As decarbonization initiatives gain momentum across all industries, players in the construction ecosystem can benefit from this growing trend—but only if they view ESG as a strategic opportunity and collaborate with other stakeholders in the ecosystem.

Decarbonization is rising to the top of the business agenda, and construction players can have a significant impact—but only if they view environmental, social, and governance (ESG) strategy as a priority and collaborate with other ecosystem stakeholders. The potential, and the stakes, are high: Construction is responsible, directly or indirectly, for almost 40 percent of global CO₂ emissions from fuel combustion and 25 percent of greenhouse gas emissions overall, including operational and embodied carbon.

Across the construction ecosystem, transformative changes are already underway. Investors and asset managers are considering climate change targets, contractors are setting ambitious carbon-reduction targets, and new partnership and collaboration models are taking shape. To address these changes and accelerate decarbonization across the value chain, McKinsey convened 150 industry leaders to share ideas and best practices at a global webinar on November 2, 2021.

Several key themes emerged:

Players across the ecosystem are committed to sustainability. In a recent poll, more than 85 percent of participants said their organizations were committed to creating value through sustainability and anchoring the company culture and business model in sustainability principles. Over 75 percent said the motivation was driven by value-creation opportunities, customer demand, and general stakeholder awareness.

An optimized design process is critical to reduce embodied and operational carbon. The design phase is where the most potential to realize a sustainable asset lies. Lowering demand for primary resources through design and process optimization—such as improved building footprints and design for manufacturing offsite—can lead to significant carbon reduction in the short term. Additionally, factoring in operational carbon and resilience up front will have significant long-term impact.

Existing technologies can decarbonize core materials now. Significant investment is going into promising decarbonization technologies—for example, using hydrogen to produce steel, low-carbon additives for cement, and carbon capture in manufacturing. Using these products and technologies on new projects will facilitate adoption and help grow the market, achieving the necessary scale.

Several key factors will accelerate ecosystem-wide decarbonization. Regulation, customer demand, and access to capital for technological innovation are key to meeting decarbonization targets in the industry. As demonstrated in certain geographies, regulation can have a significant effect on the scale and speed of decarbonization. Demand for low-emissions solutions and products is increasing—our survey revealed that 63 percent of respondents are recognizing customer willingness to pay a premium for low-carbon products as long as the overall business case is positive. Meaningful investments in disrupting technologies are likely to increase, with a huge value pool to capture.

The solution is two-fold: Players need a long-term strategy and short-term action and collaboration. To gain traction and build on the current momentum, stakeholders need to plan for long-term ESG shifts while capturing low-hanging decarbonization opportunities now. No single player can capture the large opportunities alone, so improving communication and collaboration across the value chain is essential. Stakeholders can manage uncertainty by adjusting their risk-sharing approach and better understanding end-user perspectives and requirements.