Apocalypse Files - Issue #3 - Construction Industry
Apocalypse Files - Issue #3 - Construction Industry
In each issue (bi-monthly), we'll explore the threats to the current business model of a company or of an entire industry, the forces that could take them down or drive systemic changes, and most importantly we'll imagine possible solutions, looking at new and evolving trends, untapped niches, new business models or venture opportunities...
In this issue, we turn our all-seeing eye to the Construction Industry, a sector that is urged to adapt to new environmental standards because of new laws and new expectations from all the actors along and outside the value chain. Welcome to the Apocalypse Files.
What Do You Mean?
The construction industry accounts for 38% of all global energy-related CO2 emissions - this includes 28% for building operations and 11% for building materials and construction. The goal of reaching carbon neutrality by 2050, as defined by the 2015 Paris Agreement, relies heavily on transforming this industry.
Renovating buildings to make them low-carbon is one part of the equation, but it won't be enough. The construction sector needs to break ground through a more holistic approach to sustainability. This means adopting a sustainable approach to the process of construction itself: onsite and offsite, from used material to energy consumed and recycling. The stakes are high for distributors and construction firms: for now, it can be seen as an opportunity to differentiate from competition. But tomorrow, it will most likely be required by law.
All Eyes on You
Our recent work on the subject allowed us to identify 3 major threats that players in the building sector should consider when thinking about how sustainability could impact their current business model:
Presenting a low-carbon footprint could become mandatory. This indicator will become crucial in the coming years for every actor across the supply chain. For instance, the UK government was asked to introduce whole life-cycle carbon emissions reports for new buildings. This could involve a number of negative consequences, from product bans for suppliers to fines for contractors. Loss of contracts could become increasingly common, as evidenced by the case of forward-looking Norway, which already adopted stringent eco-friendly requirements for developers, contractors and suppliers. The city of Oslo demands for example all-electric excavators and all-electric mixer drums for its construction sites.
The whole value chain could be held responsible for the waste it creates. If not anticipated well, the costs of recycling or compensating could be enormous. In France for instance, the ERP (Extended Producer Responsibility, REP in French) will be effective starting in 2022 and could drive material costs up from 8% to 10%. This will not only impact financially suppliers, industrials and contractors, but also the end customers.
The shortage of skilled workers is already a problem in Europe and in the US, and will get bigger if nothing is done. In the EU, half of all installers working on building renovations are not skilled enough to install complicated energy efficiency measures. This shortage is bound to get worse due to the ambitious goals that have been set. In France alone, out of the 500 000 building renovations needed each year to reach the goal set by Paris Agreement, only 70 000 buildings are actually renovated. The industry could be missing out on a huge business opportunity of approximately 30 billions euros each year - and this is just for the French market, imagine what it represents on a European or global scale!
Fight Song
How can the industry respond to these numerous threats? Here are three ways to transform threats in opportunities and create sustainable growth:
Rethinking CSR policies for all actors and especially contractors: Creating strong territorial grids, rethinking logistics and supply chains, or developing low-carbon alternative solutions could quickly lower the environmental impact of construction sites. For instance, some companies use LCA (Life Cycle Assessment - ACV in French) before starting a construction site, to compare several design scenarios. This allows to compare the environmental impact depending on quantities and type of concrete, wood or steel - and makes for enlightened choices. Some contractors also rely on startups such as Vizcav to help them build their low-carbon strategy and calculate their accurate LCA.
Switching from product vendors sellers to service providers: There is a clear opportunity for suppliers and distributors to position themselves as service providers in order to help construction firms overcome the identified threats. Construction firms need training around energy retrofitting, digital tools to produce carbon reports, solutions for waste management and turnkey solutions to understand subsidies and certifications. For instance, Les Ripeurs collects waste on construction sites and was launched to help construction firms find economical and time-saving alternatives to going to the recycling center. Providing clients with these kind of services is an opportunity for suppliers and providers to create new business models ... and thrive against competition.
Training people to work on building renovations for all actors: There is clear lack of skilled workers and a strong business opportunity coupled to it. Creating a school to train construction workers to renovating is for instance a double opportunity for distributors and suppliers. It helps renew their client base and provides their clients with apprentices. To reach this goal all actors face a considerable challenge : how to work all-together to renew the image of construction? How to convince young people to move toward eco-friendly constructions? System U launched l'ENA (Ecole de la Nouvelle Alimentation) to meet the new expectations of apprentices in a different yet, very similar sector: butchery.
The challenges facing the construction industry are not futuristic: they are very much present today, and will only grow stronger in the future. Whether companies choose to see them as threats or opportunities, will change their ability to create sustainable growth for themselves...and our planet!
That's all folks!
PS: If you haven't guessed, all paragraph titles are from singles in the 2015 Billboard Hot 100, the year of the Paris Agreement.
Agree? Disagree? Anything to add?
Have an industry or company in mind you want us to look at? Let us know and we'll add it to our roaster: it might be the focus of our next issue!