Decarbonising the built environment – Green materials, greener buildings

The built environment (over the full construction cycle) is a significant contributor to global greenhouse gas (GHG) emissions, accounting for approximately 37% of global energy-related CO2 emissions. The challenge of decarbonising the built environment is less visible than that of transportation and electric vehicles, but companies focused on building materials, construction and infrastructure will need to adapt to regulatory pressures and find solutions to meet climate goals. In the UK, buildings are responsible for around 25% of national emissions, and 80% of the buildings that will exist in 2050 are already constructed. Decarbonising the built environment is therefore critical to achieving net-zero targets and will affect firms across the value chain. In this note we focus on the strategies of European companies primarily involved in building materials.

Why it is necessary to decarbonise buildings

The built environment accounts for almost half of global emissions (41% of 2020 global CO₂ emissions, split between construction and operational emissions (25%) and carbon emitted in the production of materials (16%)). Materials therefore need to be competitive in terms of both their embedded carbon content (ie CO₂ emitted during the production process) and their ability to lower a building’s carbon output over its lifespan. This challenge requires significant innovation and change. To put the carbon of the built environment into perspective, roughly 90% of the built environment’s GHG emissions are equal to CO₂ emissions from fuel consumption globally (according to McKinsey & company).

A focus on building materials

In this report we focus specifically on selected companies in the building materials vertical; we will look to return to the wider issue with a focus on other materials (steel and concrete) as well as the broader design challenges in a future report. We have had discussions with a number of the companies listed in this report, to learn about their ESG targets and strategies, and to gain insight into the importance of the issue for management. Our impression is that the issue is well respected by management, not only because of the need to decarbonise materials, but also due to the significant impact decarbonising will ultimately have on some production processes and the competitive landscape.

Investable opportunity

Investors have the potential to benefit significantly by allocating capital to companies at the forefront of decarbonising the built environment. Firms engaged in sustainable construction materials are positioned to capture outsized growth as regulatory, consumer and financial pressures converge around sustainability. These companies face expanding addressable markets, underpinned by government incentives (such as the UK’s £6.6bn commitment to retrofit homes by 2025), and also stand to benefit from a structural re-rating as ESG integration becomes mainstream in capital markets.

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The advertising ecosystem – Triangulating perspectives

Sometimes it is worth taking a step back. That way, it is possible to gain perspectives that are not necessarily clear when you are down in the weeds. But the process of stepping back does not always lead to the same viewpoint. This thematic piece takes some fairly basic questions about the role of advertising and the transformation of the advertising market and appraises them from different standpoints: the agency, the publisher, the platform and the brand. We have done this in the form of short video interviews with relevant individuals from some of the key quoted companies in the sector. As might be expected, there is plenty of commonality in responses, and the divergencies of opinion mostly reflect the perspectives, rather than anything more fundamental, but are interesting, nonetheless. As the landscape shifts further and faster, investors need to keep asking whether the ecosystem is fit for purpose and check in on what that purpose is.

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