Insurance providers and their customers in the construction industry have not only an opportunity, but a duty to support the transition to net-zero carbon emissions through sustainable construction practices.

While the work to lower emissions traditionally has been done in a piecemeal way – a building would include a few “green features,” for example – advancing technologies, standards, certifications, and regulations have made sustainable construction practices much more common.

“We have moved into an era where the entire lifecycle of a structure, from site selection to material sourcing and even consideration for the sustainability of the local workforce and end of life decommission of the asset are all considerations,” says Alicia Pavelko, Head of Construction Innovation and Sustainability. “And in some cases, there is an emphasis on self-sufficiency of the structure and the opportunity to return any excess energy production to the community.”

Sustainable construction is projected to grow at a compound annual rate of 8.9% from 2024 to 2031, according to research by InsightAce Analytic.¹ Residential building is expected to see the most growth, driven by the increasing preference for eco-conscious living spaces and government support for sustainable housing, the research noted. However, local jurisdictions are also putting pressure on building owners to address and manage emissions. The recently enacted Local Law 97 in New York City is one such example.

Growth comes as project stakeholders are increasingly calling for sustainable design, construction and operations, Pavelko says.

“Building owners and consumers concerned about the environmental impact of construction are demanding the use of sustainable building materials, a shift that has led to increased competition among suppliers, and, as a result, more reasonable costs to procure the materials and insure the projects,” she notes.

Those demands are also being heard from other stakeholders such as lenders and tenants, and other members of the community. There is a payoff for owners of buildings that are constructed with sustainability in mind. Buildings that are LEED certified and those that can meet their own energy demands, for example, are leasing faster and at higher rents than their more efficient counterparts, according to Pavelko.

The World Economic Forum reports that the growing pressure on businesses to lease space that supports low-carbon goals and meets employees’ expectations that their companies are serious about decarbonizing has led to a spike in demand for office space that carries certifications such as those by LEED or BREEAM.2

Green-certified space is not inexpensive, according to the report. Companies are paying a 7% premium for such space across major cities in North America, around 10% in similar cities in Asia and more than 11% in London.

As the climate warms and natural hazards such as flooding and windstorms become more frequent and severe, building site selection becomes more critical. Advances in technology are helping builders and their insurers address the threats in specific locations and make decisions on how to build to withstand them.

“Traditionally, site selection meant using FEMA maps to determine flood zones and researching whether buildings were planned near fault lines or located in areas prone to hurricanes. There were only a few key metrics used to determine a property’s exposure to natural hazards,” Pavelko says.

Sophisticated modeling has changed that approach. With today’s technology, a much deeper analysis of the exposures inherent to a site can be carried out. Climate change models, for example, can project trends in named storms over a 30-year-period and generate expected flood possibilities over 15 years based on development in a particular location or various climate change scenarios. Perils including wildfire and convective storm that were once considered “secondary” are now taking center stage in this type of analysis. Stakeholders want to make sure that an investment today will still be a good investment 30 years down the road. And the technology is now available to help predict just that.

Such technology can also be used by insurers and portfolio managers to analyze their exposure to climate change and to ensure an appropriately diversified portfolio.

“Much of the models’ accuracy, however, will depend on how well we are controlling carbon emissions and limiting change to the climate,” Pavelko says. “If the planet’s average warming rises more than 1.5°C, the threshold established in the Paris Agreement, the implications of climate change will be much more significant than many of the models may indicate.”

It is critical, therefore, for the construction industry to bring down carbon emissions to help reach the 1.5°C goal, one that some scientists say will be difficult to achieve, she adds.

Accounting for over 39% of gross annual carbon emissions worldwide, the built environment has found itself in the spotlight. When considering how to meet net-zero goals, it is obvious that the construction sector has a big responsibility to adopt practices that will lower its carbon footprint.

For example, the growing use of mass timber to replace concrete and steel is among the ways builders are replacing traditional materials with those that are environmentally friendly. Mass timber, which is a multilayered wood composite product, is stronger and far more efficient than some traditional building materials and when sustainably harvested, is a true renewable resource.

The world’s tallest mass timber building, Ascent, is a 25-story, 493,000-square-foot mixed-use tower in Milwaukee. One of the project’s developers told the organization Think Wood that mass timber construction requires 90% less construction traffic, 75% fewer on-site workers and is 25% faster than traditional construction.3

The use of mass timber calls for careful sourcing to ensure that maximum sustainability benefits are realized. That means taking into account where the materials are coming from; shipping from long distances will negate some of the climate-friendly advantages of the products. Proximity to the job site is an important factor in material selection.

Other sustainable products and materials are also helping lower the construction industry’s carbon footprint, according to Pavelko.

“Hail-resistant solar panels are being used in high-hazard zones, as an example,” she says. “We also see more frequent use of fire-proofing materials and safeguards for properties in areas prone to wildfires as ways to strengthen the resilience of properties.”

The sustainability of materials and products hinges partly on the supply chain’s role in producing and transporting them. How they are shipped, as well as the water and energy used to make them are among the considerations of stakeholders concerned about the environmental impact.

This is an area that calls for careful analysis, Pavelko says. If suppliers violate sustainability standards, that could put builders and other stakeholders at risk.

Companies should consider the use of energy and water in making products and materials, as well as the methods used to ship them. All of this is part of determining whether they contribute to the sustainability of a project.

In a study of multinationals considered to be sustainability leaders, the Harvard Business Review found a number of behaviors it says are worth emulating.4 Companies that have long-term sustainability goals and cascade good practices down the supply chain to include lower-tier suppliers are examples.

Social and environmental responsibility, along with economic considerations, must be emphasized at every level of the supply chain. Procurement officers should be well trained and incentivized to pursue sustainability among suppliers, the Harvard report adds.

There is more emphasis than ever on taking care of workers in the construction industry. Contractors and others understand that people are their biggest and best asset. And as the sector experiences a serious shortage of skilled labor, employers are doing all they can to hire and retain workers.

“We’re finally seeing construction workers considered in ways that should have been contemplated long ago,” Pavelko says.

Keeping workers healthy and safe is not only the right thing to do, it also affects the outcome of any project. Employers are not eager to lose skilled labor because of environmental conditions as replacing them with less-skilled workers who are not acclimated to the local climate or who are not as well-versed in the use of new and specialty materials can create problems on the job.

Construction workers have been affected by record heat in the U.S., along with air quality issues such as those caused by wildfires and pollution. Such hazards are mitigated in the only way possible – by bringing some of the work inside. That could mean creating modular portions of a building indoors in a controlled environment, for example.

After seeing an uptick in heat-related illnesses, the Occupational Health and Safety Administration recently proposed standards to protect workers.5

The standards, which would apply to all businesses, sets heat index triggers that would require employers to take action to protect workers when certain temperatures are sustained. When the heat index reached 90°F, workers would be told to take more frequent breaks and a buddy system would help spot signs of heat-related illness.

“The OSHA proposal marks a significant change in oversight of workers who are exposed to extreme temperatures, which traditionally has been left up to individual companies,” Pavelko notes.

Construction companies are also paying more attention to workers’ everyday needs. Most construction workers don’t have the luxury of leaving the job to visit a doctor for preventative care. That has led to an increasing trend of builders bringing clinics onsite to offer annual wellness checks, vaccinations and other services.

Keeping a sustainable workforce also means paying attention to workers’ mental health needs. Construction is a high-stress occupation and has one of the highest suicide rates among professions, often marked by long hours of exhausting work.6 Employers need to be familiar with the signs of mental health struggle and have access to resources that can help individuals who may be struggling.

Sustainable construction is not inexpensive, but it is overcoming some of the prior cost barriers including high startup expenses, prices for materials, and insurance. Shifting consumer demands have spurred competition among suppliers and builders, which is bringing prices down. Sustainable spaces for living and working are now must-haves rather than nice to have in many economies.

Insurers, meanwhile, recognize their role in developing new products and services to support the burgeoning demand for green construction. This is a critical part of the movement to sustainable building; if insurers are themselves becoming more sustainable companies, supporting this transition is obviously the right thing to do.