Urban Transformation

Why this Japanese circular built environment makes economic and environmental sense

A busy street view of Shibuya, Japan, illustrating a built environment

The built environment in Japan is beginning to embrace a circular economy Image: Photo by Jezael Melgoza on Unsplash

Anis Nassar
Lead, Circular Economy Innovation and Business Engagement, World Economic Forum Geneva
Sebastian Reiter
Partner, McKinsey & Company
Yuito Yamada
Senior Partner, McKinsey & Company
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Nature-Positive Cities

This article is part of: Centre for Nature and Climate
  • The world's population is increasingly gravitating towards cities.
  • Millions of urban homes must be built to accomodate this influx.
  • This must be done sustainably and Japan hopes to lead the way with its built environment.

By 2050, around 68% of the global population will live in cities. Delivering the new construction needed to house these populations requires building a city the size of New York every 40 days. The challenge of the century is to sustainably meet this demand.

While the construction industry contributes more than a quarter of global greenhouse gas emissions and 100 billion tons of waste per year, it also employs 7% of people globally and accounts for 13% of economic output. We need, therefore, to ensure the transition to a sustainable built environment supports continued economic growth.

Joint research by the World Economic Forum and McKinsey, Circularity in the built environment: Maximizing CO2 batement and business opportunities, demonstrates that transitioning from a linear to a circular economy in the built environment could simultaneously fuel economic growth and reduce CO2 emissions.

We examined the six building materials with the most substantial carbon footprint and resource consumption: cement, steel, aluminium, plastics, glass and gypsum. We found that switching to a circular economy could abate 75% of embodied emissions and up to 4 gigatons of CO2, adding up to $360 billion in extra net profits annually by 2050.

New practices, new advantages

Among the building materials we investigated, cement is the biggest carbon emitter, contributing 30% of building materials-related CO2 emissions and 8% of global CO2 emissions. Decarbonizing cement is difficult due to the energy needed for its production and the CO2 emitted through related mining, processing and manufacturing. Circular economy practices, such as smart crushed aggregates (where crushed old concrete is used as filler for new concrete), could abate 96% of embodied CO2 emissions from cement and create $122 billion of net profit gain by 2050.

Other environmental advantages could come from recirculating used minerals and materials (~26% CO2 abatement); renewable and recovered energy in materials production (~9%); and, reduced emissions through carbon capture, storage and utilization (~40%). We also estimate that the built environment could drive wider sustainability across other sectors, for instance, by absorbing and reusing much of the world’s plastic waste.

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Barriers to scale

Yet, despite the potential, the construction industry is still largely linear. A siloed construction value chain hinders the end-to-end coordination and transparency of available feedstock and the integrated materials ecosystem required to achieve circularity. Many decisions affecting a project’s carbon emissions are typically locked in before construction even begins. Circular economy standards are similarly disparate, with varying requirements and demand for circular materials across different assets and countries hampering the recirculation of resources across the global economy.

Such fragmentation prevents circularity ‘lighthouses,’ breakthrough solutions that demonstrate environmental impact, scalability and financial viability from being disseminated and emulated among peers.

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Collaborating for circularity

Realizing the environmental and economic potential of circularity in the building sector requires coordination across materials, cross-sector partnerships and harmonization of standards to connect a global circular economy and tackle fragmentation.

Material suppliers could collaborate with designers and contractors to develop reusable and interchangeable materials or increase material efficiency. For instance, we estimate that 10-15% of concrete and steel consumption could technically be saved by reducing overspecification, optimizing building design and using more durable substitutes without compromising integrity and safety.

Circular thinking could be adopted at the outset so sustainability is baked in at the design stage through everything from modular construction methods to ‘design for disassembly.’ Embodied carbon is irreversible once an asset is built and accounts for up to 50% of lifetime emissions.

Combined gains

Our report demonstrates that transitioning from linear consumption and production patterns towards a sustainable circular approach could drive combined environmental gains and economic growth in construction. This requires a parallel transition from a decentralized to a connected economy built around cross-sector collaboration, coordination and circular thinking. And, it involves embracing innovative new business models and technologies.

The prize is an economically and environmentally viable way to provide the new infrastructure needed by 2050, an environment in which existing buildings and structures provide a substantial share of the materials required and an ecosystem in which new value-creation opportunities emerge in an industry operating within planetary boundaries.

How Japan is promoting sustainability across its built environment

The Japanese government has been promoting the recycling of construction material since the early 1990’s as part of its overall policy to promote the effective utilization of resources. The Construction Material Recycling Law was enacted in 2000 to implement the registration system of demolition contractors and ensure effective recycling of waste concrete, waste asphalt concrete and waste construction timber.

The recycling rate of such major construction materials rose from around 60% in the 1990s to over 90% in recent years. However, there is still room to improve the recycling rates of mixed waste and plastics. Steel and glass are well recycled in Japan, but when mixed with other construction waste, as they are not specified in the Construction Material Recycling Law, there is a lack of data to monitor how much is reused and for what purpose after the buildings are demolished.

There is other work ongoing to ensure circularity within the built environment in Japan. In 2022, as part of the Berlin Roadmap, Japan’s Ministry of the Environment supported the Circular Economy and Resource Efficiency Principles (CEREP) with other G7 members. CEREP is a set of behavioural guidelines to promote a circular economy and resource efficiency in the private sector.

This includes six core principles that aim to integrate a circular economy into a corporate managerial vision to promote the transition towards a circular economy and ensure resource-efficient businesses. One example of a principle is Principle 1: Leadership for corporate-wide circular economy and resource efficiency strategies. While the government plays a key role in building the enabling environment, there needs to be collaboration with the private sector to effectively address barriers, integrate policies and foster more public-private partnerships.

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Urban TransformationNature and Biodiversity
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