In addition to net zero, we must adapt to a more volatile climate

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Bevan Jones is an Associate Director of the consulting firm Turner & Townsend

Many companies in the built environment have made clear commitments to achieve net-zero carbon emissions. But significantly less airtime and focus has been given to addressing climate risk: the physical resilience of buildings in the face of the worsening impacts of climate change.

Net zero has become part of our industry’s lexicon, but – apart from the investment community – few clients and contractors have highlighted or actually developed strategies for managing climate risks in real estate and infrastructure projects.

“Contractors must demonstrate that a built object is not simply obsolete in a changing climate.”

As assets typically have projected lifecycles of 30 to 60 years, all parts of the investment and construction supply chain need to understand the physical risks of climate change. In the UK we have experienced extreme flooding for a number of years, as well as increasingly hotter and more persistent heat waves. Today’s extremes will become our normal climate patterns for decades to come.

While physical resilience is often neglected, the concept of transition risk is even less understood. This term refers to the potential of assets to be stranded due to their reliance on fossil fuels. Understanding transition risk is critical. The aim should be to protect customers and their investors from a situation where, despite these foreseeable risks, a carbon-intensive, overly fossil-fuel dependent property is being built.

In 10 to 15 years, we can expect society to move away from fossil fuels quickly. Any building that cannot be economically adapted to this transition could become a stranded asset whose value will decline significantly.

Investors and some customers are now assessing transition risk using the Task Force on Climate-related Financial Disclosures (TCFD) framework, which helps assess transition risk through the diverse lenses of technology, politics, litigation, market and consumer sentiment, and reputation.

Supply chains can bring about change

What are the implications of these risks? One scenario could be a new building equipped with gas heating. In these circumstances, the building owner and investor are exposed to technology risk related to a fuel leak, political risk related to government decarbonization targets, and reputational risk related to fossil fuel dependency.

The responsibility for assessing both physical and transition risk currently lies most obviously with customers and investors, but an informed supply chain is critical to transforming the industry so it is prepared to withstand these threats. On a practical level, contractors must demonstrate that their work supports long-term resilience and demonstrate that a built object will not simply become obsolete in a changing climate and political environment.

In a rapidly evolving market, new design specifications will emerge and new low carbon materials will need to be sourced and understood. Predicting what might happen to a building 15 to 20 years from now requires a certain amount of foresight and hypothesizing. For example, are the engineering and construction techniques sufficient to handle dramatically increased rainfall or prolonged periods of extreme temperatures, both hot and cold?

New workflows

These questions become even more relevant for contractors working in joint ventures, as part of public-private partnerships, in design-and-build contracts, and with ongoing management responsibilities in models such as DBFO (Design, Build, Finance, Operate). As the industry increasingly focuses on retrofit and modernization rather than new construction, opportunities for new ways of working are also emerging.

Understanding the likely changes, threats and opportunities requires a better understanding of climate modeling and asset impacts. There is now more data than ever available about climate risks in specific locations, and these resources should become your first port of call when starting a project.

Different climate futures must also be taken into account. Based on the latest globally agreed targets and outcomes of the COP26 climate conference, the world appears to be on the verge of a global temperature rise of over 2°C. However, if global action to reduce emissions proves ineffective, we could face a 4°C warming world. This, in turn, could accelerate government and corporate action, leading to policy changes, divergent market behavior and fundamental increases in costs.

Contractors are now recognizing the commercial and reputational challenges of not committing to net-zero carbon emissions. Understanding and developing strategies for climate risks is also crucial to ensure our built environment is future-proof. It’s time to make climate risk part of the contracting playbook.

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