Decarbonising cement and concrete value chains: Takeaways from Davos (Part 2)

New opportunities for investment and green-business building arise

There is enthusiasm but uncertainty regarding how best to invest in cement and concrete value chains. Today, the primary bottleneck in developing the necessary technology is identifying and facilitating the right individual projects.

When it comes to decarbonising the built environment—cement and concrete in particular—the industry must reconsider its approach to mobilising capital and move away from large green-transition funds, which are insufficient in scale and not easily defined in scope. Instead, investors should embrace a project finance approach that considers the entire value chain, developing new strategies for how best to move capital across it. Investments in small, specialised start-ups will accelerate the development of the technology required to create the next generation of green building materials. These investments should not focus on acquiring publicly listed companies; rather, investors should proceed project by project until the right technology emerges with the credibility and returns to justify a larger-scale transition fund. Mobilising such capital will be difficult but essential to accelerating these solutions.

Because the decarbonisation of cement and concrete value chains will not be immediate, the industry should continue to invest in existing green technologies. For example, investing in the existing market for recycled materials and waste will prepare those spaces as the circular economy of concrete emerges.

Collaboration is paramount

The cement and concrete value chains reach across society, connecting materials suppliers on one end to property owners and users on the other—with six or seven additional parties (for example, architects and designers, construction companies, supply chain facilitators, and many more) in between.

For the journey toward circularity to succeed, the entire value chain needs coordination. Otherwise, the industry will not move quickly enough in developing the sector to create an attractive environment for players looking to invest. Panel members mentioned that introducing recycled materials into the cement value chain might require collaboration among as many as 15 parties. Because many of these parties don’t typically interact with one another, it could be challenging to establish a circular supply chain; for example, one party at the end of the value chain might need to bring waste materials all the way back to the beginning.

Beyond coordination among many actors, cross-industry collaboration faces other challenges. For instance, panelists identified that delays caused by sluggish building code changes can be a deterrent to decarbonising technologies. While these codes offer essential protections, if regulators are not brought into the conversation, they will consistently be behind innovations in construction materials. Furthermore, steps within the value chain, such as waste recycling, often occur on a very local level. However, for these technologies to work, they require truly global solutions forged through multiple stakeholders. Thus, partnerships must span geographies to effectively advance innovations and identify opportunities to apply them.

To overcome these obstacles, it is crucial to develop forums and mechanisms for collective action to bring these parties together. Luckily, first efforts already exist—for example, the Net Zero Built Environment Council, initiated by McKinsey.7 Such partnerships will enable collaboration across the value chain, incorporating each facet of the circular economy so that when the essential technologies emerge, no business model will be the source of delay.

Although the sector is moving at great speed, further action is required to build a net-zero value chain. The McKinsey-hosted panel discussion in Davos showcased the great openness of participants across the sector for solutions that work toward a net-zero built environment, and it highlighted how much is already happening across the value chain. Panels such as this one and others that the council hosts will continue to motivate discussions in this area and bring stakeholders across industries together to accelerate and foster cross-industry collaboration.

The first part of this story can be accessed here.

About the Authors

Sarah Heincke is a consultant in McKinsey’s Berlin office, Jukka Maksimainen is a senior partner in the Helsinki office, and Sebastian Reiter is a partner in the Munich office.

References

7. “Accelerating green growth in the built environment,” McKinsey, November 2, 2022.

Read the article online at: https://www.worldcement.com/special-reports/06022023/decarbonising-cement-and-concrete-value-chains-takeaways-from-davos-part-2/