The building sector is key to the fight against climate change

This article first appeared in Caixin Global.

The building value chain is responsible for 37% of total carbon emissions globally, involving multiple harder-to-abate sectors and needs to accelerate green transition from now on.

The green transition of building value chain can unlock $1.8 trillion in market opportunities globally according to World Economic Forum and Boston Consulting Group, as well as significant social and environmental value.

To fully seize the opportunities presented by the green transition of the building sectors, stakeholders across the value chain should adopt a strategic and collaborative approach, especially around standard setting, flagship development, policy design and innovation.

Buildings are constructed to serve humanity’s needs. They shape nature and they are shaped by it; they shape us just as we shape them. Now, as heatwaves rage from North America to Asia, and with the summer of 2024 expected to be the hottest year record, it is time we look to our buildings as both a way to reduce emissions and also to help us adapt to a changing climate.

Globally, the building value chain is responsible for 37% of total carbon emissions. Notably, the building sector value chain involves harder-to-abate industrial sectors such as steel and cement, making its decarbonization all the more challenging. As we assess critical priorities in the fight against climate change, the building sector clearly demands immediate attention.

Pursuing the green transition in the building sector can unlock substantial opportunities and drive sustainable growth amidst. Already, the industry is changing and starting to pursue new development models. This transition is more than a response to recent fluctuations in the market. It is a strategic move for value chain players such as developers, constructors and material providers, aligning with global trends and the growing demand for more sustainable practices to drive long-term value creation.

The most obvious and immediate area of impact is in the way we design and construct our buildings. The materials we use matter, as does where they come from and how they are implemented in the built environment.

The good news is that the transition to more sustainable building practices offers numerous opportunities for growth and value creation along its value chain. An analysis by Boston Consulting Group (BCG) found that companies with best-in-class sustainability metrics have a lower ESG risk, with a premium of 10% to 15% in their valuations. Buildings with sustainability-related certifications such as the globally-recognized LEED (Leadership in Energy & Environmental Design) rating system, which provides a framework for designing sustainable and healthy buildings, can have higher asset values due to their energy efficiency, higher rental value and lower ESG risk. They have a competitive edge in the market.

Energy-efficient designs and systems can lead to significant cost savings to value chain players. Passive building designs, high-efficiency heating and cooling systems and advanced energy management systems reduce energy and material consumption, lowering operational costs. One leading examples of this is the air-conditioning system upgrade of Beijing’s Taikoo Li Sanlitun, which cut energy consumption for air conditioning by 66%, or 13.4 GWh annually. High-energy efficiency equipment and digital energy management system, both of which are replicable elsewhere, enabled this change.

By adopting sustainable practices, value chain players can also offer differentiated products that attract environmentally conscious clients, gain access to the public financing incentives and potential carbon trading to offset initial investment costs, thus improving their financial viability. Take, for example, Holcim, one of the leading cement producers globally, which has launched a circular technology platform to provide up to 100% recycled concrete to buildings, enhancing its sustainable offering and decarbonizing the harder-to-abate sector of concrete.

In reimagining how we approach buildings and our built environment, there is scope to go beyond net zero, and implement nature positive outcomes that bolster climate resilience and enhance our wellbeing.

Green buildings often incorporate features that foster community interaction and engagement such as accessible green spaces and community centres, enhancing the quality of human life.

These buildings also reduce pollution and protect and enhance biodiversity. By improving air and water quality, green buildings also create healthier living conditions. For example, the Bullitt Center in Seattle, one of the greenest commercial buildings in the world, is estimated to generate up to $18.5 million in benefits to society over its lifetime through its various green features.

The SOHO Yangzheng Library, China’s first net zero library, exemplifies sustainable design in public spaces to remain energy self-sufficient with net zero carbon emissions. Located in a rural village in northwest China, it serves as hub for family gatherings and educational activities, while also reducing environmental impact with on-site solar power, passive design elements and green open spaces that support the well-being of the local community and nature.

The green transition in the building sector value chain is also an opportunity to unlock potential for market expansion and to gain a competitive edge. According to the World Economic Forum’s study on the building sector value chain transition in China and beyond, the green transition of the building sector value chain could unlock an estimated $1.8 trillion in market opportunities globally.

As demand for sustainable construction practices grows, aligning with international standards and nurturing innovation can bolster competitiveness. For example, modular building and prefabricated materials, which reduce construction time and waste, are particularly appealing in rapidly urbanizing regions like the Middle East.

To fully seize the opportunities presented by the green transition of the building sectors, stakeholders across the value chain should adopt a strategic and collaborative approach. With a four-pronged approach, public and private players can work together to navigate challenges and deliver a green transition.

1. Embrace global standards and measurement: Comprehensive and quantifiable standards that encompass net zero, nature-positive, resilient and well-being-oriented outcomes.

2. Adopt best practices and build flagship projects: Investing in and showcasing flagship projects to inspire broader adoption and help set new industry benchmarks.

3. Develop effective policies and incentives: Policy enablers such as subsidies and grants to encourage sustainable practices and strengthen the financial viability of green solutions.

4. Support R&D and engage with innovators: Collaborating with innovators to accelerate green technology breakthrough, such as net zero building materials.

The need for action is urgent. Emerging economies are bearing the brunt of the climate crisis while still undergoing major urbanization developments. This tension between climate action and the need for growth and an improvement in living standards is high on the agenda for leaders at the World Economic Forum’s 15th Annual Meeting of the New Champions, currently underway in Dalian, China. These leaders, hailing from both the public and private sectors, could spearhead the global construction industry’s coming transformation.