Climate change will challenge booming construction industry – Marsh report

As the sector grows, so does pollution risk

Climate change will challenge booming construction industry – Marsh report

Construction & Engineering

By Ryan Smith

The construction industry is facing increasing challenges due to climate change and the effort to reach net-zero greenhouse gas emissions, according to a new report by Marsh and Guy Carpenter, both businesses of Marsh McLennan.

The report, Future of Construction: A Global Forecast for 2030, was written with Oxford Economics. It discusses the future of the construction sector as it recovers from the effects of the COVID-19 pandemic, as well as the key drivers shaping the industry’s future over the next decade.

Global construction output is expected to grow by 6.6% in 2021 and 42% by 2030, driven by government stimulus and the demand for residential construction, according to the report. However, as the sector grows, so does the risk of greater pollution and waste.

“Construction and the wider built environment currently accounts for around 40% of the world’s global greenhouse gas emissions,” Marsh said.

The report said that climate change and the effort to achieve net-zero emissions are arguably the greatest challenges facing the industry. The need to reduce the amount of carbon embedded in new construction will spur the growth of a “deconstruction” industry that reuses existing urban stockpiles of construction materials, the report predicted.

Last year, environmental, social and governance (ESG)-related capital for infrastructure grew 28%, largely thanks to a flow of fundraising into sustainability strategies. Since significant equity is usually allocated to infrastructure by major construction companies and developers using their own corporate balance sheets, there are opportunities for companies that develop new technologies, designs and processes, the report said.

“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,” said Richard Gurney, global head of construction at Marsh Specialty. “These forces are changing risk profiles for the sector. Organizations 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.”

“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,” said Simon Liley, co-head of global engineering at 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.”

The report also made other projections for the industry to 2030, including:

  • Predicted average annual growth in construction of 3.6% – faster than either the services or manufacturing industries.
  • Global growth in construction for the next decade is up by 35% compared to the previous decade, driven by a record level of stimulus spending on infrastructure and the unleashing of excess household savings. Construction will represent more than 10% of GDP in North America.
  • Global infrastructure construction is predicted to grow by an annual average of 5.1%.
  • Annual growth in UK infrastructure is expected to average 3.7%, rivaling China over the period thanks to UK mega projects.

“It is unusual to see construction outstripping growth in both services and manufacturing over a more sustained period,” said Graham Robinson, global infrastructure and construction lead at Oxford Economics and lead author of the report. “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.”

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