Nearly 200 countries have committed to the Paris Agreement, aiming to reduce carbon emissions and limiting global temperature rise to 1.5 °C, if possible. And 622 of the 2,000 largest public companies in the world have net zero strategies. Also, 90% of companies in S&P 500 index now release sustainability reports, which is up from 20% 10 years ago.

Notice a trend? More countries and businesses across industries are taking serious action to reduce the impact of climate change on our own sustainability. Admittedly, plenty of companies are not rushing to commit. What’s significant though is that the pace of support seems to be picking up. For the insurance industry, increasing commitments to minimize the impact of climate change is good news. According to a recent report by global broker Aon, economic losses in 2021 totaled $343 billion. Of those, $329 billion resulted from weather and climate-related events, making 2021 the third costliest year on record after adjusting for inflation. Of the 2021 losses, only 38%—about $130 billion—were covered by insurance, which is still well above the 21st century average of $74 billion and 18% higher than in 2020.

The insurance industry has a lot of skin in the game. Finding ways to minimize risk in these situations is important to insurers’ sustainability. Finding ways to help clients do the same is equally important.

Construction’s carbon intensity

Many may think that the construction industry may have a bigger sustainability challenge ahead of it than say, the financial services industry. After all, according to the World Green Building Council (WGBC), the construction industry is a big consumer of raw materials and natural resources, and it generates an estimated 39% of the world’s carbon emissions. The energy, agriculture and transportation industries are the most carbon intensive.

Most industries relay on buildings, which generate nearly 40% of annual global CO2 emissions. Of those total emissions, building operations are responsible for 28% annually, while building materials and construction are responsible for an additional 11% annually.

As more countries and businesses look at their building and infrastructure needs through less-carbon intensive lens, the built environment will need to be different. There could be more “living” buildings, higher energy efficient buildings, alternative energy facilities, more charging stations and who knows what else. Is the construction industry going to be prepared to handle these sort of projects?

Demand is ramping up

In a recent Sustainability Futures Survey, conducted by specification and product information platform NBS, more than half of architects polled have not worked on a single net-zero carbon project in the past year. Based on these findings and general observation of project starts, demand for more sustainable buildings is not here right now. That doesn’t mean that it’s not coming.

In the US, for instance, the Bipartisan Infrastructure Deal looks to invest $17 billion in port infrastructure and $25 billion in airports to address repair and maintenance backlogs, reduce congestion and emissions near ports and airports, as well as drive electrification and other low-carbon technologies. It even set aside $7.5 billion to build out the first-ever national network of EV chargers in the United States.

Even more recently, the General Service Administration, the U.S. government’s procurement arm, announced new standards on high carbon-emitting building materials for all major federal projects, requiring all federally contracted contractors to use climate-friendly concrete and asphalt in all the agency’s major projects. This, of course, includes the above-mentioned Infrastructure projects. Part of the standard requires GSA project contractors to provide, where available, environmental product declarations (EPD) or a summary of a product’s primary environmental impacts.

Canada is also acting. The National Research Council recently released a new set of national building codes that show how provincial and territorial governments can make new buildings net-zero ready by 2030. That’s only eight years off.

There’s a learning curve

Modular construction, by many, has the potential of being a more sustainable delivery method because of its potential cost savings, waste reduction, environmental benefits. But, according to the Modular Business Institute (MBI), modular construction only accounted for 5.5% of new construction in North America last year. It still presents challenges. New ways of doing things always have a learning curve. And often they require new skills too.

There’s a lot to learn. How can contractors adapt to new requirements? What materials are more sustainable than others? What skill sets will be needed? Achieving net zero by 2050 may seem ions away, but time passes quickly. And we can’t turn an industry on a dime. We need to spend more time learning now.

Insuring a more sustainable future

That’s exactly why it’s also in the best interest of the construction insurance market to assure contractors are well prepared to address the new requirements being asked of them and are in the best possible position to take on these less carbon intensive projects.

Through the insurance policies contractors buy, insurers assume part of the risk. If contractors aren’t ready or overextend themselves taking on projects that they are not prepared to handle, mistakes happen. Rework is required. The building doesn’t perform as designed. A fuel oil spill or other pollution events occurs on a jobsite. The project gets delayed because of supply shortages or a subcontractor defaults on a contract and doesn’t finish the work. Insurers pay the claims that arise.

With all the attention being paid to the recent passage of the Infrastructure Bill and talk of what companies will do to reach their emissions goals, there will be plenty of new construction opportunities. If contractors aren’t ready with experienced talent, the right processes in place, employing helpful technology, it won’t go well. And of course, it could be bad for the construction insurance market too.

That’s why insurance companies are advocating for clients get out ahead of it. Insurers are investing time to find ways to help clients—from testing new technology solutions that may help to developing special insurance protection for use of more sustainable materials or projects—and can serve as a good resource of information and guidance for contractors looking to get ahead of the curve.

Risks related to climate change could be very impactful for the construction industry in the not-so-distant future. Contractors are wise not to wait too long to pay careful attention to what’s needed boost their own sustainability practices and put them in a strong position, even giving them a competitive advantage, for what’s ahead as more strive to reduce their climate impact.