Unlocking Infrastructure’s Transition to Net Zero

Public and political attitudes towards sustainability are shifting, driven in part by greater consciousness of climate change and evolving government policy towards matters of the environment and sustainability. Perhaps unsurprisingly, given the carbon-intensive nature of infrastructure, our 2021 Infrastructure Perspectives survey found that sustainability is a major area of focus amongst the sector’s senior leaders. The UK has set a benchmark by legislating a net zero emissions target by 2050. As a major source of carbon emissions, the construction industry is critical to achieving this. In the two years since the UK enshrined net zero into legalization, how far has the industry moved, what does the path to net zero look like, and what are some of the hurdles that the sector will need to address?

Where are we today in the UK?

Earlier this year, the UK Department for Business, Energy & Industrial Strategy (BEIS) reported that 30 of the UK’s FTSE100 companies had signed up to the United Nation’s Race to Zero campaign [1]. Members of the Race to Zero campaign include many of the UK water companies like Severn Trent and Welsh Water, which have committed to delivering a net zero water supply for customers by 2030 and 2040, respectively. In the past six months alone, major organizations - infrastructure owners and government - have also published their net zero plans and strategies, which vary in ambition and detail. These include National Highways, the Department for Transport, and the Environment Agency. This signifies an intensity in effort and a positive start. However, strategies and plans alone cannot deliver net zero.

We see two main challenges facing organizations. Firstly, there remains a gap between the ambition of infrastructure developers and the pace of change in the development of low carbon materials. Construction is inherently carbon intensive due to the embodied carbon in many of the traditional materials such as cement, concrete and steel. Together, they account for the majority of embodied carbon in construction, with concrete alone accounting for nearly 8% of global carbon emissions according to the World Resources Institute (WRI).

There has been some progress in reducing embodied carbon in construction materials – the use of GGBS (Ground Granulated Blast-furnace Slag) in concrete mix instead of OPC (Ordinary Portland Cement), investment in low energy site compounds, and design optimization. However, there remains a significant gap to bridge, not just in terms of the supply chain’s readiness to supply, but also of regulation, and the readiness of technology.

Secondly, the biggest opportunity is locked in the built asset base, however,  poor asset data hinders effective interventions. New construction accounts for just a fraction of total infrastructure. In its Paying for Net-Zero paper, Imperial College London reports that the UK is building new houses at an annual rate of less than 1% of the existing stock of housing. This means the bulk of the carbon challenge for asset owners is in intervention - converting, or ‘retrofitting’ existing assets.    

Central to addressing the challenge of carbon during operation is data – both around asset performance and the asset portfolio more broadly. The Committee on Climate Change estimates net zero will cost 1-2% of the UK’s GDP to 2050. This amounts to an average investment of £50 billion to £70 billion a year. To direct this investment effectively, a greater understanding of assets, their performance and how they respond to modern use will be key.

Many asset owners lack comprehensive and high-quality asset information, which hinders their ability to take account of portfolio scope 1 and 2 emissions[1] in establishing benchmarks aimed at reducing the energy demands and setting targets. Targets are a step forward for organizations' commitment towards becoming net zero.

So where should infrastructure developers and operators focus?

Net zero presents an opportunity to create enormous value – to invest in our communities, transform our environment, and create jobs. The industry needs to work in different ways to assess and release these opportunities. It needs to: 

1. Forge longer-term partnerships to foster greater collaboration and innovation around carbon. The industry has tended to be risk averse and slow to innovate. Our recent survey identified three critical and interdependent enablers to unlock innovation and allow the sector to take bigger and bolder leaps forwards.
2. Making use of Government buying power to stimulate the market – currently, many client and delivery organizations approach innovation in silos. Imagine a world where we harness the collective buying power of government, particularly in relation to the key carbon culprits – a “category management” approach covering our biggest infrastructure programs - creating “critical demand mass” to enable the supply chain to innovate and encouraging the private sector to “buy in”.
3. Accelerating industry collaboration to reduce innovation in silos - there is greater willingness to work together. For example, through the Concrete Centre, the UK concrete and cement industry has launched a roadmap to become net negative by 2050, removing more carbon dioxide from the atmosphere than it emits each year [5]. Collective innovation funds or special interest working groups could accelerate the pace of innovation, provide a platform for sharing prototypes and allow existing innovations to be continuously optimized.
4. Strengthening relationships with the supply chain - the relationship between clients and their supply chains is a critical enabler of innovation, as well as improving the supply chain’s profit margins. Leaders see the need for a shift in the relationship between clients and their supply chains to unlock innovation. Much closer and more genuine collaboration is needed, with a different attitude taken by clients and suppliers alike.
5. Support ambitious targets with more granular measures. To address the materials challenge, leaders need to be ambitious, setting stretching targets in the planning and design stages.

For new projects:

1. The economic case of the Five Case Model for developing business cases considers environmental effects of projects. There is an argument to give more weighting to carbon to ensure that carbon impact of investments on future generations are brought to the fore, environmental impact assessments are ambitious and robust enough, and that there is greater scrutiny around how programs support the UK’s net zero ambition.

For new projects and existing assets:

1. As is often said, “what gets measured gets done”. However, information and data around construction projects are fragmented, incomplete, and often inaccessible, as reported by Women in BIM. Through the National Digital Twin program (NDTp), the UK government is taking steps in the digital transformation of the infrastructure and construction sectors, but in its Annual Monitoring Report 2021, the National Infrastructure Commission (NIC) has called for further funding to maintain progress. In parallel, clients need to invest in establishing good data of their asset portfolios before they set their strategies and quantify impact.  
2. Reporting against Scope 1, 2, and 3 emissions requires good corporate engagement to support transparency in climate change related disclosures and reporting. External, audited reporting, as seen with the Equality and Human Rights Commission (EHRC) gender pay gap reporting, and the Task Force on Climate-related Financial Disclosures (TCFD), which aims to improve and increase reporting of climate-related financial information, could form part of the solution for the construction industry.
3. Publishing carbon targets along with the carbon baseline would help build greater trust and foster sharing of information and best practices. As part of this, incentives that nurture and promote collaboration around net zero could be developed. The Institution of Civil Engineers’ State of the Nation 2020 recommended that clients and regulated asset managers prioritize and elevate the value of emissions reduction impacts in procurement criteria, so it is at the same level as value for money and health, and safety outcomes. 
4. In its Data for the public good report, published in 2017, the NIC highlighted the value of infrastructure data sharing. New challenges require new thinking and new ways of solving problems. Digitization of existing assets to support greater understanding of asset performance and deliver long term shareholder, and public value requires client organizations to embrace new partnerships with technology companies, social entrepreneurs, and financial institutions alike.

The sector is often lambasted for a lack of innovation and progress, yet engineers have a fantastic capacity to solve the world’s toughest problems. Could the climate emergency galvanize the sector around what is arguably the most important challenge of our generation and bring a transformation of the sector with it?  Recent data suggests that it will but much remains to be seen.

[1] Scope 1 – direct emissions from sources owned or controlled by the company that include fuel combustion from coal, gas, oil; Scope 2 – indirect emissions from electricity purchased and used by a company and, to the extent possible, material portfolio scope 3 emissions (all other indirect emissions, for example, goods, franchises)

*Ankura is not a law firm and cannot provide legal advice.