Construction’s Rivian Moment
The COP26 Conference in Glasgow last week established a clear consensus that all nations need to do much more to prevent a catastrophic rise in global temperatures. The agreement may have lacked specifics of exactly what each country must do, but the desire to accelerate the reduction in carbon dioxide emissions was clear.
Coincidently, while the 30,000 conference attendees in Glasgow were debating how to get global agreement to combat climate change, electric vehicle manufacturer Rivian Automotive was listed on the Nasdaq Stock Exchange. The initial public offering (IPO) was priced at $78, but that rose to $100 on listing, and a week later the share price had almost doubled. The company now has a market valuation nearing US$150bn which makes it the 3rd most valuable car company in the world (behind Toyota and Tesla). If you haven’t seen any Rivian’s driving around the streets of Palmerston North or Newmarket, that’s because they haven’t actually sold any yet. Ravian is set to be one of the first EV manufacturers to supply a viable work ute to the NZ market.
Meanwhile, Tesla’s share price has risen over 1400% in the past 2 years, and its current market value remains over $US1tn despite Elon Musk’s recent tweets and his sell-off of US$8.8bn in shares in the past week. Regardless of how you view these valuations, it shows that investors are prepared to back a future where all vehicles are electric.
This is part of a wider trend towards environmental, social & governance (ESG) investing that has been driven by a range of factors including more social pressure, investor activism, and investment funds taking a longer-term view. It is worth highlighting here that companies who have a focus on ESG issues perform better (as per research from the likes of Harvard University and Bank of America Merrill Lynch). As a result, many companies now have their own net-zero or carbon reduction targets, and are looking at how they can adopt more sustainable practices. For many corporates the biggest and most obvious target is the buildings they occupy.
With commercial construction responsible for up to 40% of global energy-related carbon emissions, occupiers are starting to recognise the value in green certified buildings and are demanding more environmentally friendly space.
Fresh out of COP 26, the New Zealand Government announced last week that all new non-residential government buildings over $25m will need to meet a minimum Green Star rating of five from April 2022. This threshold falls to $9m in April 2023, and will continue to fall as the government aims to be carbon neutral within 5 years.
The 49,000sqm AGP Glass & APL Operations plant built by NZCA partner Foster Construction is the largest 5-Green Star industrial design in New Zealand.
On releasing this policy, Stuart Nash commented that this decision “sends an important signal to the construction, design and building supplies sector to expand capacity and capability to meet demand” for more environmentally friendly buildings.
Within the NZ Construction Alliance, we have seen this trend accelerate in recent years. With government, investors, corporates, and their employees all now moving in the same direction, it is clear that the demand for more environmentally friendly buildings will increase. This will consequently result in higher returns, and encourage more investment in ESG driven construction projects.
With energy efficient buildings expected to be worth an estimated US$24.7 trillion by 2031, we may even see an equivalent Rivian or Tesla emerge in the Construction Industry as this trend continues.