Circularity and the Construction Sector Part.1

The Circular Economy is not just an environmental regulation, but is being promoted in many countries as a policy to change the very structure of the economy. How is Japan faring in this context? How does it look to those who, like investors, keep a close eye on economic trends and changes?

 In 'Talk Circular x Economy', Mr. Andre-Hottinguer, who has been involved in investments in global companies for more than 10 years and has travelled back and forth between Europe and Japan, gives his unique perspective on these topics, drawing on his background as an investor and as a foreigner.  Let's enjoy his 'way of seeing' and explore the 'Circularity x Economy

In this column and the upcoming ones, we will explore industries where circularity plays a crucial role due to their high consumption of raw materials and resources, starting today with the construction industry.

In this sector, circularity usually means minimizing construction waste, reducing environmental impact, and maximizing the value of materials used throughout a building’s lifecycle.

Efforts to reduce resources used through the construction process have long been a priority, with various stakeholders implementing measures to optimize it. However, reuse—in the sense of repurposing buildings —remains limited, and recycling rates for buildings demolitions waste are low.

Japan presents an interesting case study due to its rapid pace of reconstruction. Unlike Europe, where many residential and non-residential buildings can last for centuries and are regularly refurbished, the lifespan of a typical Japanese building can be as short as 30 to 40 years. This is due to multiple factors, including regulations (such as those for earthquakes, natural disasters etc..), cultural preferences (Japanese people tend to favor living in new houses), and economic incentives (such as fast depreciation, tax breaks for demolition). As a result, Japan is building nearly the same number of new houses per year as the United States, a country with three times the population.

The key challenges are the following:

• Economic constraints. The combination of high project costs and low profit margins leaves little room for experimentation with new materials or construction techniques, especially when they come at a higher cost

• Overall, a low rate of recycling. This is especially acute in waste from demolition which is complex due to factors such as aging components, material mixing, and a lack of standardization in buildings.

• Relatively slow innovation cycle. Compared to other industries, construction adopts new technologies at a slower pace, and end customers are often hesitant to take risks on unproven solutions. 

Let's examine how the industry is addressing them.

Starting with Recycling and Reuse, Japanese general contractors have achieved high recycling rates for waste produced during the construction process, often exceeding 90%. This success is the result of years of improvement, collaboration with partners, and meticulous sorting of waste generated during construction. Japanese general contractor Kajima highlights that construction sites drywall panels are collected and sent to the manufacturer's factories, where they are separated into paper and gypsum powder. The paper is recycled into cardboard and other products, while the gypsum powder is repurposed as a raw material for new drywall panels. This type of recycling, where waste is returned to its original materials, is known as horizontal recycling and is essential in fostering a resource-recycling society.

A significant challenge, however, is handling demolition waste, as the materials are often mixed and needs to be separated before they can be recycled. While initiatives, such as reusing concrete debris for roadbed materials, are emerging, much more work remains to be done.

One solution could be repurposing the buildings instead of tearing them down. However, both in Japan and internationally, building conversions remain a complex process and are typically only pursued for structures with historical value. One way to address this is to design the building from the start to offer maximum flexibility in use, aiming for a modular structure. However, this is often more challenging than it seems and can be viewed as an added expense with no immediate return.

Another approach is to focus on wood, which despite its own challenges, is easier to recycle or reuse.

Japan has abundant wood, with 68.4% of its land area covered by forests, ranking just behind Finland and on par with Sweden among developed countries. Despite this, there is significant potential for industry growth, as the country still relies on imports for 60% of its wood supply. The 2020 "wood shock," marked by a global shortage and rising prices, underscored the importance of increasing the use of domestic timber.

Forests in Japan are generally divided into two categories: conservation forests, which remain untouched to protect biodiversity and prevent landslides, and working forests, which are actively managed through sustainable harvesting and replanting to maintain a steady wood supply. For instance, Sumitomo Forestry, both a major homebuilder in Japan and a forests owner, allocates 2% of its working forests for harvesting and replanting each year. This cycle aligns with a 50-year growth period, an optimal timeframe for both wood quality and CO₂ absorption, which begins to significantly decline afterward. Still, overall, in Japan, reforestation remains limited mostly due to labor shortage. To address this, Sumitomo Forestry launched its first forest fund in 2023, attracting investments to acquire and manage forests for sustainable wood production. The initiative aims to generate economic value for investors while promoting environmental sustainability. A key objective for the company is to triple its forest management capacity by 2030.

Takenaka, one of the oldest Japanese general contractors, which is still owned by the founding family, is actively promoting mid-to-high-rise wooden structures through its Forest Grand Cycle concept. This initiative seeks not only to expand the presence of wooden buildings in urban areas but also to tackle the maintenance of local forests, which have become a growing social concern.

Such long-term vision is needed as the benefits of reforestation take time to materialize, usually more than 30 years. But there are some successful examples around the world such as Sweden, where 70% of the land is covered by forests, with about 70% of this forest being actively managed by humans. Around 100 years ago, Sweden faced a period of deforestation due to overharvesting. As a result, a law was introduced requiring that for every tree cut down, two should be planted. Today, the rule is to plant four trees for each one cut.

The Next Article

The Last Article