Decarbonizing Construction for a Low-Emission Future

Decarbonizing Construction for a Low-Emission Future
February 11, 2025 6 mins

Decarbonizing Construction for a Low-Emission Future

Decarbonizing Construction for a Low-Emission Future

Decarbonizing construction demands new materials and approaches, with a focus on managing risk and securing capital. By aligning sustainability with business strategy and risk management, the industry can meet net-zero targets.

Key Takeaways
  1. Decarbonizing construction requires innovative materials and technologies, but to achieve scale, companies and insurers must bridge the risk-financing gap.
  2. The green transition in construction is associated with complex and converging risks, from supply chain and workforce issues to legal and regulatory considerations.

Across the globe, nearly every sector feels the urgency of decarbonization. As natural catastrophes and their costs mount, the need for systemic change is clear. In construction, where the building value chain is responsible for 37 percent of total carbon emissions globally,1 the scale and depth of change required to meet net-zero targets can feel particularly daunting. And as some regions prepare for significant construction — particularly in the Middle East where demand is surging2 — long-term green solutions are imperative.

Many construction players are looking ahead to get a sense of future risks and opportunities as they explore new materials and technologies, identify new energy sources, manage complex regulations and seek access to capital to fund changes. From retrofitting existing buildings to fundamental changes in materials, such as steel and cement, exploring what’s possible, taking action and managing risk will be critical to the net-zero transition in construction.

Innovating Materials, Technologies and Processes

Greener materials and power sources are an important part of the construction industry’s path to decarbonization, particularly for carbon- and energy-intensive subsectors, including steel and cement. While solutions like green steel hold significant promise, there are clear barriers due to its high cost and need for massive amounts of hydrogen. As questions related to sustainability continue to arise across projects, construction players are starting to think differently and prioritize innovation. They are increasingly focused on resources and energy production, such as how to optimize water consumption at construction sites — using it more efficiently and disposing of contaminated water in cleaner ways — and greener approaches to waste management. As stakeholders seek more sustainable materials, technologies and processes, it’s the construction players that start managing the transition now that will be best positioned for the future.

One challenge in scaling innovative materials and technology is risk financing. Construction projects are already costly, so insurers are understandably cautious about newer technologies, materials and methods — but bridging that gap is key. To help, companies can focus on communicating their overall risk management strategies and the ways sustainable investments support business plans and long-term profitability. Importantly, insurers will also need assurances about the technologies themselves. Use case examples and highlights of a new technology’s proven capabilities, safety and efficacy can expand insurers’ understanding and comfort, helping to shift how they underwrite their risks. In this way, both organizations and insurers can support the scaling of new, greener technology in construction.

Connecting Sustainability, Business Strategy and Risk Management

The transition to a greener construction industry is multifaceted, requiring companies across the value chain to connect the dots among sustainable investments, business strategy and risk. More investors and institutions are seeking sustainability commitments and energy-efficient approaches, taking a long-term view on returns. Project financing will increasingly require a focus on sustainability and resilience in everything, from planning and materials to energy sources and green spaces. Government subsidies that vary across regions can create global competition and opportunities — pushing construction players to find the right balance in investments and returns across their whole portfolios.

Focusing on data and analytics, including risk quantification and predictive modeling, can strengthen decision making and risk management and help companies attract risk capital. Further, an understanding of the global landscape can help players both secure global sources of risk capital and provide tailored solutions that consider regional risks and nuances.

Managing Decarbonization Risk

The construction sector already faces known risks3 — human capital, supply chain, cyber attacks and property damage, among others. Decarbonization introduces more complex change, but also significant promise. For example, increased demand for sustainable materials, such as low-carbon steel and concrete, will put pressure on construction companies. However, production is likely to increase in the long term — and as production scales, costs will become more manageable. The key for the industry is collaboration.

Collaborating across the construction ecosystem — with both traditional players and more sustainability- and tech-focused entities — and securing more support from insurers, can help organizations collect more data to quantify and mitigate risk. This collaboration can then lead to a shared understanding of innovative materials, technologies and processes, which can aid in accessing risk capital. On the human capital side, construction companies can focus on enhanced employee value propositions, engagement strategies and competitive rewards to attract sustainability talent from other sectors.

Emerging and shifting risks related to decarbonization will also require the right data and counsel. With regulations, tax issues and incentives unfolding at different speeds across the globe, construction players face a good amount of uncertainty. It’s important to understand how regulatory change or tax credits make a project more economically feasible, and the impact of legislation on current projects. Cyber is similarly a growing risk in construction as the industry becomes more digital. And with technology’s role in meeting decarbonization targets and growing demand for certain projects, including data centers and smart buildings, companies need to be even more focused on managing cyber risk and getting the right expertise to do so.

Accessing and Managing Capital for a Net-Zero Future

The good news for the construction industry is that the growing focus on sustainability means companies that get in front of change are likely to find capital available — and following these three steps can further the odds:

  1. 1. Take a smart, structured approach to decarbonization and sustainability.
  2. 2. Highlight the ways your company is quantifying and managing risk.
  3. 3. Focus on proven outcomes that help tell your story. Doing so allows companies to tap available capital.

The process is complex and takes time and effort, particularly for smaller players. But putting capital in the right places can ultimately help the industry as a whole adopt net-zero solutions, create new benchmarks, and scale the adoption and production of new materials, technologies and processes.

The carbon-intensive construction industry is an essential part of daily life, urban development and modernization with an outsize impact on net-zero targets across the globe. While there is much uncertainty, there’s also significant innovation and promise.

Companies can realize that promise and meet the urgent need for decarbonization by using data and analytics to cut through the unknowns and set priorities for risk management and investments, collaborating across the value chain, and bridging gaps to access capital.

Aon’s Thought Leaders
  • James MacNeal
    Global Industry Specialty Leader, Construction & Infrastructure
  • Tariq Taherbhai
    CCO, Construction and Infrastructure, Global Industry Specialties
  • Vincent Banton
    Head of Construction & Infrastructure, Asia Pacific

1 The building sector is key to the fight against climate change, World Economic Forum
2 Middle East construction pipeline hits $3.9tn as UAE projects surge, Construction Week
3 Top Risks Facing Construction and Real Estate Organizations, Aon

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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