The future looks green; budgeting in the construction industry

The dollar has been unchallenged at the head of the budget table since its inception, but is that about to change?

As the voice of embodied carbon gets louder, one question starts to emerge into the foreground: could a carbon budget overthrow the monetary budget in our near future?

In our view, it could – for two reasons.

Firstly, our Government has passed legislation that makes climate-related disclosures mandatory for some large financial market participants from financial years beginning on or after 1 January 2023. Although this requirement is due to be phased in gradually – and currently only applies to large publicly listed companies, insurers, banks, non-bank deposit takers and investment managers – not only will it widen to other sectors over time, but it will also have an early trickle-down effect into the development and construction sectors that constitute substantial proportions of their lending and insurance books.


Secondly, many large developers and constructors in New Zealand and overseas have responded to their government and other clients’ desire to improve environmental project performance – increasingly weighted in procurement processes – by creating strategies to move ahead in this area. Then they look to publicly disclose their intent and progress in annual sustainability reports. In turn, these reports are being increasingly scrutinised for vague or unfulfilled claims, in some instances leading to a rise in so-called ‘greenwashing’ lawsuits. In fact, the London School of Economics’ Grantham Research Institute on Climate Change and the Environment announced late last year that there are more than 2,000 climate change litigation cases underway around the world, more than double those taking place in 2015.

The effect of these two factors is clear

Unambiguous embodied carbon targets are rising in importance. So, although we have seen them enter the conversation on projects but not yet taking precedence over dollars, we ask: could we be approaching the tipping point?

Government clients are increasingly requiring the first steps along this path. A late-2022 Ministry of Education (MOE) release extract (below) shows how the Ministry is introducing carbon assessments for new builds, a natural first step that will no doubt be followed by additional steps. And the MOE is by no means alone in this area.

The Ministry of Education put out a news release late last year saying:

Carbon assessment for new build projects

As part of Te Mahere Taiao – The Environmental Action Plan for School Property – we are progressively implementing embodied carbon and operational carbon assessment requirements and targets for Ministry-led new builds.

Upcoming requirements:

Ministry-led new build projects contracted after 1 September 2022, with a capital value over $8m, will be required to conduct Life Cycle Assessments. It is optional and encouraged for all Ministry-led new build projects to opt-in and conduct Life Cycle Assessments.

Our intention is to progressively incorporate carbon assessment into business-as-usual processes and our design standards (within DSNZ) at a pace that the industry is capable of accommodating.

We are starting with high value projects, embodied carbon calculations, and simplified energy use calculations. Next year, we will progress to lower value projects and include whole-of-life operational carbon reporting. We will keep design teams updated with timelines and any changes to our requirements.

As public and private sector clients become more environmentally conscious and demand more sustainable building practices, becoming increasingly aware of the carbon footprint of building projects, they will prioritise low-carbon materials and construction methods. This will put pressure on the construction industry to prioritise carbon budgets over financial budgets in order to meet client demands.

Private companies and individuals are already taking steps to reach the targets that Government departments are striving for. This work applies not just to the big construction companies but also consultancies, subcontractors, suppliers and other smaller companies further down the supply chain, all of whom are being / going to be asked by their Tier 1 contractor clients to do more too as time progresses.

One thing is for sure: carbon budgets are emerging into importance, and it is possible that overall carbon budgets for a project might even overtake financial budgets in the construction industry of New Zealand – as the financial budget might end up by being just a component of the carbon budget, rather than the other way around.

The construction industry will need to play its part in reducing emissions, and carbon budgets will be an essential tool in achieving this goal.

How might this process work in practice?

Historically, clients come to us with a question of either, ‘here’s what we want to do. How much will it cost?’ or ‘I have a budget of $x, what can I do with it?’

This conversation is evolving into to, ‘here’s what we want to do. What is a reasonable embodied carbon target?’ Or ‘I have an embodied carbon limit of x. What can I do with it?’.

We are already helping clients by analysing embodied carbon on different options for designs to see which is the most efficient/lowest carbon option. This type of option engineering is just one way we can work alongside your design team to determine the most efficient embodied carbon option.

Companies looking to make the most of this process should come and talk to us. The construction industry has operated for a long time with dollars defining budgets. We’re entering a fast-paced period of change over the next decade, and the winners will be those who respond well.

This article was contributed by White Associates' Richard Moore-Savage

Richard Moore-Savage, Associate
Richard Moore-Savage, Associate