Takeaways from COP26: Decarbonizing the built environment

The built environment—that is, the cement and construction value chain—accounts for approximately 25 percent of global CO₂ emissions. Zero net emissions by 2050

The next 30 years will see the construction and buildings industry decarbonize three-times faster than the previous 30. Although decarbonization has been committed by companies from all parts of the ecosystem, it is not possible for any one company to achieve this goal. McKinsey hosted an interactive session at the COP26 Climate Change Conference in Glasgow, Scotland. This brought together global property owners and contractors, material suppliers, investors, equipment manufactures, and disruptors to discuss the future path. The focus was on the following questions.

• What can the industry do now?
• How can stakeholders from the value chain work together to achieve success?

From this roundtable, four themes emerged.

1. The challenge is enormous, but the solution is focused. Materials processing and building operations account for around 97 percent of the building and infrastructure emissions.
   

   To achieve net-zero targets, buildings that use alternative materials, steel decarbonized cement and steel, as well as a reduced embodied Carbon, are required. Existing stock will need renewable-energy sources, efficient building operations, measuring performance, and more convenient end to end retrofit solutions.

2. Businesses that move quickly and work together will solve the challenge—and create value. COP26 made clear that achieving net-zero emissions has become not only an organizing principle for business but a point of competitive differentiation (see McKinsey’s summary of five key priorities coming out of Glasgow). Construction has been held back by a problem of first-movers between funding, policy, and projects. CEOs can break this impasse by joining or forming coalitions and moving at a rapid pace in investment and innovation.
3. How do we get there

• Shift away from volume to value Decarbonization allows you to grow, but be responsible. The industry historically has relied on GDP and population growth to create value—this will no longer suffice in a retrofit, redesigned world. Differentiation is possible through decarbonization, and meeting new green demands. Developers who construct green buildings will have easier access to financing and green-only planning districts. Conversely, those who don’t decarbonize will be in danger.
• Scale by sharing.Fragmentation creates a risk equation that is not favorable for new green investments. The industry can encourage innovation by creating common standards, shared R&D resource, and a forum to align and navigate decarbonization levers, and new technologies.
• Get serious about green investments and new technologies.The commitment of $130 trillion in private capital to the Glasgow Financial Alliance for Net Zero was a clear indication that there is a shortage of green financing. Investors are however faced with a shortage of large-scale, green projects. Corporates can channel capital by making bigger bets on sustainability—decarbonizing existing assets at scale and partnering with the wide range of green start-ups serving the built environment.
• Start with the customer. High-quality, easy solutions are essential to unlocking demand. They also need to have a clear return on investment. For example, in the retrofit market, consumers are often discouraged by complex offerings and unattractive financial benefits. Companies can overcome this by investing in new products, integrated solutions, and taking a design-thinking approach towards customer problems.
• Inspire innovation.The construction industry is notoriously slow in adapting to new technologies. Participants at COP26 discussed the need to foster a culture of innovation. Practical steps include setting targets for net new growth, promoting “test and learn” with minimum viable products, deploying venture capital–style metered funding, increasing R&D budgets, using certifications to drive a sustainability premium, and fostering precompetitive collaboration.
• You can learn the skills to deliver at scale now. COP26 proved that the industry is at an inflection point. Capital and policy are moving and will make skill the bottleneck down to the line. The retrofitting workforce of tomorrow, for example is not yet in place. Leaders in the private and public sectors need to begin developing the skills and ability to meet the anticipated demand.