Expanding output carries increased risks for construction industry already struggling with net zero

The construction industry is being urged to address mounting climate and sustainability risks, as it tackles the dual challenges of net zero and fast expanding global output.

In A Future of Construction: A Global Forecast for Construction to 2030, industry experts at Marsh, Guy Carpenter and Oxford Economics highlight the growing risk of greater pollution and waste as the industry expands to meet demand fuelled by government stimuli and the need for residential construction. The report forecasts output to grow by 6.6% in 2021 and by some 42% by 2030.

Already, construction and the wider built environment account for around 40% of the world’s global greenhouse gas emissions. Climate change and the race to net zero are considered to be the greatest challenges facing the industry, with this report's authors predicting that the need to radically reduce the amount of carbon embedded in new construction will drive the growth of a deconstruction industry that reuses huge existing urban stockpiles of construction materials.

Graham Robinson, global infrastructure and construction lead at Oxford Economics, and lead author of the report, said: “It is unusual to see construction outstripping growth in both services and manufacturing over a more sustained period. We would normally expect to see construction growing faster than other sectors of the economy for shorter periods in a cyclical upturn. However, it’s not surprising that construction is expected to power the global economy over this next decade, considering the unprecedented nature of the stimulus spending on infrastructure by governments and the unleashing of excess household savings in the wake of COVID.”

Richard Gurney, global head of construction, Marsh Specialty, added: “Climate change and the ESG agenda – and the risks and opportunities they present – are among the biggest challenges the global construction industry faces over the next decade. These forces are changing risk profiles for the sector. Organisations must adapt in order to harness the sector’s massive potential for growth while playing a pivotal role in the advancement of economies and communities around the world.”

In 2020, ESG-related capital for infrastructure grew 28%, according to the report, largely due to a flow of fundraising into sustainability-related strategies. Given that significant equity is usually allocated to infrastructure by major construction companies and developers using their own corporate balance sheets, opportunities exist for those companies that develop new technologies, designs and processes.

“The construction and engineering industry is entering a period of exciting opportunity but also one that will require new ways of approaching risk by the insurance and reinsurance sectors," concluded Simon Liley, co-head, global engineering, Guy Carpenter. "These dynamics call for effective knowledge sharing from industry innovators at one end all the way through to reinsurance actuaries at the other. Understanding the shifting profile of exposure, technology, and sources of capital will be important to enable insurers and reinsurers to establish underwriting platforms and offer products that meet the construction industry’s changing needs.”

Additional projections (Source: A Future of Construction: A Global Forecast for Construction to 2030)

• Predicted average annual growth in construction of 3.6% per annum – faster than either the services or manufacturing sectors.

• The next decade for construction will see global growth up by 35% compared to the previous decade, driven by unprecedented levels of stimulus spending on infrastructure and the unleashing of excess household savings; it will represent more than 10% of GDP in North America.

• Global infrastructure construction is forecast to grow by an annual average of 5.1%.

• Annual growth in UK infrastructure is expected to average 3.7%, rivalling China over the period as UK mega projects provide heightened growth.

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