Material gains in sustainability The business case for the construction products sector

This is a joint report with Acknowldgements

PwC and the Construction Products Association would like to express their thanks to all those who completed the survey and particularly the organisations prepared to contribute further views during follow-up discussions.

PwC would also like to recognise the contribution made by Anne-Audley Issler, Summer Intern.

2 PwC Contents

Foreword 2

Executive summary 3

Key messages 5

1 Sustainability as a strategic asset 6 2 New regulation and organisational change must stick 8 3 Beyond carbon reductions – factors to consider 14 4 Sustainability has strong growth prospects 18 5 Quantifying impacts and commercial implications 22 6 Investment is needed but there are barriers to 26 overcome: inertia, cost and initiative overload

Conclusions 32

Recommendations 33

Contacts 36

Material gains in sustainability 1 Foreword

Much of the industry sees sustainable construction as an opportunity, according to the evidence from this survey which was completed at the depths of the recent downturn. We identified many examples of innovation and initiative and a clear readiness on the part of the sector’s leading businesses to research, develop and bring to market the products that will contribute to a low carbon outcome. We also saw uncertainty; over how best to measure and communicate sustainability; and the willingness of end-users to invest and re-train to the extent necessary to bring about a significant change in the application of sustainable building materials. The construction sector needs to work more closely with the Government in order to gain their guidance to deliver the improvements in energy, resource and carbon efficiency.

Chris Temple, Global Construction Products Leader, PwC

Sustainable construction is recognised as a key part of the country’s green agenda and the continuing development of products and processes that contribute to the creation of a more sustainable built environment is clearly an essential part of this overall objective. However for many companies, lacking empirical evidence, balancing what some regard as a moral imperative with commercial reality was always going to be an enormous challenge. I am therefore delighted to endorse this joint report from the Construction Products Association and PwC, which expertly lays out the business case for sustainable construction and answers a number of important issues that product manufacturers face when considering a more progressive manufacturing future. The report highlights a wide range of views from a variety of different product manufacturers from across the sector and although there is a healthy selection of opinions, it is very clear that the overriding direction of travel is that unless product manufacturers aim to embrace a more sustainable future, both in the products they manufacture and in the processes they use, they are going to find it increasingly difficult to survive and prosper. The future definitely is green, no matter what your product or process. Bill Bolsover CBE , Chairman, Construction Products Association

2 PwC Executive summary

The construction products sector stakeholders have different priorities, In much the same way, understanding is increasingly equipped to realise they are also frequently looking the links between sustainability the opportunity presented by low beyond carbon to a range of other performance and commercial carbon construction. However, there sustainability metrics, including outcomes is in its infancy, as is the is still much to be done to engage biodiversity and water intensity. They case with other sectors. But there is and mobilise the wider construction also suggest the need for clear and evidence of progress on this front. sector – builders, designers, architects consistent policies for sustainability in One example is the environmental and regulators – to adopt a coherent construction at the European level. profit and loss account one company approach to sustainable construction. uses to demonstrate the value of Sustainability presents the industry prioritising investment and growth in Sustainability has remained with significant growth potential. sustainability. an important consideration for Managing carbon is a priority for the construction products companies, construction sector, both for new- More investment in sustainable and in some cases even increased build and refurbishment. A number of products is needed. But achieving in importance, during the recent companies are considering the extent this will require better stakeholder economic downturn. What is more, to which refurbishment, in particular, engagement and greater market companies in the sector see provides them with an opportunity to confidence to overcome barriers sustainability as a strategic asset for create a coordinated set of products such as inertia in the construction the future. They are recognising that and services to improve the energy industry, perceptions of high cost strong sustainability performance performance of existing buildings. and initiative overload. So while the contributes to manufacturing construction products sector can efficiency and product differentiation. Companies in Western European justifiably claim to have the products Regulation, reputation and demand markets have set a good example needed to deliver more sustainable are key drivers of this trend for of what is possible in these areas. outcomes, its progress to drive take up companies of all sizes. The fact that However, this must be considered is thwarted by inertia, lack of training reputation and customer demand in light of the nuance of building and awareness and the absence of run a close second to regulation stock in individual countries and the compulsion or strong incentives. as an impetus reflects, in part, challenges of refurbishment work. In some concerns about the effective new build, where developers can often The industry requires greater implementation and enforcement of design from a blank sheet of paper, we commitment from government in existing codes and guidelines. On the see much quicker adoption of energy the shape of clearer, long-term and other hand, customer expectations, efficient construction products. consistent sustainability targets for driven both by brand concerns and all construction projects. These, in More work is needed to quantify turn, need to take a whole-life, whole- consumer attitudes, continue to grow, the sustainability impacts of the both in the UK and abroad. system approach to sustainability. industry and the commercial benefits If the sector is to make its expected There is no question that construction of sustainability in a standard way contribution to reducing carbon products companies are focusing on across the UK and Europe. While emissions, in particular, it needs a far- the sustainability of their products. lifecycle assessment offers some reaching goal with a clear timetable And, recognising that different answers for products, the full benefits to unite all aspects of the fragmented of sustainable construction need to construction value chain. be viewed in a holistic way, whereby combinations of materials contribute to the overall sustainability of a building.

Material gains in sustainability 3 The construction products sector understands the opportunities presented by sustainability both now and into the future, and is committed to reducing its own environmental impacts. To do this, companies in the sector need increased confidence to invest, through quantification of sustainability benefits, and of the related fiscal incentives available from the government.

4 PwC • However in that context, it was surprising that 40% Key of survey respondents have not completed carbon foot messages printing for any of their products.

• There is still work to be done on quantifying the sustainability impacts of the industry and the commercial • The importance of benefits of sustainability in a sustainability has remained standard way across the UK high, and even increased, and Europe. during the recent economic downturn. It will continue to • More investment in be a major consideration in sustainable products is the future for companies in needed, both in the products the sector. themselves and the solutions they provide. Better • Key drivers for sustainable stakeholder engagement and construction products are: greater market confidence regulation (61% cited it is also required to overcome as a very strong driver), barriers. demand from clients (39%) and contractors/architects • The main barriers to a more (30%). strategic approach are inertia in the construction • Construction products industry, cost and initiative companies are strongly overload. In particular for engaged with the companies with less than sustainability agenda and are £50m turnover, 82% said looking beyond carbon. 58% there is some or significant thought that sustainability cost involved. is not just about managing carbon. • There is also a definite need for better, clearer, longer- • Sustainability offers the term and more consistent industry major opportunities sustainability regulations for for growth. Brand value all construction projects that (81%) and access to new take a whole-life approach to markets (63%) were cited as sustainability. important or very important.

Material gains in sustainability 5 1

Sustainability as a strategic asset

6 PwC Sustainability’s importance has been What is the strategic importance of sustainability? maintained, even increased, during the recent economic downturn. It will continue to be so in future. Sustainability has an important / major impact on 3% 7% 54% 36% Respondents recognise both the your value chain importance of sustainability to the Your company has a sector and the need for their boards 8% 14% 48% 30% to drive a strategic response. As this well-defined strategy on sustainability report shows, there is a number of drivers for this focus and an increasing Sustainability will be a major strategic asset 1% 8% 42% 49% recognition that strong sustainability in the next 5-10 years performance contributes to manufacturing efficiency and product Sustainability is mainly 24% 34% 22% 15% 5% differentiation. This is especially the about managing carbon case for respondents that have a wide consumer base, reflecting broader The board should have responsibility 3% 11% 53% 33% trends in retail. for sustainability issues Businesses in the sector clearly Strongly disagree Disagree Neither agree nor disagree AgreeStrongly agree understand the complexity of sustainability, embracing factors other than simply carbon. Some of the • On average, one-third of strongest opinions expressed during respondents agreed that interviews were about the potentially Companies need to sustainability was as important misleading picture created by to their business as factors such overemphasising carbon and neglecting look across the whole- as supply chain security, capital other environmental factors such as market stability, availability of key life of their products weight, recycling and water use. skills, energy costs and regulation. and operations to see The survey found that: • 86% of respondents agree or how they can manage • Commitment to sustainability strongly agree that the board sustainability as a in the construction industry should have responsibility for remains strong with just 13% sustainability issues. strategic asset to of respondents stating that “We do talk about sustainability strategy sustainability was less of a support business both but the development of a well-defined requirement during the recession. strategy has taken time.” Rockwool now and in the future. • 91% of respondents agreed that sustainability will be a major strategic consideration in the next 5-10 years.

“We’re not used to seeing (sustainability) as an asset; more risk management. But, depending on how you manage it, it can be an asset. It’s certainly a key part of strategy.” British Gypsum

Material gains in sustainability 7 2

New regulation and organisational change must stick

8 PwC • An overwhelming 96% of Which of the following do you recognise as an important driver for respondents said regulation was a ‘green’ products? strong driver for ‘green’ products.

Regulations 61% 35% 3% • 86% of respondents stated that impact on brand or reputation of Impact on 15% 70% 15% the company was a strong driver brand/image and demand from clients (79%) Demand from the and contractors (73%) were the 39% 39% 17% 5% next most important. end clients Demand from • Environmental concern was a contractors 30% 43% 21% 6% and architects driver for all companies. However, Environmental larger businesses were more 17% 54% 27% 2% concern likely to see it as a strong driver of sustainability (81%) compared Potential for cost 26% 35% 20% 13% 6% with 59% of companies with reduction turnover below £50m. Employee 2% engagement 24% 51% 18% 5% • While regulation is predictably and recruitment seen as the number one driver, Very strong Fairly strong Fairly weak Very weak Not a driver the second most important is: the impact on brand/image. In the retail sector this might be “A lot of our customers see us as a expected. In construction products premium brand. They are discerning it is interesting to note that this is contractors and they see the issue as a regarded as almost as important as business opportunity.” Worcester Bosch regulation.

• Cost reduction was identified as a strong driver by 62% of respondents, but ranks lower overall than reputational, regulatory or customer concerns. Only 27% considered the impact of sustainability on recruitment and retention as a strong driver.

“Legislation is driving the agenda and the opportunity is there for us to sell more higher-value products but we have to sell the financial opportunity to our stakeholders first.” Jewson

Material gains in sustainability 9 Regulation Others echo concerns about the implementation of regulations: Regulations are the key driver of sustainability but some respondents “When it comes to building regulations, lamented a failure on the part I think Europe is leading the way. of regulators to enforce existing However, having good regulations is regulations or codes of practice. One not enough, what really matters is example is sustainable urban drainage compliance and enforcement.” Lafarge systems, (SuDS) where guidance exists for local planning authorities “Most activity is regulatory or to require the use of a variety of government incentive driven, with mechanisms: green roofs; permeable exception of Sweden which implemented pavements; rainwater harvesting; regulations differently, ie highly and a range of retention structures, to taxed existing fossil fuel utilisation so control the rate of surface water run- that 90% of the heating products is off, but where implementation has not for ground source heat pumps: well been widespread. established deep bore industry and geological structure.” Worcester Bosch

The likely efficacy of the Green Deal, in the absence of any compulsion to act, was also called into question:

“The Green Deal could do a lot to start this process but it is an enabler, the key is to create the problem, people will only act when their energy bill or council tax quadruples. We have the carrot in the Green Deal but no stick yet and it’s a difficult time to do it now.” Jewson

Key questions to consider Council tax is based on property value. What if it was based on energy efficiency? We should look to differentiate between properties of different energy efficiency levels with less efficient properties attracting higher tax, for example, through the council tax or business rates.

10 PwC Demand and new from other sectors suggests these “ Distributors are starting to expectations and requirements are ask questions because their markets likely to be passed back up the supply customers are asking. For In terms of other drivers, companies in chain. The implications for training the sector put market differentiation, staff in the sales and marketing major contractors this is now reputation and customer demand on functions of sector businesses are clear. approaching 100%. We did almost equal terms with regulation. Employees will need to understand presentations (on sustainability) As in other sectors – from professional and articulate the sustainability services to retail – customer enquiries performance of their business and the for our sales force, because it’s about sustainability policies and goods and services it provides. becoming key to success.” performance are becoming more “Sustainability is one of our key commonplace. While there is concerns. Market and corporate Rockwool widespread scepticism about how this angles heavily overlap; the better our information might be used to shape corporate responsibility is, the easier we buying decisions, there is clearly an can market our products.” Aggregate increased need to display the right Industries credentials in order to be included on tender lists. Today, this tends to apply to larger companies, but experience

What single measure of government support would best increase demand for ‘green’ products ?

4%

13% 10%

• 54% of respondents stated that tax incentives for green products would be the best form of 19% government support.

• Regulation needs to be simple to implement and tailored to the context of different parts 54% of the industry.

Tariffs on non-green products or processes

More regulation

Tax incentives for green products

Closer working with private sector

More environmental certification

Material gains in sustainability 11 Employee brand While not as important a factor as in some other sectors, several respondents said that sustainability made a difference to their brand as an employer. Some recruits are very interested in the sustainability credentials of their prospective employers. In other cases sustainability is seen as part of the overall employer brand. Again, this factor appears to be more important for larger businesses:

“In our survey, we asked what the main reasons were for them to join our company. Sustainability and conducting business responsibly were amongst the top reasons ranked” Lafarge

“Employee engagement: All new graduates are very interested and seriously talented people are all keyed up about sustainability issues.” Aggregate Industries

And this interest is by no means confined to European markets: Key questions to consider “The requirement for companies to define, adopt and implement sustainable What sustainability-related regulations, new or development strategies is a relatively recent phenomenon. Early adopters pending, are likely to impact your market, supply published their first reports about chain or business model? a decade ago, mainly in the US and Europe. I see the trend now reaching How are you tracking these developments? Asia as well.” Lafarge Are you engaged in and influencing the debate? Do you know what proportion of tenders, or what percentage of your customers, are influenced in their decision by your sustainability performance? In the ‘war for talent’ is your sustainability performance a key advantage or your Achilles’ heel?

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Beyond carbon reduction – other factors to consider

Material gains in sustainability 13 Construction products companies are Sustainability is mainly about managing carbon? highly engaged with the sustainability agenda and are looking beyond carbon. 5%

• 58% of respondents disagreed that 24% 15% sustainability was mainly about managing carbon. Strongly agree Agree • The focus on carbon is encouraged Neither agree by government regulatory and nor disagree 22% policy developments. Disagree • Discussions with interviewees 34% Strongly disagree revealed that they were considering a wide range of sustainability factors.

• Responses showed that while carbon reduction is important there It is also clear that product carbon “Our rigour is something we excel in. are other factors to consider, such data, in isolation, is not regarded as an We’ve been measuring our impact for as the use and lifespan of a building adequate measure of sustainability. A eight years. Our annual report has had and the target customer. couple of respondents pointed to the a permanent baseline since 2005 and we

importance of product longevity in report on progress against CO2 reduction, A majority of respondents think overall carbon impact. Nevertheless, waste levels, procurement and pollution sustainability is about more than there is acknowledgement that carbon prevention. We also use a third party to carbon, although that issue has clearly provides a convenient common provide assurance on the data. This is a taken centre stage: denominator for the regulator: real strength, we can be confident that our figures are robust.” Travis Perkins “If you took carbon out of sustainability “Embodied carbon levels have increased there would still be risks…Carbon is in products but so have their life cycles. Some respondents reject the primacy of probably the number one issue but Carbon provides a focus and will become carbon, regarding it as misleading: would be missing the point if it was the the basis for taxation – the common sole issue. ” British Gypsum currency and the option of choice for “ We don’t carbon foot-print because it’s governments.” Jewson dangerous to pander to those who try to reduce sustainability to a single issue. Yes, carbon is important but it is not the only issue.” Kingspan Insulation

“Building more sustainably is not only about reducing the carbon footprint. It is more complex than that. Considerations such as service life, maintenance, comfort level, land use and links to public transport systems are important. Holistic approach and multidisciplinary design are badly needed at city, neighbourhood and building level.” Lafarge

14 PwC Understanding If so, what should be stakeholder measured? expectations is key Packaging manufacture is another Many recognise that how they good example. In this industry much communicate their sustainability of the drive for sustainable packaging performance may need to vary has come from customers: consumer according to the audience in question. goods companies and retailers. They, If the business creates a wide range of in turn, are seeking to differentiate sustainability impacts, it makes sense themselves with their own customers. to address key stakeholders’ main To this end, they have specified a concerns. That may mean establishing range of sustainability performance a range of focus areas, with targets and criteria for packaging including metrics, to demonstrate progress in demands that it should be reusable, the things that matter. One respondent lightweight, low carbon, high explained that they regarded a range recycled content, and manufactured of performance criteria – water and from certified virgin fibre. These flooding, ethics, responsible sourcing different criteria raise a challenge for biodiversity and carbon – as being packaging manufacturers, namely, of equal strategic importance, but what should they prioritise when that they would tailor their messages different customers want different according to the stakeholder group things? While lifecycle assessment they were trying to reach. may help them find some of the answers, the challenge is so great that “We have developed a separate Resource security is the focus of retailers and manufacturers have come environmental P&L which increasing attention. From Asian together to try to develop a common includes overheads for selling, building booms to extreme weather understanding across the sector. events, turbulence in supply and demand all overheads for regulatory places a premium on raw materials. The construction industry has operated compliance and any development schemes dealing with aspects of Securing access will be an increasing costs. From this we can measure priority and companies will seize the sustainability for at least twenty years, opportunity to advance a cause, as one both for materials and building. For the impact which environmental cement manufacturer suggests: materials there are responsible sourcing initiatives have on EBIT which we schemes and standards such as FSC “Local government issues the rights - and PEFC for timber, BRE’s 6001 estimate at 6%.” generally to private companies - to extract for companies and BSI’s BS8902 for Travis Perkins raw materials in their jurisdiction. It sector schemes. Environmental impact is clear that a company with a proven schemes have existed since the mid track record of turning old quarries 1990s with BRE’s Green Guide one of the into reusable land that benefit the local community will stand a greater chance to be awarded quarrying rights elsewhere. Case study: PUMA environmental profit & loss account Responsible quarrying becomes a competitive advantage.” Lafarge. PwC recently partnered with the sports footwear business PUMA to develop the world’s first environmental profit and loss statement. It was widely reported in The need to address various aspects the press as it put a commercial value on the environmental impacts along the of sustainability performance is not entire supply chain of its business. The account examines the business’ direct unique to construction products. operations as well as activity it generates in its supply chain. Impact categories Lessons can therefore be learned are presently restricted to carbon and water. However, the company has from other sectors about how to use signalled its intention to extend the scope in future. The aim is to better manage environmental credentials to build environment-related risks and is cited by the company as part of its mission to brand and reputation. become the world’s most desirable sport lifestyle company.

Material gains in sustainability 15 best known, covering issues including How much data is embodied carbon, water and resource Key questions to use. For buildings these include BRE’s enough? BREEAM in the UK, LEED in the USA, Appropriate data is a challenge that consider Green Star in Australia, Estidama in the many in the sector recognise. Gulf and HQ in France. Work now needs to focus on developing harmonised Even when what to measure is decided, While sustainability schemes at the European level. This is how robust the measurement process is about more than in progress, for example CEN TC350* needs to be remains a big question. This Sustainability of Construction Works includes questions about the value of carbon it can’t be addresses both buildings and products, the information in the market place ignored either. under the guiding principles of the need and the investment required to secure to decouple both environmental impact it. The emergence of a single European and resource use from economic growth. standard will go some way towards Do you understand clarifying what is needed. what measures are For packaging, matters are much more advanced with significant practical But, as one respondent notes, the important to your guidance available through WRAP and uses to which the results of customer industry’s work on issues such as pallet enquiries about supplier performance customers? re-use. are put are often unclear. Have you put in place adequate measurement systems? What is the commercial value to you of providing this information to customers? What is the most cost-effective way to generate it; measurement, or LCA? Do you need it verified? If not now, when?

*(http://www.cen.eu for further reading) 16 PwC 4

Sustainability has strong growth prospects

Material gains in sustainability 17 Brand value, innovation and access Which of the following do you recognise as an important benefit of your to new markets are seen as the most company’s commitment to sustainability? important benefits of sustainability. 1% • 81% of respondents cited brand Brand value 35% 46% 17% value as an important benefit. 76% 2.6% cited innovation and 63% said Innovation 27% 49% 21% that access to new markets was an important benefit. Employee engagement 18% 35% 37% 8% 3%

Access to new markets 26% 37% 23% 10% 4% • There is little overall difference between small and large company Community relations / 18% 37% 27% 14% 4% views. However, 68% of companies License to operate under £50m turnover say that price Price premium 19% 36% 26% 10% 9% premium is an important benefit

of sustainability. This compares Share price / Market value 9% 33% 25% 13% 19% with just 43% of companies with 3% Employee recruitment turnovers over £100m. 33% 30% 31% 4% and retention

• The reputation of the materials is Very important Important Fairly important Unimportant Not a benefit as important as the reputation of the brand. The results of this survey demonstrate that no particular material category is ahead in terms of addressing sustainability.

“Being able to demonstrate energy “The question about green products efficiency in commercial installations is often asked. My view is that every “We’re gaining ethical product has brought extra business.” Worcester product can be green if used intelligently. acceptability which gives us market Bosch Let’s take a wind turbine that generates clean energy. It is considered as “green” advantage.” It is interesting to note that smaller hence steel and concrete that it is made Kingspan Insulation businesses within the sector are more of must be green too. This example likely to recognise the premium pricing shows that it is important to look at the opportunities that sustainability wider context so that the right questions affords. Whether this is actual or are being asked.” Lafarge expected is unclear. Elsewhere, others made the distinction between corporate reputation and the image of a particular material.

18 PwC improve their own performance and its communication to the market whilst at the same time are working, often through industry associations, to support the material’s image.

These initiatives are widespread, as demonstrated by the various sector working groups at the World Business Council for Sustainable Development, one of which is cement, another forestry. For industry associations as a whole, the response to sustainability has been overwhelming. Long established associations are devoting an increasing proportion of their energies to understanding and promoting the sustainability credentials of the materials they represent. In other cases, new organisations, such as the International Council on Mining and Metals, the Responsible Jewellery Council (RJC) and the “Two Sides” initiative in the paper sector have been established in direct response to sustainability concerns.

November 2010 saw the publication of the Low Carbon Construction Innovation and Growth Team report. Market differentiation Led by the UK government’s Chief or materials support? Construction Adviser and developed by industry, the report identified low Managing sustainability-related brand carbon as the megatrend. There are appeal is a complex proposition. First, four main themes, the size of the companies need to identify their market, opportunities for SMEs, wider customers’ key criteria. They then green growth and how to stimulate need to recognise that market impact demand for low carbon construction. is partly about brand and partly about Many separate actions will follow from material category perceptions, which this work. may themselves vary from market to market. An interesting tension There is also evidence that a ‘whole emerges: How far should companies value chain’ response commands focus on using sustainability as a point greater respect. That’s because it of differentiation from their direct takes responsibility for all the impacts competitors? How much effort do they generated by materials, from the devote to supporting their material sourcing of raw materials, right category against others, eg timber vs through to the use, disposal and concrete vs steel? Of course, many recycling of finished products. seek to do both. Companies work to

Material gains in sustainability 19 Timber certification has long been Retro-fit and used in construction e.g. FSC, PEFC but there are also two standards for refurbishment responsible sourcing of other materials Aside from brand and material namely BS 8902:2009 “Responsible category discussions, respondents sourcing sector certification schemes expressed considerable interest in for construction products” and a the potential for new markets. Most BRE standard BES6001 “Responsible recognise the major commercial Sourcing of Construction Products” opportunities that retro-fit and which is company based. There are refurbishment of existing building also resource efficiency plans and stock to improve energy efficiency product roadmaps for many products offer the sector. However, opinions including plasterboard, joinery and varied about the timing of the flooring. opportunity. How quickly it will take off and how sustained the growth will be are emerging as two key questions. The extent to which the Green Deal will serve as a kick-start remains unclear; the concern being that the incentives may be too weak to stimulate the market without more stringent measures. Some are also now thinking about the potential for an integrated refurbishment service: a suite of products developed and marketed specifically to address this need. or some, however, the opportunity appears more limited.

“Retro-fitting is a very active Key questions to consider topic; insulation, glazing, plasterboard etc, all where Saint- If the retro-fit market materialises soon, who will Gobain has interests. We’re be the winners? looking at providing these as part of a system meeting multiple Will companies that can provide complete retro- requirements, not purely stand- fitting services and products have an advantage alone products.” over companies that focus on a single product? British Gypsum Do you differentiate through sustainability at the brand level or the material level, or both? Have you considered, as a board, or as a Group Executive, how sustainability mega-trends will impact your business model over the next 10 years and beyond? What is the size of the opportunity for you and how will you take advantage of it?

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Quantifying impacts and commercial implications

Material gains in sustainability 21 Measuring the impact of products on For how many of your products If none, do you expect to put this in the environment is not a key priority have you completed carbon foot- place in the next three years? for all respondents. The extent to printing (CO emissions)? which companies use techniques such 2 as carbon foot-printing and lifecycle analysis (LCA) to an extent depends on customer demand for this data that provides a business rationale for spending time measuring the impacts.

12% • 40% of respondents have not completed carbon foot-printing 30% for any of their products but 70% 41% of these plan to implement carbon 22% foot-printing in the near future. 70%

• Ability and desire to quantify the sustainability impacts of products is lower in smaller companies. 3% 22% 61% of companies with less than £50m turnover have not completed None carbon foot-printing for any Yes products. Of these, 62% plan to A few No implement the technique in the Half of them future. The majority “LCAs cost several thousands per product so can be a major expense. All We’re looking at how we can do this in an economically viable way. It comes back to market demand, it will increase as BREEAM and Codes increase plus European legislation.” British Gypsum Key questions to consider How do you decide when to do an LCA? Which products do you do it for? Do you build the capacity internally, buy it in or help your industry association develop a response for the sector?

22 PwC Quantifying Have you made any attempt to quantify the commercial value of these sustainability impacts benefits to your company? Assessments of sustainable construction often lack an Price premium 9% 55% 36% understanding of how changes in building specification and material Access to new markets 9% 58% 33% use can have marked impacts and a multiplier effect when scaled up to Brand value 6% 61% 33% the building as a whole over its entire lifetime. For example, changes at Innovation 6% 62% 32% the individual product level within a built environment can have an Community relations/License to operate 13% 67% 20% impact of between a factor of 5 to 30 across the lifecycle of the product Employee engagement 11% 77% 12% through redesign and elimination of materials and power. Such whole- Share price/Market value 16% 74% 10% system thinking can lead to an outcome greater than the sum of its parts. So Employee recruitment and retention 14% 76% 10% using solar panels or a ground-source heat pump are only a step in the right Don't know No Yes direction. The breakthrough will come from thinking about a building as one ecosystem, with inputs and outputs over an extended period and where the outputs from one part of a system become the inputs for other parts. In the absence of an understanding Commercial of the current or potential “value A more realistic assessment of the opportunity” or “value at risk” it implications benefits of sustainable design and is appears to be difficult to know construction will not be achieved by where to focus investment in • The majority of respondents focusing solely on operating expense sustainability and how much to have not tried to quantify savings (through energy efficiency/ invest in order to realise or protect the commercial benefits of reduced operating costs over life of that value. Other sectors show the sustainability to their business. installed product). Rather, it will be way. GE’s Ecomagination programme This omission is even more marked by a wider consideration of capital – “commitment to imagine and in companies with a turnover of equipment savings which will radically build innovative solutions to today’s below £50m where no respondents change the equipment spend/load environmental challenges while had made an attempt to value required to achieve the desired built driving economic growth” – has the benefits of sustainability environment objectives. The reduced been widely recognised as a leading in accessing new markets or need for spend on equipment through example. GE measures revenues from innovation. the redesign and super-efficiency of and investments in, products that installed products actually achieves contribute to this goal and prioritises • In order to drive sustainability negative payback periods (ie positive investments in this area. The greater in the sector, shareholders and return at time of installation/sale). the revenue, the more the case is made management must understand for further investment. the commercial as well as the environmental value of sustainability. Quantification of GE measures revenues from and investments in, products that these benefits will support the contribute to this goal and prioritises investments in this area. business case for action.

Material gains in sustainability 23 Key questions to consider Do you understand the size of the opportunity presented by sustainability? Do you understand the cost of the investment to realise it?

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Investment is needed but there are barriers to overcome: inertia, cost and initiative overload

Material gains in sustainability 25 • 72% of respondents spend 5% or What is the size of your annual expenditure/investment in ‘green’ products, less of their turnover on sustainable technologies and methods as a percentage of your turnover? products, technologies and methods.

• Return on investment period is one factor limiting investment in sustainable products. It is assumed 2% 26% 43% 16% 13% that payback for sustainability 16% investments is often over a longer time period. 0% Less than 1% 1% to 5% 5% to 10% More than 10% 0 20 40 60 80 100 120 • Companies are still trying to understand how best to go to • Companies in the sector recognise market with sustainable products that to sell sustainable products, they will need to invest time in and services. The demand for these 43% needs to come from the customer training their salespeople and in to make investment in sustainable understanding the wide range of products worthwhile and to policies and initiatives. convince financial stakeholders of “We have to sell the financial opportunity their value. to our stakeholders first. A problem is the capex payback period, which is typically 3-4 years. Most of the return- on-investments on sustainability can be 10-12 years.” Jewson

“5-10% of turnover Global Bosch business is definitely of that order – R&D investment is enormous especially in heating division.” Worcester Bosch

26 PwC How do you rate the strength of the following as barriers to a strategic approach to sustainability?

1% 1% Difficulty in changing the industry’s habits 34% 50% 14%

3% Costs 25% 57% 15%

4% Too many policies and different initiatives 26% 54% 12% 4%

3% Insufficient 5% skills/understanding 10% 54% 28%

Other strategic priorities 21% 38% 25% 8% 8%

Lack of information on regulations 9% 39% 33% 9% 10%

Very strong Fairly strong Fairly weak Very weak Not a barrier

Inertia and a “At every point in the cycle of construction there are gaps in knowledge fragmented value chain about green products. At design The fractured nature of the stage there is more knowledge but at construction supply chain, varying distribution very little understanding of levels of knowledge and skills the benefits. For these products you need concerning low carbon products and an understanding of the whole system techniques and natural resistance to to see their benefits. Often this industry change remain the most important doesn’t operate like that.” Travis Perkins barriers to adopting a strategic approach to sustainability.

“There is such a long tail of small and medium sized builders in the UK that only 5% of our customers are larger companies. Without good training and awareness of the opportunities available from sustainable products, the smaller players will be reluctant to go for the more sustainable option when cheaper alternatives are available.” Jewson

Material gains in sustainability 27 For smaller companies, in particular, cost and capacity remain issues

• 22% of smaller companies see delivering their sustainability programme as a significant extra cost. This compares with just 9% of large companies.

• Smaller companies see cost as the main barrier to sustainability. All respondents from companies with less than £50m annual turnover cite cost as a strong barrier. In comparison 68% of respondents from larger companies saw cost as a strong barrier.

• In terms of capacity and skills, 76% of small companies felt this was a strong barrier to sustainability compared to 53% of large companies. “We need to reduce the uncertainties. • There is a need for sustainability Too many initiatives? If carbon policy and regulation are programmes to pay for themselves While 19% of respondents stated constantly changing then best to through return on investment or that more regulation would be a wait and see, which gets us nowhere increased revenues. good incentive, comments from in the long run. Policy change and the questionnaire and interviews fragmentation increase the risk levels. suggest additional but rather different Simplicity, continuity and consistency regulation that is simple and tailored are so important.” British Gypsum to the circumstances of different construction sub-sectors. It appears that manufacturers are overwhelmed with regulation, and yet there aren’t enough providers to carry out the testing. Respondents said that legislators should speak to the industry and better understand key issues in each sector so that they can adapt regulations and incentives accordingly. In addition, they said these need to be developed with input from the industry and it is vital that policy is consistent in the long term to reduce risk and encourage investment and more innovation in the sector.

28 PwC Consumer attitudes How do you view the cost How do you view the cost associated with delivering your associated with delivering your Several respondents noted that sustainability programme sustainability programme investment in highly energy-efficient (£100m+ annual turnover)? (less than £50m annual turnover)? buildings lacked the degree of consumer appeal associated with a new kitchen or bathroom. Sustainable 10% 11% features lack a ‘wow’ factor for the 21% mass market, although there are signs 8% that for one material – timber –, this 31% may be changing.

50% 9% 60%

Pays for itself

Neglible extra cost

Some extra cost

Significant extra cost

“People don’t view building materials in the same light as clothes and consumer goods. One product which has ‘crossed over’ is timber. Timber certification is our line-caught tuna, we’re seeing increased demand for fully accredited timber.” Jewson

Material gains in sustainability 29 Key questions to consider How then to ensure that the value inherent in a sustainable home, commercial building or piece of infrastructure is recognised by the ultimate owner? How best do you ensure that small and medium- sized businesses within the value chain receive the incentives and training to encourage delivery of sustainable construction?

30 PwC Conclusions

• The construction products sector understands the opportunities presented by low carbon construction, but the wider construction industry needs to embed sustainability in their procurement choices

• Sustainability is a strategic asset for products manufacturers, that contributes to manufacturing efficiency and product differentiation

• Regulation is a key driver towards delivering sustainable construction

• The planned introduction of the Green Deal in 2012 is evidence of Government’s intention to encourage the sector towards low carbon

• There is a need to standardise both sustainability impacts and commercial benefit of sustainability, across Europe

• Despite the current economic conditions, R&D investment in products that deliver sustainability targets is needed, but requires better stakeholder engagement and market confidence

• Government needs to continue to set clear long-term and consistent sustainability targets

• Sustainability is about more than just carbon reduction

Material gains in sustainability 31 Recommendations

For Government • Companies should work to understand what sustainability measures are important to their customers • Government could look to differentiate between and the commercial value to them of meeting these properties of varying energy efficiency levels, for expectations. They should then ensure they develop example, through the council tax or business rates, programmes to manage these aspects effectively and with less efficient properties attracting higher rates. communicate their performance. This will provide clear incentives to achieve higher energy efficiency while achieving overall fiscal • Companies should consider the opportunity represented neutrality. by the retro-fit market and whether offering complete • Government could continue to both incentivise retrofitting services or systems, either alone or in and mandate sustainability improvements through partnership, is worthwhile. far-reaching goals and clear time-tables, for the sustainability performance of new construction and • Companies need to understand the sustainability for the refurbishment of existing buildings. aspects of their manufacturing operation as well as the whole life use of their products in order to embrace sustainability as a strategic asset. For industry • Companies need to embed sustainability firmly into their • Companies should actively and creatively consider culture, to ensure the whole workforce understands and how sustainability will impact their business models can buy-in to the company’s sustainability objectives. over the next 10 years and beyond and put in place strategies to ensure they benefit.

32 PwC About this report

PwC and the Construction Products Association worked together to produce an online survey that was sent to the Association’s membership. Over 100 businesses completed the survey, including many of the sector leaders, collectively representing more than £15bn of turnover. One quarter of responses came from companies with turnovers below £10m and 10% was from companies with turnover in excess of £1bn. Material categories included aggregates, concrete, ceramics, glass, insulation, metals, plastics, timber, manufactured components and wholesalers. No single category was dominant. Responses came from CEOs, business unit MDs, Commercial Directors, Heads of Sustainability and others, in roughly equal proportion. Following the online survey, a series of follow-up telephone interviews were completed with fifteen respondents who had expressed a willingness to contribute further. The information in this report has been developed from a quantitative analysis of the data, from impressions and opinions from the contributors and from PwC and the Construction Products Association’s own views.

Material gains in sustainability 33 34 PwC Contacts

Jonathan Hook Chris Temple Mark Thompson Partner Partner Director Global Engineering & Construction leader, Global Construction Products leader, Sustainability & Climate Change, PwC PwC PwC +44 (0)20 7804 4753 +44 (0)20 7213 4601 +44 (0)20 7804 9643 [email protected] [email protected] [email protected]

John Tebbit Simon Storer Industry Affairs Director Communications and External Affairs Construction Products Association Director +44 (0)20 7323 3770 Construction Products Association [email protected] +44 (0)20 7323 3770 [email protected]

Material gains in sustainability 35 36 PwC Further reading http://www.constructionproducts-sustainability.org.uk/ www.pwc.co.uk/sustainability

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Material gains in sustainability 37