The following is the first of a three-part series that will look into how sustainability trends will impact the construction sector and corresponding opportunities and challenges that arise across these features: types of projects, construction materials and construction methods.

Key View

• As sustainability and net-zero trends continue to pick up pace around the globe, we expect to see an increasing shift in the types of projects that are being adopted and demanded from the construction sector, such as in green infrastructure and those to mitigate and adapt to impacts of climate change.
• Within the transport sub-sector, an increasing push away from traditional personal vehicles running on internal combustion engines will support growing investments in infrastructure to support mass transit options, micro-mobility adoption, electric vehicle charging and hydrogen refuelling networks.
• Within the energy and utilities sub-sector, we will continue to see robust growth into renewables and hydrogen projects to support broader energy transition, alongside water infrastructure projects to adapt to climate change.
• Within the buildings sub-sector, we believe that buildings will be increasingly required and designed to be ‘green’ and more sustainable, with more efficient management of energy, water, waste and other resources.

As sustainability and net-zero trends continue to pick up pace around the globe, we expect the construction and infrastructure industries to see fundamental shifts over the coming years, with the types of projects that are being demanded, and use of more sustainable construction materials and construction methods. While environmental regulations around the sector still remain relatively limited at present, we believe that the sector will be increasingly pressured to adapt as it still accounts for a significant share of global emissions, at more than 30%, with both direct and indirect emissions combined. In addition, construction firms will also face pressure from shifting demand patterns as consumers/clients increasingly look toward sustainable projects.

The following is the first of a three-part series that will look into how sustainability trends will impact the construction sector and corresponding opportunities and challenges that arise across these features:

• Types Of Projects: A trend that is already largely underway, we expect to see an increasing shift in the types of projects that are being adopted and demanded, with emphasis to increasingly shift toward those projects which support climate change mitigate and adaptation.
• Construction Materials: We believe that various material industries, such as steel and cement, will likely be among the next target sectors for decarbonisation regulations, leading to increased costs and incentivising the use of alternative sustainable construction materials, and cleaner production methods.
• Construction Methods: We expect to see a gradual rise in more efficient construction methods to reduce both waste and more energy-efficient design and processes, with technology and the internet of things (IoT) playing a critical role to support this.

Transport: Infrastructure To Support Alternatives To ICE Vehicles

Within the transport subsector, an increasing push away from traditional personal vehicles running on internal combustion engines (ICE) will necessitate infrastructure investment from public transport authorities to support sector decarbonisation. Primarily, this will be encouraged via mass transit options, such as rail or bus networks. These systems have the potential to greatly reduce passenger vehicular traffic and reduce emissions. Though metro systems can be found in many large cities around the world, there remains significant untapped demand for metro systems, even in these large cities. Bus rapid transit (BRT) systems are seen as alternatives to metro systems for cities with smaller populations, or where geography precludes the affordable development of metros. Aside from a specialised fleet of buses, BRTs require dedicated roads, modified traffic junctions and pedestrian crossways, stations and power infrastructure to function.

In addition, the rise of micro-mobility adoption such as bicycles, e-scooter and e-bike providers will also complement the use of existing public transport infrastructure. Micro-mobility devices can serve to replace short journeys that would typically be taken by car, with this attribute set to prove increasingly attractive to authorities on the path to realising net-zero greenhouse gas emissions. This factor will become increasingly attractive in the context of nationwide targets to phase-out internal combustion engine vehicles over the coming decades, with cities such as Amsterdam, Paris and London already disincentivising the use of older, more polluting vehicles. As a result, urban planners will focus less on car-centric investments when developing urban transport infrastructure, and instead look to accommodate more flexible infrastructure denoted as ‘anything but car’ (ABC) infrastructure, including protected lanes and docking infrastructure.

Beyond public transportation, the increasing drive for electric vehicles (EVs) and fuel cell vehicles (FCVs) will also require supporting infrastructure. Our Autos team expects a dramatic increase in electric vehicles globally over the coming decade with global EV sales to average annual growth of just under 20% y-o-y over 2022-2030 to reach an annual EV sales volume high of 26.7mn units, which will represent an EV penetration rate of 23.1% by the end of 2030. Europe and Asia will largely outperform on this front, with already supportive policies, and we expect a corresponding increase in investment toward EV charging infrastructure developments. For example, the European Commission plans to require member states to deploy EV charging infrastructure in proportion to EV uptake by targeting an EV charging station every 60km along major highways. The year 2028 will see the EC review member states' progress towards the phase-out of ICE vehicles and delivering EV charging infrastructure coverage, ahead of the target to reduce vehicle CO2 emissions reduced by 55% in 2030 from 1990 levels and by 100% in 2035. Currently, the EU also recommends that member states work to achieve a ratio of 1 EV charging point for up to 10 EVs, according to a 2014 Directive. We believe this will begin to spur investment in EV charging infrastructure across lagging member states, although greater incentives will still be required at the domestic level for both public and private entities to deliver EV charging across all transport settings.

Similarly, we expect a strong growth outlook for hydrogen FCVs, particularly around heavy commercial vehicles (trucks and buses), although hydrogen refuelling networks continue to be a key limiting factor and as such will require substantial investment. As of 2020, there were only about 500 hydrogen refuelling stations globally, 51.5% of which are in Asia, 12.6% in North America and 35.2% in Europe. We believe that the Asia region will be a global leader in hydrogen FCV adoption due to the respective markets' incentive programmes and the market-leading position of the region's automakers in developing hydrogen FCVs. Specifically, we believe that China will be one of the largest hydrogen FCV markets globally. As part of its New Energy Vehicle Industry Development Plan, China aims to grow its hydrogen refueling stations from approximately 110 units as of end-2020 to 300 units by 2025 and 2,000 units by 2035. Several states including Beijing, Jiangsu, Shanghai and Shandong have already laid out regional targets and have been accelerating hydrogen infrastructure over recent quarters. In addition, China has released a national hydrogen strategy in March 2022, laying out a series of policy guidelines at the national level for the first time, which we believe will drive further momentum in kickstarting the relatively nascent industry.