The UK construction sector will make significant strides in tackling sustainability in 2022, as the market attempts to lower its carbon footprint in line with the Government’s wider climate change target.
Reducing carbon emissions is the area of business performance that construction leaders think will change the most in the next 12 months. According to BDO’s Construction in 2022 and Beyond, 48% of businesses surveyed as part of the annual report think their company’s carbon footprint will decrease in 2022. 66% of companies also have carbon neutral targets in place.
Last year, the Government set the world’s most ambitious climate change target to reduce emissions by 78% by 2035 compared to 1990 levels. Globally, the construction sector is responsible for 30 to 40% of natural resource use and 30% of greenhouse gas emissions.
Paul Fenner, partner and head of construction at BDO LLP, said: “While many large companies have already embedded environmental, social and governance (ESG) measures into their business, there is still a considerable way to go to ensure the entire sector is playing its part in meeting the UK’s ambitious climate change targets.
“With a raft of Government regulations aimed specifically at construction, such as requirements to have a carbon reduction plan in place for any public sector contract over £5 million, the direction of travel is clear.
“It’s promising to see that the wave of adoption and acknowledgement of ESG is gaining real momentum and viewed as one of the biggest areas of change when it comes to business performance in 2022. This is particularly clear in our latest Rethinking the Economy survey, which shows 60% of real estate and construction companies have declined to work with clients because of their ESG credentials.
“However, a number of smaller subcontractors simply don’t have the ability to meet the substantial costs that are associated with ESG and, as a result, this may have repercussions on future revenues. At present, many construction companies are still in survival mode and not thinking about the wider implications of ESG, but it’s vitally important that the industry does find ways and means to invest in an ESG strategy over the next three to five years to reduce carbon emissions and help save the planet.”
The Construction in 2022 and Beyond report also showed that optimism remains high in the sector, after a significant number of companies (47%) performed better than expected last year.
According to the survey, 91% of respondents feel positive about the prospects for construction in the UK – up from 87% last year. Three quarters of those surveyed also expected revenue to increase in 2022, with profitability (63%), order books (63%), headcount (61%) and capital expenditure (50%) also set to rise.
The latest official figures show that construction delivers £110 billion to the British economy and provides jobs for 10% of the country’s workforce. Overall, the construction sector output has grown by 1.1% at February 2022 when compared to February 2020, pre-pandemic levels, largely off the back of a 25% growth in Infrastructure.
Fenner said: “Construction is arguably one of the industries that has rebounded most quickly from the impact of the pandemic, with most subsectors now close to or at pre-pandemic levels of growth. This is in large part to long-term contracts spanning two to three years.
“While the outlook for construction looks bright, the sector must be mindful of the trading period that follows the end of these contracts and how this will impact on future revenue and profit. The key will be to focus on growing profitable contracts, rather than just increasing top-line revenue, while using innovation and technology wherever possible.”
The report has highlighted several long-standing concerns for the sector, such as the skills gap, supply chain resilience and ongoing materials price inflation. Three quarters of respondents stated that recruitment was the biggest challenge facing the UK construction sector in 2022, with gaps in knowledge and training, an aging workforce and the supply of overseas workers also posing a problem.
Fenner added: “Just when you thought it was safe to get back to the building site, uncertainty once again rears its head. After two years of seriously challenging conditions, the sector faces yet more trials in 2022 in the form of soaring energy prices, raw material prices, labour inflation and material shortages, adding to input costs and the evolving situation in Ukraine creating further unpredictability.
“As a result of material price inflation, low margin contracts in the industry – and the fact that Government COVID subsidies have now come to an end, resulting in tax deferrals and loans having to be repaid – there will be a real concern in the industry that a number of subcontractor may potentially fail. This, in turn, will cause issues and delays in completing contracts, which may have a spiralling effect.”