Challenges and opportunities for investors

In order to arrive at a solid ESG assessment of buildings, all of the components have to be taken into consideration, from the beginning of a structure’s lifecycle until its demolition.

This incluedes

• the selection of building materials,

• utilisation of the building,

• aspects of the circular economy

• and dismantling.

Ultimately, as with the sustainability assessment of so many other investment goods, the situation is rarely black and white when it comes to what is “green”. For example, some emissions-intensive construction materials have very long lifecycles and cannot be substituted in many projects. You can’t build wind farms without cement. Nevertheless, it is possible and necessary to improve sustainability in construction, while at the same time not losing sight of the “big picture”.

A number of trends suggest that demand for residential space is increasing.

A growing population needs more room to live. Additionally, families are becoming smaller and more people are living alone. Urbanisation and demographic change are also driving demand for housing. Cities are growing and the trend towards more residential space per capita is also rising. As a result of all of these factors, there is more and more construction activity. According to Statistics Austria, in 2012 housing completions amounted to around 50,000 new dwellings per year, with this figure climbing to roughly 70,000 by 2021, and the trend is accelerating. Viewed from an investor perspective, all of this indicates a growing sector.

Residential buildings promote good social cohesion and contribute strongly to people’s sense of well-being. Suitable housing is a basic need for everyone and thus also represents an important contribution to fighting poverty. Along with residential construction, a large portion of the available construction resources are also used for industry, infrastructure, and administration. Economic growth and ensuring prosperity are also driving forces in the construction industry.

Erecting buildings, however, generates a number of problems. First and foremost: high carbon emissions.

The construction of a conventional masonry house generates approximately 40 tonnes of CO2 emissions. Scaling this figure up to the European level, the construction industry alone accounts for 9.4% of domestic carbon emissions, and this does not even include the environmental impacts of the subsequent use phase. Around 40% of the energy consumption in the European Union can be traced back to the use of buildings and 38% of global carbon emissions stem from buildings.

With due consideration of these challenges, the EU initiative “Fit for 55” requires that

• all new structures must be zero-emissions buildings by 2030 and that

• all existing buildings must be turned into zero-emissions ones by 2050.

In light of these figures, it is important to look for alternative construction materials. Because one of the most common and cheapest materials is concrete.

Concrete as a problem

To use concrete as a building material, you need a binder: cement. Above and beyond this, reinforcing steel bar is also needed for masonry construction. These materials are usually used on the basis of cost considerations, but they have a particularly negative impact on a building’s emissions footprint. The substantial emissions are not the only problem. New structures and the related road construction are the biggest factors behind soil sealing. Once the soil is sealed, it is very difficult to return it to normal conditions, and this has wide-ranging consequences, as biodiversity is reduced and ecosystems are destroyed.

Soil sealing

Soil sealing also leads to higher temperatures, which results in more hot days and tropical nights. That is the reason, for example, that an outdoor temperature of 30 degrees Celsius feels much warmer in Vienna than it does in more rural areas. Not only is CO2 emitted directly by construction projects, due to the lack of green areas less photosynthesis, i.e. the transformation of carbon dioxide into oxygen, also takes place. From 1995 to 2021, there was a 53% increase in developed settlement area in Austria, while the population only rose by 12%. As a result, Austria is permanently losing around 0.5% of its agricultural land every year.

Waste rubble

Waste is also produced where resources are used. The construction industry is responsible for much of the waste generated at the global level. The demolition of buildings literally results in mountains of construction rubble. In terms of waste generation within the EU, the construction industry tops the table with a share of 36%, and a large part of this waste goes into landfills. This in turns involves travelling long distances and more soil sealing. Recycling options for construction materials vary widely, but fundamentally there is still great potential in this field. For instance, the share of construction waste recycling in Germany is quite high, at 75%. Considerable opportunities are also available in other aspects of the circular economy, such as the reuse of construction materials and durability.

Construction in the future

The wide-ranging sustainability risks in the building industry must addressed in a variety of ways. Technical innovation should integrate circular economy aspects and the ideal selection of construction materials.

Pragmatic solutions are needed, and a construction industry that is fit for the future can only be created by combining different measures. The most important aspect is the selection of the best construction material. Concrete and cement are irreplaceable for the energy transition (cf. wind turbines, hydroelectric plants, etc.). However, from a sustainability perspective, these materials are no longer the best option for private residential construction and new public structures. Solid wood solutions or brick masonry are practical alternatives for many building purposes, even though concrete is currently still cheaper. With “green” construction, the focus is on sustainable materials without toxic problems, that are biodegradable, recyclable, and sustainable, and which are available and transportable at the regional level when possible. (See "Sustainability in planning and construction")

Circular economy

The circular economy brings great hopes for a turnaround in the construction industry and involves much more than just recycling. Aspects related to the circular economy must already be taken into account during the planning stage of a project. The circular economy is very important if the goal is to make construction materials reuseable in the event of later dismantling. In this regard, the principle of re-use can be a game changer, because from the planning phase through to construction there are numerous possibilities to reduce the use of materials and make products last longer.

The principle of “keep in use” is also very important. Long-lasting buildings reduce the amount of soil sealing and the use of resources; and old structures can be given a new lease on life with renovation. It is vital to keep buildings, building components, and materials in use as long as possible and to recycle them at a high level of value. In line with this, the reconstruction and renovation of existing buildings is a very promising option as a way to integrate sustainability into the construction industry.

The renovation of buildings not only increases the lifespan of real estate, it also helps to improve energy efficiency and reduce the consumption of resources. Energy-optimised new structures are particularly important from a sustainability perspective. However, existing buildings also need to be considered if one is to take a holistic view of sustainability in this industry. In an ideal case, there would only be energy-efficient, perfectly sealed buildings. In reality, however, this is generally not the case, and old buildings can often only be restored to new, sustainable glory through cost-intensive renovation work.