materials and applies to any product that uses a foundation product of cement, steel, timber, plastics and ceramics. “Cradle to cradle” is a global standard for certifying product safety and environmental impact. It provides the framework to assess the safety, circularity and responsibility of materials and products across five categories of sustainability performance: material health, product circularity, clean air and climate protection, water and soil stewardship and social fairness.
Examples of the government’s strategy in action include it stopping Marks & Spencer’s plans to demolish their flagship building on Oxford Street in July this year. While in March the City of London Corporation announced they will be making it increasingly difficult for developers to demolish buildings, with a strong preference for retaining them where possible. The government could also incentivise developers to ditch demolition by dropping VAT for retrofit projects to bring them in line with new build projects.
An increased trend towards refurbishment will have an impact on insurance as it involves two different relevant sectors of the market. Construction insurers’ core appetite is insuring new build projects while property insurers are focused on insuring existing operational buildings. Therefore, determining which sector should cover a refurbishment and how to design the insurance programme is complex and will depend on a variety of factors including the value, age and condition of the building as well as the layout and structural impact of the works.
Researchers at the Massachusetts Institute of Technology (MIT) have made a breakthrough that could mean a property’s concrete floor could store solar energy and a concrete paved road could charge electric vehicles. The team discovered that adding water and carbon black (soot from partial burning of hydrocarbons) to cement turns it into concrete that is capable of storing energy. Most importantly, the system should be scalable as the energy storage is directly proportional to the volume of the concrete.
Sustainability in Europe
France aims for net zero emissions by 2050. The nation’s new regulation, known as RE2020, demands a 50% reduction in embodied carbon emissions of buildings by 2030 and full decarbonisation by 2050, significantly tightening the existing energy efficiency requirements on the construction industry. Under RE2020 a project’s carbon footprint will be calculated based on the emissions created during its whole life cycle, including the construction phase and the manufacture and transportation of building materials.
Ireland has ambitious legislation and policies on operational energy use in buildings but embodied carbon emissions remain unregulated. However, with proposed revisions of the Energy Performance of Buildings Directive (which previously introduced BER energy ratings and Nearly Zero Energy Buildings (NZEB) standards in Ireland) this is set to change and lifecycle emissions will need to be calculated for large new builds from 2027 and all new buildings by 2030.
Spain has pledged to be net zero by 2050 at the latest and at least a 23% reduction in greenhouse gasses emissions by 2030 (from 1990) with periodic reviews to increase ambition, the first taking place this year. The Spanish market is anticipating a renovation boost following tighter energy efficiency regulations from the European Union, which will also focus on buildings’ entire lifecycle. In March the European Parliament adopted an ambitious revision of the 2010 Energy Performance of Buildings Directive, which the European Council must now pass.
Italy plans to end the use of coal and increase the use of renewables so that they provide 70% use of electricity by 2030. While new builds are covered by a rigorous regulatory framework that includes high levels of efficiency, nearly two-thirds of Italy’s residential buildings were constructed before the country’s first law on energy saving was passed in 1976. Progress will likely depend on the retrofit of existing buildings.
Are the carbon reduction targets achievable?
While the industry’s shift to sustainability has prompted unprecedented evolution within every facet of the construction lifecycle, reaching net zero still requires a gargantuan effort, and meeting these ambitious targets is far from a foregone conclusion. Success will depend upon collaboration, and the insurance industry has a significant part to play.
As a leading insurance broker in the construction space, Gallagher’s role has changed considerably in the last five years, and rightly so. The imperative push from industry and government towards sustainability and carbon emission reduction, coupled with the hardening of the insurance market, has made obtaining insurance more challenging – providing us with the opportunity to add further tangible value to our clients.
In previous soft insurance market conditions, arranging insurance for traditional frame new build projects above five storeys was largely undertaken with little prior engagement from a broker, as these risks were firmly within a construction insurer’s core appetite. However as the industry strives to reduce its carbon footprint, there is a greater prevalence of refurbishments of retained structures with elements of structural timber, both of which are typically outside an underwriter’s appetite. Consequently, we are now engaged far earlier in the design process e.g. RIBA stage 2, akin to a cost consultant, lawyer or structural engineer. This allows us to provide insurers with a more meaningful understanding of the sustainable risks and how they are being managed, so that we can address any perceived issues at an early stage in order that they don’t translate into punitive insurance results for our clients. This is especially true for challenging large projects incorporating structural timber, retained structures, recycled steel, green walls and blue roofs.
The role of the broker has never been more important in articulating messaging around sustainability in construction. Attitudes are changing: Aviva recently expanded its underwriting appetite to include engineered timber in commercial developments. Gallagher is a market leader in retrofitting buildings and timber, and we are well-versed in finding the right solutions for clients and navigating the insurance market.
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Sam Hiller
Partner, Construction UK
Sam_Hiller@ajg.com
Michael Crouch
Partner, Construction, UK
Michael_Crouch@ajg.com
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