Madrid 2022: Decarbonizing the construction ecosystem

Due to its size and impact, the entire ecosystem has a major role to play in realizing global decarbonization and sustainability goals. In Europe specifically, carbon policies will rapidly reset the industry agenda over the next decade, prompting urgent action from players from across the value chain to collaborate to meet net-zero goals.

On February 2nd, McKinsey’s Global Infrastructure Initiative (GII) hosted a roundtable discussion with Iberian senior leaders representing engineering and construction (E&C), project owners, real estate, investors, and technological innovators. Five key themes emerged during the discussion:

  1. Engage in the net-zero imperative. COP26 made it clear that net-zero has become not only an organizing principle for business, but a point of competitive differentiation (as highlighted in the latest McKinsey report The net-zero transition: What it would cost, what it could bring). In the construction industry, we currently experience a first-mover problem between policy, finance, and projects. CEOs can break the stalemate by joining or forming coalitions that address an unmet need and help set the rules for a more orderly net-zero transition.
  2. Collaborate across the value chain. It is imperative to foster a collaborative approach—for example, integrated project delivery—to make progress in the industry. Solving and operationalizing decarbonization will require a shared vision, a combined strategy, and a network of partners to deal with the associated risks and costs of developing new processes and technologies. The Spanish factory, CX-AVINTIA, was cited as a good example of how to bring different stakeholders together with a shared vision.
  3. Build-in data transparency to unlock financing. Investors request data to assess the financial risk of projects across their full lifecycle, including physical risk, transition risk, and the impacts of climate change. Transparency and data are key to assess risk, set targets, and track performance. The challenge is to put the mechanisms in place to develop and access the data to properly evaluate risk. This vacuum presents an opportunity for technology players, in collaboration with the industry.
  4. Provide a regulation framework. It is essential for regulators to provide a framework of regulations with consistent guidelines for compliance. This will help form a regulated carbon market, thereby creating the economic incentives to decarbonize construction. As one participant mentioned, “there is a missing link between regulators and industry in enabling the energy transition, we all need to speak the same language”.
  5. Create the vision, backed by a coherent strategy. Transformation requires a clear vision, with CEO and board sponsorship, backed by a strategy and commitments with clear metrics. These commitments need to cascade into short-term targets and incentives to drive and measure progress. Organizations need to be willing to make the investments in R&D, and to commit to building the internal skills and capabilities to enable the change.