Circular economy: Opportunities in the construction sector

Circular economy principles are transforming the way we manage resources, and our approach to making and using products, across a wide range of industries. This post discusses why the circular economy is particularly relevant to the construction sector, and how the legal framework underpinning construction projects can support adopting these principles.

What is a circular economy?

Circular economies are regenerative models of production and consumption designed to benefit businesses, society and the environment. In contrast to the “take-make-waste” linear model, the circular economy aims to “make-use-return” to avoid the increased carbon emissions, pressure on landfills and other unsustainable practices associated with the linear model. 

Achieving a circular economy often begins at the planning stage, by considering what will happen at the end of a product’s life, to keep products and/or materials at their highest utility and value for as long as possible.

Why is construction a good candidate for adopting circular economy principles?

Circular economy principles are particularly relevant to the construction industry, with the built environment being one of the largest global consumers of resources and a major producer of waste.

Adopting a circular approach in such a high-waste sector presents significant opportunities for businesses, governments and cities to minimise structural waste and realise greater value from their built assets – combining environmental and economic opportunities.

Many of the key drivers of circular economy growth potential arise in the construction space, including the demand for finite resources due to rapid urbanisation and the need to cater for growing populations.

There is a strong business case for introducing circular principles to construction projects: the World Economic Forum estimates that the circular economy could contribute $1 trillion a year to the global economy through reduced material use by 2025.  This represents a clear opportunity in an industry where, in the UK for example, the average price of construction materials rose by 4.6% between 2019 and 2020.

How is circular economy applied to construction? 

Circular economy approaches to construction fall on a spectrum, from the selection of sustainable materials, to the re-use of assets themselves. Some of the varied applications of circular economy thinking include:

• Re-use of existing assets, or of products and materials within assets. Derwent London’s Angel Building reused an existing concrete frame, saving 7400 tons of CO2 in the construction process.
• Design of assets for longevity, adaptability and recoverability. Circle House, in Denmark, is a social housing project which was designed to be disassembled, using a structural system with a limited number of elements.
• New payment structures, for example, buying services versus products. The Kings Cross National Union of Students building uses a business model whereby Philips offers lighting as a service, retaining responsibility for the utility’s performance. These structures incentivise manufacturers to reduce energy consumption with sustainable designs with fewer replacements.
• Responsible design and construction, for example, using sustainable new materials or recycled materials. The Enterprise Centre at the University of East Anglia used natural and bio-renewable materials sourced through local supply chains in its construction, providing a 62% embodied carbon saving.

Legal framework

Any meaningful transition towards a circular economy in the construction sector will require the support of regulatory and contractual frameworks to drive behaviour and manage risk appropriately.

Policy framework

Ideally the policy environment must disincentivise unsustainable practices and incentivise (with the goal of ultimately normalising) circular behaviour. Examples include setting targets around material re-use, revising waste management regulations and mandating requirements on publicly procured projects.

Circular economy practices are already being encouraged through policy, for example:

• Denmark’s Taskforce on Resource Efficiency aims to identify barriers to circular economy practices in existing regulations, and to propose options to overcome them. 
• In the UK, the London Plan 2021 requires all new developments above a certain size to submit a Circular Economy Statement, intended to cover the whole life cycle of development, to help architects embed circular economy principles.
• The UAE’s Ministry of Climate Change and Environment issued a resolution in 2019 allowing for construction projects across both private and public sectors to use up to 40% recycled aggregate materials.

The private sector can assist in driving policy change by incorporating circular economy principles and practices in its own projects. This behaviour can complement changes at the policy level, produce an evidence base for circular practices and ultimately help to make these best practice across the industry.

Managing risk on circular projects

Historically, assets have not been designed with circular economy principles in mind, and the long-term horizons characteristic of construction projects may deter contractors from committing to particular recycling or re-use requirements.

However, certain technological and commercial developments may provide comfort to contractors:

• Technologies that are already gaining traction in the construction industry, such as BIM, can advance circular construction and assist owners and contractors in becoming more comfortable with recycling and repurposing requirements. BIM produces accurate digital representations of buildings, allowing different stakeholders to understand the design of a building, and share knowledge, through a common data environment. In the maintenance phase, BIM can identify when products are due to be replaced, providing project teams with a better understanding of the longevity of the asset.
• Similarly, “materials passports” (being digital documents which contain all the materials included in a product and give products a value for recovery and re-use) can assist in understanding the future life of assets, again providing assurance that re-use requirements can be met, and allowing achievable requirements to be agreed in the first place.
• From a commercial perspective, there are now insurance providers who assess the durability of reused building materials and technologies to provide underwriting services to the construction industry as it adopts circular economy practices. 

Incorporating circular economy principles in existing contract delivery models 

One of the greatest challenges for circular projects is the fragmented nature of the construction industry, as circular principles require collaboration among asset lifecycle stakeholders. Clear connections between decision-makers at the design stage and the longer-term consequences of their decisions can incentivise sustainable designing. Collaborative structures also allow knowledge sharing in order to track materials and identify assets for reuse/recycling and can streamline logistics to avoid waste and minimise carbon impact.

Some contractual frameworks familiar to the construction industry already facilitate this collaboration:

• Design, build, operate and maintain (DBOM) contracts: Responsibility for designing, constructing, operating and maintaining a facility is held by a single entity, incentivising that entity to design sustainably in order to save money (by avoiding asset replacements) in its operator role.
• Project 13: This alternate delivery model is intended to change the relationship dynamics across construction projects through the use of “enterprises”. All parts of the enterprise are aligned to the user outcomes of a project, encouraging highly collaborative teams, and joint mitigation of risks.
• Partnering and alliancing techniques: Joint working and cooperation promotes the use of shared information. Standard form contractual documentation is available to adopt partnering provisions on individual projects.  

Of course, each of these areas of the legal framework will need to be further considered as a greater evidence base is built, and circular thinking becomes more engrained in construction projects across the sector.

Further reading

For further information on the wider policy landscape supporting the transition to a circular economy, see, for example:

• the New York Circular City Initiative. The initiative, convened by Freshfields and now led by the NYC Economic Development Corporation, is a collaboration between city agencies, businesses and the public sector to help New York City transition toward the circular economy. 
• the European Union’s Circular Economy Action Plan. Adopted by the EU in March 2020, this action plan sets out legislative and non-legislative initiatives intended to cover the entire economic life cycle of products, including construction and demolition material flows, to support the implementation of circular economy principles across a number of industries.