Climate change and the race to net zero greenhouse gas emissions (net zero) are arguably the greatest challenges that face the construction industry – but will drive new opportunities, according to a report published by Marsh and Guy Carpenter, subsidiaries of Marsh McLennan.
The infrastructure boom is set to fuel global economic growth over the next decade, with global construction output expected to grow by 6.6% in 2021 and by 42% by 2030, driven largely by government stimuli and the demand for residential construction, said the report, titled “Future of Construction: A Global Forecast for Construction to 2030.”
The global construction market is expected to grow by US$4.5 trillion over the decade to 2030 to reach US$15.2 trillion, said the report, noting that just four countries — China, India, US, and Indonesia — will account for almost 60% of this growth. At the same time, the top 10 global construction markets are expected to account for almost 70% of the growth over the same period.
Although the near-term outlook for the global economy remains clouded by a surge in inflation, supply-chain bottlenecks and the Delta variant, the global construction industry is set to lead global economic recovery from the pandemic over the medium-term and is expected to grow faster than the manufacturing or service sectors, said the report, which was written with Oxford Economics.
However, as the sector grows, so too does the risk of greater pollution and waste, the report warned, explaining that construction and the wider built environment currently accounts for around 40% of the world’s global greenhouse gas emissions. (Editor’s note: A Marsh representative explained that “the wider built environment” relates to the construction supply chain, namely the inputs and outputs associated with construction projects.)
During the global transition to net zero, the industry needs to radically reduce the amount of carbon embedded in new construction, infrastructure and buildings, which is already a “huge challenge.”
“An emerging deconstruction industry that will reuse huge existing urban stockpiles of construction materials could reduce embedded
carbon in the construction of new buildings and infrastructure,” the Marsh report continued.
In addition, the climate crisis is driving huge demand to decarbonize energy networks and develop renewable energy, the report said, citing Saudi Arabia’s Giga Projects, which is leading net zero initiatives.
“Sustainable and quality infrastructure is a driver of economic growth and social progress and is an enabler to achieving Sustainable Development Goals (SDGs) and Paris Agreement commitments.”
Further, it continued, environmental, social, and governance (ESG)-related capital for infrastructure grew 28% in 2020, which was 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.”
“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,” commented Richard Gurney, global head of Construction, Marsh Specialty, in a statement.
“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,” he said.
“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, 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,” Liley noted. “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.”
Other Marsh/Carpenter projections for the industry to 2030 include:
- 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%, rivaling China over the period as UK mega projects provide heightened growth.
- Urbanization is expected to turbo charge growth in emerging markets. Overall growth of the world’s population could add another 2.5 billion people to urban areas by 2050 with almost 90% of this happening within Asia and Africa.
“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,” said Graham Robinson, Global Infrastructure and Construction lead at Oxford Economics and lead author of “Future of Construction.”
“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,” Robinson affirmed.
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