Europe’s construction industry seeks circular business model ‘revolution’

Issued in the aftermath of COP28 in Dubai, the industry ‘manifesto’ identifies the need for the construction industry to “decouple” its plans for growth from “the ever-increasing use of raw materials and the impact on our environment” – and the business opportunities arising from making the transition to a circular business model, with the global green economy estimated to be worth $10.3 trillion by 2050.

Currently, the construction industry operates a linear business model that is highly resource- and carbon-intensive. Raw materials are extracted from natural resources and processed to created secondary materials used in the construction of buildings and infrastructure, with that manufacturing process, resulting global transportation, and further processing of materials a large contributor to global greenhouse gas emissions. In Europe, the construction sector is responsible for more than one third of all waste in the EU, while buildings account for about half of the EU’s raw material consumption and nearly half of its total CO2 emissions.

Recognising that the current model cannot continue, from neither an environmental nor economic perspective, European International Contractors (EIC), European Construction Industry Federation (FIEC), and the European Network of Construction Companies for Research & Development (ENCORD) have identified actions, and made a series of commitments, in an effort to affect change.

Graham Robinson of Pinsent Masons said: “A wave of international climate and sustainability targets, underpinned by new law and regulation and pressure from financiers, customers, shareholders and activists, is driving the push for new net zero infrastructure and buildings and the adaptation of the existing built environment. The construction industry is in turn facing up to the need to change its practices to support this agenda.”

“Some companies have already recognised that operating resource-intensive linear business models is not compatible with the drive towards net zero and wider sustainability goals, but change has yet to happen at the scale needed to have a meaningful environmental impact. It is why this new manifesto is so significant – it not only recognises the existing problem posed by operating linear business models; it sets out clear actions required to affect the necessary transformation of industry across six core areas – people, financing, energy, procurement, resources, and data – and spells out the growth opportunities for businesses that invest in change,” he said.

“The next step is for industry to implement the actions and commitments made – and for EU policymakers to play their part in supporting the transformation. Implementation would revolutionise industry practice,” Robinson added.

Not all the actions outlined in the manifesto can be completed by industry. The federations acknowledged that “unprecedented collaboration” is necessary to deliver carbon and resource neutrality – from businesses involved in the design and construction of buildings and infrastructure, to those who operate and maintain such assets post-completion, as well as from financiers and policymakers.

One area identified in the manifesto as having the potential to act as a “catalyst for change” is procurement, with an action set out for the European Commission to update public procurement regulations to better incentivise construction companies to adopt circular business models.

Anne-Marie Friel of Pinsent Masons, who wrote the action plan for procurement in the manifesto, said: “Contractual structures and procurement models which look wholly on the lowest price do not enable and incentivise the change in behaviours necessary to deliver the right sustainability performance. The procurement model will need to support sustainability performance and enable the implementation of an appropriate digital solution to enable forecasting and analysis of carbon performance and assist in ongoing monitoring and reporting over the life of the asset.”

In his foreword to the manifesto, Maroš Šefčovič, executive vice-president of the European Commission, said he “fully support[s] the call for local, regional and national policymakers to ensure public tendering processes which are more open to ecological innovations, circular business models and life-cycle approach”.

“Embracing a future that is carbon neutral, circular and respectful towards nature is both a responsible and a smart strategy for the sector,” Šefčovič said. “The European Commission is fully committed to supporting the construction sector on this journey, from putting in place a clear and incentivising regulatory framework to support for research, innovation and skills development.”

Other actions outlined in the manifesto include, among other things, a series of initiatives aimed at upskilling the industry’s workforce – including by building “sustainability capacity at management level”.

The manifesto also sets out goals to reduce the cost of sustainable finance and change accounting practices to ensure “green outputs” can be better measured – and outlines the role of reporting in accordance with international standards, such as the sustainability disclosure standards introduced by the International Sustainability Standards Board (ISSB) earlier this year, in achieving those goals.

The application of energy efficient construction processes and logistics, the use of renewable energy sources in developments, and consideration of energy optimisation across the whole lifecycle of buildings and infrastructure at the design phase of projects, are other actions that have been set out.

On resources, the federations, among other things, said there is a need to adopt zero-waste targets throughout all operations, source sustainably produced building material and components, and promote the re-use of secondary materials in eco-design strategies. The implementation of a “material passport” to facilitate the assessment of embedded carbon in buildings and infrastructure is also advocated, and they further called for “wider VAT exemptions for circularity”.

In their joint foreword to the manifesto, the presidents of EIC, FIEC, and ENCORD, Benoît Chauvin, Philip Crampton, and Christina Claeson-Jonsson respectively, acknowledged that while there is a role for the European Commission and other stakeholders to support the industry’s transformation, there is an onus on businesses themselves to deliver change that is within their control.

They said: “We believe that contractors across the European construction industry should increase and speed up investments and take much wider responsibility and leadership in harnessing the skills and resources of the whole construction value chain and all stakeholders to restore our environment and transform our economy.”