Hello and welcome back to The Pinsent Masons Podcast, where we try to keep you abreast of the most important developments in global business law, every second Tuesday. My names Matthew Magee and I’m a journalist here at Pinsent Masons, and this week we examine the issue of embodied carbon in construction and ask: how can the industry reduce its emissions and avoid future claims? And we cast an eye over plans proposed to boost Ireland’s AI industry. But first, here is some business law news from around the world:
EU proposes law to bolster Pharmaceutical industry resilience
UK planning and infrastructure bill aims to support UK growth and
Vietnam energy decree creates offshore wind investment opportunity
The EUs proposed new Critical Medicines Act is a significant move in its efforts to bolster the resilience of its pharmaceutical supply chain, according to experts. The Act is designed to avoid the medicine shortages that have happened in Europe in recent years, exacerbated by global events, including the COVID-19 pandemic. These shortages have been primarily driven by manufacturing issues, supply chain vulnerabilities and intense global competition for resources. The Act aims to tackle these problems by bolstering the EUs manufacturing capacity and ensuring a stable supply of critical medicines. It designates certain projects as strategic, providing them with easier access to funding and fast track regulatory procedures. Arjan Reijns, a life sciences and health specialist at Pinsent Masons, said this development fits in well with other recent developments aimed at promoting and improving EU manufacturing capability. The European Medicines Agency, in collaboration with national authorities, will oversee the implementation of the Act.
New planning laws have been proposed by the UK government aimed at making it possible to build new homes and infrastructure more quickly. The Planning and Infrastructure Bill was introduced into the UK Parliament last week and has been heralded by the government as providing transformative reforms to get Britain building. Some of the measures focus on nationally significant infrastructure projects, such as large wind or solar farms, major water or rail projects, or significant commercial projects like gigafactories, data centres, and laboratories. Planning expert Robbie Owen said that the reforms to the NSIP system are most welcome and many of them have been long requested, but none are a silver bullet. There seems little doubt that ministers will need to go much further if they're to deliver on their infrastructure commitments.
A new Vietnamese government decree providing regulations for the development of large-scale offshore wind power projects will open up investment opportunities and provide greater clarity for the market, according to experts. The decree will provide incentives for offshore wind projects approved by authorities before January 2031, including exemption from maritime area use fees for the first three years of construction, followed by a 50% reduction for the next 12 years, and a commitment from the Vietnamese government to purchase at least 80% of eligible offshore wind projects' output for 15 years, unless buyers and sellers have other agreements in place. Energy projects expert Brian Chapman said the added detail contained in the decree will be welcomed by investors interested in the offshore wind market in Vietnam. Investors will need to move relatively quickly with respect to site surveys and general project development.
The construction industry is very carbon-intensive. It's responsible for a huge proportion of the world's carbon emissions, and with lots of parts of the world moving to more urbanised societies, the pace of building is not about to slacken anytime soon. There are two ways that buildings cause carbon emissions: operational carbon, the result of the resources needed to heat a building, light it, keep the lifts working, and do a new fit-out; and embodied carbon, the emissions related to the creation of the building or the infrastructure in the first place.
Embodied carbon could account for around half of all construction emissions, so it's clearly something that needs to be tackled. But that would involve fundamental change to almost everything about how the industry works: materials, methods, commercial and legal relationships, the lot. So is it achievable at all? London-based construction law expert Anne-Marie Friel has recently published a detailed paper about the issue for the UK Society of Construction Law. I started by asking her to give me a sense of the scale of the problem.
Anne-Marie Friel: Right now, the building and construction sector is estimated to contribute about 21% of global greenhouse gas emissions. It's actually estimated that about half the building and construction sector's emissions, and so half of that 21%, is embodied carbon emissions, which arise out of new materials used in construction. But that's not the only problem. Embodied carbon is just one of the issues affecting the sector. We also have emissions from air pollution, water pollution, and general landfill waste. All of these contribute to the climate change emergency. To achieve net zero, the construction ecosystem would need to shift to what we call a truly circular model. That's a model where about 90% of resources are being reused and there's almost a total reduction in waste. It's fair to say that that's going to require a huge behavioural change.
Matthew Magee: The changes involved here are huge and fundamental, and organisations are often reluctant to make big changes without very good reason. So what will actually force this to happen? Anne-Marie says it's a range of regulatory and commercial or funding pressures which companies in the industry will simply be unable to avoid. Simply put, this will happen because funders and regulators will demand it.
Anne-Marie: Different conditions coming through different regulatory forces. I think some of the key ones to keep in mind when you're doing your due diligence on a project to try and establish what the specific promises that have been made in relation to a particular development. Look at the planning and consenting process, look at any of the funding conditions which attached to the project. And just look also at the promises that stakeholders are making through corporate governance and disclosures and promises that they're making about commitments to reduce the environmental harm that their businesses are contributing to. All of these things together need to be looked at to establish what the nature of the specific issue will be for that project and for those stakeholders if they fail to meet those promises. Increasingly, it is becoming non-optional. I think you can probably compare and contrast that to a few years ago where it did feel a bit voluntary. I think that is really starting to change. We're seeing it coming in thick and fast is the way I would describe it, particularly through funding arrangements. Actually, you really do need to check the small print on the promises that have been made to funders and people who are financing projects.
Matthew: So these changes are huge, and they're inevitable. Thoughts turn then to how on earth the industry is actually going to go about it. Anne-Marie thinks we need a new way of thinking about the whole industry as one big interlinked thing with webs of co-dependency’s. What's needed, she says, is systems thinking.
Anne-Marie: Improvement in sustainability outcomes from construction, for example, is going to require what we call a system-wide behavioural change. And by system-wide, really what I mean is looking at the whole rather than individual component parts. Implementing a sort of holistic system-wide approach to change affects all aspects of design and construction. It affects all aspects of regulation. And of course, it drives some of the reputation of financial considerations that come from that. If we don't employ a holistic approach to solving the problem and we look at individual cogs of the wheel as opposed to the whole, then we just don't address the various interdependencies that exist across the construction and infrastructure ecosystem. You need to understand each part that these individual cogs in the wheel play in contributing to the whole outcomes because every cog in the wheel actually matters, so every little helps.
Matthew: The reason this holistic approach is needed is that embodied carbon is just a much more complicated issue than operational carbon, not least because it can't actually be fixed after the fact.
Anne-Marie: Embodied carbon has some really quite specific challenges that you need to think about. If you look at operational carbon, in contrast, it's quite easy to measure, to record, to quantify. The elements of that affect operational carbon are quite static. You know, maybe heating, cooling energy systems. They're less prone to variation. Embodied carbon is comprised within methods and within materials used during the construction process. So by nature, it's just much, much more difficult to measure and to quantify. And it's complicated by the fact that the embodied carbon emissions effectively begin to accrue before you even bring your materials on site, right at the start of the sort of sourcing and production process prior to construction even beginning. There's also the very difficult reality with embodied carbon that because it's produced as a result of the construction process, you can't rectify it through carrying out more construction works because that would just exacerbate the problem. The traditional way we would approach rectification of defects by fixing something, doing more work wouldn't apply because the act of fixing it and carrying out more construction would just cause further environmental harm. So we really do need to be quite obsessed with preventing the emissions arising in the first place, rather than focusing on just dealing with the consequences of failing to achieve them and trying to cure them later, because it's just not going to be possible.
Matthew: All this activity and all this change will ultimately be governed by contracts says Anne-Marie, which will need to change.
Anne-Marie: Part of the system-wide behavioural change undoubtedly includes a need to change contractual approaches because contracts do drive behaviour. We see that all the time. I like to describe it as bringing a systems thinking approach into contract management. It's a complicated industry. This is because we have a lot of different funding approaches, a lot of different financing approaches, different kinds of markets, different kinds of developers, different kinds of clients, public sector, private sector, different kinds of suppliers. All of them use a lot of different forms of contracts. So there's never going to be one size fits all. But I advocate a really simple blueprint approach that I think can be used on any project to drive this sort of dramatic behavioural change that's needed to reduce the CO2 emissions which are caused by construction. The blueprint has three parts. I like to call them require, incentivise, and manage. But just breaking that down in terms of require, that's the first one. It's really important to be crystal clear in specifying the requirements that have to be met. It's going to be very, very project-specific. You're going to need to look at all of the conditions that apply to that project. It's going to require a multidisciplinary approach most likely in order to establish what are those targets which must be met. Second, I talk about incentivise. By that, I'm talking about incentivising innovation, collaboration, and improvement around the targets. This is especially good because we know this is a fast-moving area and sometimes we want to know that the level of change we can achieve on day one might not be the level of change that we can achieve in year ten when everything has moved on. Thirdly, and perhaps crucially, we need to manage. Parties need to actively monitor and manage performance on a contemporaneous basis. The reason this is just so important is because you can't rectify the harm which is done to the environment later. We really have to focus on prevention and not cure. It's not good enough to wait till the end of the project and then look back and see how well you've done. When it comes to something like environmental harm, we've really got to prevent it happening in the first place and the only way to do that is to be actively monitoring and managing from day one.
Matthew: Anne Marie thinks that while it's a way off because of how long construction projects take to plan and build, embodied carbon claims will form a major part of future defects claims. So if this is to be avoided, then we need to do better now in how we plan and build. Central to that, she says, is the setting of realistic targets and incentives.
Anne-Marie: Parties are going to need to look at consenting conditions, at funding requirements in an effort to establish what these targets are. In an ideal world, targets would be changing and robust, but still ultimately capable of achievement. However, sometimes stakeholders are going to find that very challenging conditions have been set and that the consequences of not meeting those conditions for that particular project could even be quite catastrophic for the sponsors for that project and the stakeholders involved. The reason why realistic targets are going to be easier is because we want stakeholders to the project to buy into those targets as being achievable because if they buy into them as being achievable then they might be prepared to link their commercial return to the achievement of those outcomes. One thing I would say is that I wouldn't recommend anybody to start a construction project where there are challenging targets without having a plan in place. And I think longer pre-construction periods with really intensive planning, multidisciplinary teams working together to plan how the embodied carbon emissions are going to be reduced through design, through construction planning, through methodologies, I think these are going to be a fact of life. That's because once the notice to proceed to construction has been issued, it's going to be really too late to change direction in any significant way. So everybody needs to understand what they're getting into, what they're going to do differently in order to achieve it.
It’s a rare country these days that doesn’t loudly trumpet its desire to become a hub for AI excellence and investment, or some variation on those words. We reported a few weeks ago on the UK’s plans, and now it’s Ireland’s turn – an AI Advisory Council has published its recommendations for the government on how it can, in the council’s words, ‘reinforce Ireland’s role in the global AI ecosystem’. It says that Ireland has the potential to become ‘Europe’s preferred base for both startups and established companies seeking to launch or scale AI products and AI-first ventures’, benefitting from Ireland’s skilled workforce, research capabilities and the existing presence of many multinational technology companies. So I asked Dublin-based technology law expert Maureen Daly what the council’s recommendations are.
Maureen Daly: What the AI Advisory Council has done is put forward a number and a broad range of recommendations for the Irish government to do, ranging from increasing funding for AI research and development to building an AI-focused startup system, creating guidelines for the use of generative AI in education, and even having mandatory AI literacy training at all educational levels. So it really is a broad range and I suppose this requires the government now to go ahead and adopt targeted and strategic investments and policies in order to safeguard Ireland's competitiveness and also the jobs as AI continues to evolve.
Matthew: The recommendations cover a lot of ground, including things like the suggestion about AI in education. But Maureen identified two areas where there were concrete proposals that businesses should be following.
Maureen: They have proposed to develop an AI observatory with the aim of delivering data and insights on a wide range of AI metrics and for that to be publicly available. I think that is a great resource because it would be of enormous benefit to policymakers, to educators, to workers, and it helps all of them to navigate the challenges that are ahead when we're looking at AI. And with anything, having live data helps develop and take things forward. So I think that's a really important concrete proposal. Another area that they put a really concrete proposal is to establish an AI Energy Council, which in Ireland is really important because the energy deficit is something that Ireland has to urgently address. Up to now, obviously AI, it's a huge energy consumption, data centres are needed, but there's been a massive hold on that section because we need to expand the capacity of our energy grid. We're too reliant on fossil fuel, so there has not been an expansion. There's been a massive halt on that side. So I think having an energy council looking at that, maybe working with public bodies to identify where are the bottlenecks, what do we need to do, how do we accelerate the expansion of the grid, how do we come up with other maybe develop renewable energies, how do we streamline that?
Matthew: Lots of advisory groups recommend lots of things to lots of governments all around the world, but that doesn't mean that things get done. So will the Irish government actually do much of what's in the report? It's not totally clear, says Maureen.
Maureen: The Council will work with the government. What they have done is these recommendations, they're really on a broad framework. They acknowledge themselves that they're going to further refine the recommendations throughout the year. So I suppose it's a work in progress. The ministers have said that they'll take on board the recommendations that work with the council and then work with other colleagues and other departments to see how things can be progressed. I think it's really going to be business and the industry's looking for this type of information, looking for guidance that will actually push the development coming along. I think having the AI Council there will be great because if they keep coming out with these recommendations and having public discussion on it, I think that will lead to things actually getting done.
Matthew: There are real diversions on AI policy around the world, most notably on how closely development is regulated from a security and safety point of view, and to what degree companies are prepared to enable AI developers to use other people's intellectual property without permission or payment in the development and operation of AI systems and tools. So actually, there probably will be some countries that will become hubs and centres, hoovering up a disproportionate share of inward investment, jobs, people, and opportunities. So, in light of the Advisory Council's report, what are Ireland's chances of becoming one of those hubs?
Maureen: The fact that Stanford University in November 24 ranked us in terms of vibrancy per capita ahead of countries such as the UK, Sweden, and Israel, I think that's a great report to have. But it's like anything, it's trying to keep that grade, it's trying to keep that ahead of other countries. And I think this is where issues such as our capacity on the energy front needs to be urgently addressed because at the current time, obviously, expansion of data centres has halted because of the issues with our grid capacity and the fact that we are so fossil fuel dependent. So the government really needs to address that issue, address the bottlenecks that exist in order to expand that capacity. If that doesn't happen, we definitely will be falling down.
Well, that's it for this week. Thank you so much once again for listening, for coming back to us and spending time with us. It's enormously appreciated when there's so much out there that's clamouring for your attention. But remember, you don't have to wait every fortnight for the podcast. You can find out what's happening in the world of business law with exclusive news and analysis produced by our team of journalists and published at pinsentmasons.com. And if you want a personal digest every week, you can find it at pinsentmasons.com/newsletter. Just sign up there. Please do review, share, tell your friends and your colleagues and anyone who might be interested in the material we cover here. Every little bit helps. I look forward to speaking to you again next time. Thanks and goodbye.
The Pinsent Masons Podcast was produced and presented by Matthew Magee for international professional services firm Pinsent Masons.
