Sustainable Construction

The construction sector is emerging as a crucial player in the global shift toward becoming “Nature Positive,” as highlighted by UK-based biodiversity consultancy, Biodiversify. While the built environment sector is responsible for up to 30% of global biodiversity loss, some leading construction businesses are making strides to mitigate this impact.

Building materials company Holcim made headlines in October 2024 as one of only three companies globally to publicly adopt science-based targets for nature. This move demonstrates that ambitious, credible action toward nature positivity is achievable, even in the building materials industry.

BAM, a signatory of the Nature Positive Business Pledge and an early member of the Supply Chain Sustainability School, is also leading the way by integrating biodiversity considerations throughout its supply chain. These examples reflect growing momentum in the construction industry to adopt nature-positive strategies and help preserve biodiversity for future generations.

Biodiversify reported a marked increase in construction companies seeking expert advice to embed Biodiversity Net Gain (BNG) into their projects, particularly during the development of offices, depots, and manufacturing facilities.

The boutique consultancy has praised the industry for starting to scrutinise its supply chain, tracing the origins of raw materials such as aggregates and timber, and leveraging certification standards to make informed sourcing decisions that support biodiversity.

This emerging focus is aided by the recent work of the UK Green Building Council (UKGBC) and Supply Chain Sustainability School to promote the business imperatives of sustainable procurement.

Biodiversify is currently undertaking groundbreaking work with the UKGBC to address the embodied ecological impacts that are caused by the resource extraction and manufacturing process, such as the production and transportation of raw materials and the disposal of unused materials. This work builds on the insightful 2023 report published by Expedition Engineering on ‘The Embodied Biodiversity Impacts of Construction Materials’.

Voluntary frameworks, such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science-Based Targets Network (SBTN), have also played a pivotal role in encouraging the construction sector to assess its relationship with nature, aided by legislative drivers including the Corporate Sustainability Reporting Directive (CSRD).

Daniel Oldham, Principal Consultant at Biodiversify, said: “The construction sector has made impressive progress in addressing its impact on nature, demonstrating its capacity for meaningful change.

“Voluntary nature frameworks have played a key role in helping the industry adopt robust methodologies for assessing impacts and dependencies on nature, enabling more informed and effective strategies. Many organisations are now wanting to align with science-based targets for nature, inspired by early adopters.”

“Legislation like the Corporate Sustainability Reporting Directive (CSRD) and the upcoming European Union Deforestation Regulation (EUDR) are providing a strong foundation. However, the construction industry can make an even greater impact by fully embracing science-based frameworks and integrating biodiversity considerations across its entire value chain.”

Biodiversify predicts that the momentum within the construction sector will continue to grow in 2025, spurred by legislative requirements and an expanding awareness of biodiversity’s critical role in business resilience.

Sustainable housing is critical as the sector contributes approximately 17% of global energy-related carbon dioxide emissions. This highlights the urgent need for innovative strategies to build, operate, and maintain more environmentally friendly structures. Stewart Investors, a leading active equity specialist in sustainable investing, has identified six global companies at the forefront of transforming the housing sector to embrace sustainability.

“As the need for housing continues to accelerate globally amid volatile climate conditions, finding solutions to building durable structures and reducing the sector’s carbon footprint takes on greater urgency,” said Clare Wood, portfolio specialist for Stewart Investors. “We believe that investing in companies that support environmentally conscious home building and maintenance will deliver strong returns to investors. These are companies that supply the industry in a variety of ways, and we believe they are positioned to participate materially in its evolution across market cycles.”

According to Stewart Investors, the following six companies (in alphabetical order in each of the three housing-related challenges identified) are contributing meaningfully to sustainable housing:

More Efficient and Sustainable Construction

Ashtead Group:  Ashtead is a U.K.-based equipment rental company.  Ashtead’s business model focuses on rental equipment for the global construction industry, reducing the need for the manufacturing of new equipment and extending the life of existing tools. A Stewart Investors holding since mid- 2024, Ashtead actively reduces its direct carbon footprint, effectively manages waste and water, and drives sustainable practices through its value chain.  With significant scale in a large and fragmented market, Ashtead’s cash flow has increased 10 percent annually over the past 10 years.

Nemetschek Group: Based in Germany, Nemetschek offers a broad portfolio of software solutions to the construction industry, focused on resource efficiency. Its use of Building Information Modelling (BIM) allows for more precise and efficient planning and construction, minimizing errors and reducing energy requirements. Nemetschek has been a Stewart Investors holding since late 2021. The company’s recurrent revenue represents more than 80 percent of total sales, which have risen by 11 percent a year over the five years ended Sept. 30, 2024.  Earnings per share have increased 8 percent yearly over that same period.

Resilience to Extreme Weather

Advanced Drainage Systems:  U.S.-based Advanced Drainage Systems (ADS) provides sustainable water management solutions that seek to safeguard the environment and build resiliency in communities. As storms increase in frequency and intensity, ADS’ water management solutions help reduce flooding, recharge aquifers, improve food security, and mitigate the risk of water scarcity. Given the inadequacy of existing water infrastructure and massive long-term expenditures needed to address the objectives of the U.S. Clean Water Act, ADS, a Stewart Investors holding since early 2023, is well positioned for continued growth. Its revenue has increased by 14 percent over the five years ended Sept. 30, 2024.

Simpson Manufacturing:  The products of U.S.-based Simpson seek to make homes and buildings more resilient. The company designs and manufactures products including moment frames, shearwalls, structural connectors, anchors, fasteners, and fiber-reinforced polymers to keep structures safe and strong. These products are increasingly important in the context of climate change and related climate events. Simpson, held by Stewart Investors since the third quarter of 2024, has increased revenue by 10 percent annually over the past 10 years. Stewart Investors believes the pent-up demand for housing and the aging of U.S. housing stock may provide ongoing catalysts for continued growth.

Energy Efficiency

TopBuild Corp.:  TopBuild, based in the U.S., installs and distributes insulation and building materials to the U.S. construction industry. Insulation is key to sustainable construction and more efficient energy use. A Stewart Investors holding since mid-2024, TopBuild seeks to unlock the full potential of insulation to improve energy efficiency. With 40 percent market share in the U.S. residential market, TopBuild’s revenue has risen by 15 percent and earnings per share by 30 percent yearly, respectively, over the five years ended Sept. 30, 2024.

Watsco, Inc.:  U.S.-based Watsco is the largest American distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (HVAC/R). Its goal is to lead the transition to low carbon, high efficiency HVAC units and heat pumps for millions of homes and businesses within its markets. Stewart Investors has held Watsco since mid- 2022.  Watsco has increased revenue and earnings per share by 10 percent and 15 percent, respectively, over the five years ended Sept. 30, 2024.

 “At Stewart Investors, we have long held that sustainable outcomes and long-term profitability are two sides of the same coin,” Wood said. “These companies, and others in our portfolios, exemplify that investment thesis.”

Investors can find Stewart Investors’ holdings in its Portfolio Explorer tool, which details the investment team’s approach, identifies the companies held in the firm’s strategies, and explains how these stocks are contributing to sustainable development.

Launched in 2021, Portfolio Explorer was developed to help investors explore strategies, companies, countries and sustainability issues of interest in four views: map, human development pillars, climate solutions and sustainable development goals. Each of the four views contains relevant sub-categories.

The companies highlighted above were gathered from the larger universe of approximately 200 companies held across Stewart Investors’ emerging markets, regional and worldwide equity strategies.