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From trials to triumphs in building materials circularity: Takeaways from Davos

February 10, 2024
Sustainability

Markets and economies all over the world rely on the movement of materials. For instance, for every person in Europe, more than two metric tons of materials such as metals, cement, plastics, and wood are used per year1—the equivalent of about 90 bags of cement. On a global scale, materials usage contributes around one-third of total CO2 emissions,2 which is more than six times the emissions of Switzerland over the past 50 years.

At the same time, materials circularity3 has shrunk by more than 10 percentage points, from 31 percent in 2018 to 20 percent in 2023. Factors contributing to this decline might include increased waste streams from rapid urbanization and growing populations, both of which are increasing the extraction rates and use of materials. And considering that materials circularity is crucial for reducing emissions, reversing this trend could be an important step in helping the industry move closer to a 1.5° pathway.

McKinsey hosted a discussion at the 2024 annual meeting of the World Economic Forum in Davos, Switzerland, on “Transitioning from trials to triumphs in building materials circularity.” The panel featured participants across the built environment value chain, including major global construction and real estate companies. Three key themes emerged: the clear opportunity for environmental impact and a business case for circularity in the built environment, the critical importance of value chain integration and digitalization, and the urgency to scale and invest in new circular business models.

Circularity as a key opportunity for both decarbonization and value creation
Although the primary goal of circularity is to lower emissions and prevent waste, it also represents a significant market opportunity. According to McKinsey analysis, there is a revenue opportunity of more than $1 trillion in Europe alone in 2050—sixfold growth from 2021.

Opportunities can include scaling circular business models for B2C and B2B products (including shared-mobility platforms and recommerce marketplaces); creating a circular materials backbone through increased recovery of materials (such as metals, plastics, papers, and glass); improving efficiencies as businesses reduce waste in food and industrial materials (including as-a-service business models, material substitutes, and technologies such as additive manufacturing); and turning residual waste into valuable feedstocks and energy (through technologies such as bio-based fuels).

The recent white paper by the World Economic Forum in collaboration with McKinsey demonstrates that circular approaches for materials such as cement, steel, aluminum, and gypsum could abate 75 percent of embodied emissions in the built environment while creating up to $360 billion in economic net value across three dimensions: the recirculation of materials and minerals, renewable and recovered energy, and reduced emissions through carbon capture, utilization, and storage (CCUS).4

The event participants raised the point that the majority of the technologies needed to realize this opportunity already exist. Furthermore, many players in the built environment have access to plants capable of high-yield construction waste, lower-carbon substitute materials (such as clinker-free cement), and various options for storing and using CO2 in materials production. At the same time, representatives from the investor side acknowledged their willingness to help fund the transition at a large scale.

Lighthouse solutions, value-chain integration, and digital technologies are paramount to facilitate change
In the context of facilitating a circular transition in the built environment, shining a light on impactful and scaled solutions that already exist today emerged as an important topic of discussion. Panel and audience members argued, in line with what was discussed in Davos in 2023,5 that a major challenge for recognizing and scaling circular solutions stems from a lack of transparency and education, on both the industry and consumer sides. However, substantial progress has since been recognized. Creating visibility, such as on the three Circularity Lighthouse solutions in the Built Environment recently awarded in a joint initiative of the World Economic Forum and McKinsey,6 shows how circular practices can be adopted.

The first three beacons of circularity, selected by an independent panel of experts, recognize pioneers that demonstrate novel, distinctive circularity solutions; proven substantial impact and value; and successful scaling.

  • An end-to-end circularity solution for digital automation and building energy management serves as an inspiration for how operations can be set up in a circular approach—from product design (with green materials making up 27 percent of content) through production (96 percent waste recovery) and up to the end of life (via a global network of refurbishment centers).
  • A global recycling platform demonstrates how construction and demolition materials (CDM) can be reintegrated into the built environment materials stream, enabling 1 to 2 percent of the total European CDM waste being recycled and the production of 100 percent recycled-content clinker for cement.
  • A circular supply chain for the global production of carpet tiles demonstrates how an increasingly circular approach can be implemented at scale in a commodity market, leveraging cross-industry partnerships and a take-back system to reach more than 65 percent recycled content across the portfolio and halving the CO2 impact per square meter.

Such solutions show how integration and collaboration can be increasingly embedded in the built environment value chain, a key theme of the panel discussion. Participants agreed the industry and the companies involved need to pivot to “a collaborative workflow.” For instance, construction companies can be involved at the outset of a planning process, and designers and waste handlers can be brought together for effective design for disassembly. In addition, deploying supply-chain-transparency technologies such as digital twins can help to increase visibility on available secondary materials.

Scaling circularity requires investments in green opportunities and new business models
The question remains: how can built environment stakeholders actually create circular business models to capture value? As discussed by the panel, players can tap into several top-line strategies, including expanding the core business, integrating horizontally or vertically, or building entirely new businesses.

On the first point, stakeholders can focus on commercializing circular products to not only address the growing demand for sustainable alternatives but also potentially profit from green premiums. Doing so has the added benefit of offering products with lower environmental impact, such as green clinker from recycled concrete; also, traditional materials can be replaced with circular alternatives, such as eco-friendly bricks or timber. Both actions are examples of aligning business practices with sustainability goals.7

By contrast, service-based business models can allow stakeholders to maximize the life spans of products, optimize materials consumption, and offer incentives for product reuse at the end of leases. For instance, participants from major real estate companies pointed out that average office leasing times in the United States are decreasing,8 which in turn is increasing the frequency of fit-out9 construction. This could be addressed with various circularity models, such as increasing utilization and corresponding design measures.

As the panelists mentioned, executing on many of these ideas could require a paradigm shift for the relatively traditional construction ecosystem. But even if parts of the value chain are not yet ready, players invested in the circular transition can start to walk the talk, prove it can be done, and thereby induce the broader changes needed. Broad support will likely follow, and first movers will likely scale quickly. As one investor pointed out during the session: “Doing the right thing might be painful at first but usually pays off in the long term.”

The panel discussion hosted by McKinsey during the 2024 annual meeting of the World Economic Forum in Davos showcased the motivations of stakeholders across the value chain to drive the circular transition and identified several opportunities for its acceleration.

The technological readiness of the ecosystem offers the groundwork to deploy circularity measures at scale; the willingness to invest can spur critical funding; and tackling the fragmentation of the ecosystem through more substantial value chain integration can help close the loops toward a more circular built environment. In addition, increasing transparency on scalable solutions emerged as a central opportunity, with participants advocating for a more visible demonstration of insights and emphasizing the progress being made today at different stages of the value chain and across various solutions.

There is no time to waste. Given the significant environmental impact of the built environment in terms of CO2 emissions, it is crucial for the industry to urgently shift toward circularity.

By Maximilian Gebhardt, Jukka Maksimainen and Sebastian Reiter

Source: mckinsey.com

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