SPEAKER 1: Welcome to the WTW Podcast Construction Blueprints, where we discuss the latest risk management and insurance trends, as well as issues facing the construction industry. We'll speak with a variety of construction leaders and experts on global topics who can help provide you a blueprint for building your industry knowledge.
SETH YOUNG: Hello and welcome to our WTW Construction Blueprints podcast. I am Seth Young, a Senior Client Executive in our practice, your podcast host, and I'm delighted to be joined by Ryan Redican, a Senior Associate in the Climate Practice, as well as Holly Teal, the North America Climate Practice Lead. In this episode, we'll explore the impact of climate as it pertains to construction. Holly, Ryan, thank you for being here.
HOLLY TEAL: Thanks, Seth. Glad to be here. Thanks for having us. So maybe, Seth, just to kick us off by way of background, I'll let listeners know what the climate practice does, it may be a new thing for them.
So our climate practice includes about 70 dedicated climate professionals around the world, and they focus on helping our clients across industries to better understand the impact of both physical or weather-related risks to their business and supply chain and workforce, as well as the risks arising from the transition to net zero, low carbon economy. And with that expertise, we also have a suite of in-house analytical models and software and data that underpin our advisory. Ryan, anything to add from your perspective? Do you want to share a bit about your background?
RYAN REDICAN: Sure. Thanks, Holly. As it relates to the climate practice, I specialize in risk engineering and climate risk, advising clients on not only finished assets, but assets under construction, and happy to be part of this conversation today to help shed some light on how clients are considering physical climate risk associated with assets under construction.
SETH YOUNG: Perfect, thank you. And I think that's a great segue into asking, how does climate change impact the construction industry. What are the most significant climate-related risks for construction projects that you're seeing?
HOLLY TEAL: Well, why don't I take the first part, and maybe, Ryan, you can address that second part from your experience. So climate change impacts the construction industry in several ways. So first, I think what comes to mind for everyone, and what we're going to focus on really today is the increasing frequency and severity of extreme weather. That impacts construction projects directly through losses, to the construction site from, say, a storm, a flood, a fire. It causes delays from supply chain disruptions, so if you're not getting your supplies on time.
And then, of course, you have employees that work at the site, so they may not be able to work due to chronic rain or heat. So those impacts can be quite significant, I'd say there's also a couple other things to consider. One is, we need to decarbonize the built world to slow the impacts of climate change. This has been committed to by governments and by markets, and that creates both risks and opportunities for construction and the opportunities are actually quite significant. There's a ton of new infrastructure projects that will be needed, water, energy, waste, transportation, and that's going to create a lot of demand.
There's going to be high demand for green and sustainable buildings, repurposing buildings, retrofitting older buildings, and so I think the opportunity is substantial. But it also creates challenges, because it's a new way of doing things. You might have new sustainable materials that you're dealing with, new equipment, new ways of constructing. And we know new introduces risk as well, so I think staying on top of that will be important. And then lastly, there's this need to decarbonize translates into changes in policy, incentives, tax structure.
And in terms of policy, we've already seen there's lots of regulation around the disclosure of climate risk and greenhouse gas emissions that's been introduced in the recent years, primarily in response to investor calls for transparency. Just a couple of examples. you've got SEC (The Securities and Exchange Commission) that has a pending climate disclosure rule. California has regulation that's already passed. The federal government has introduced the federal supplier climate risks and resilience rule.
So companies really have to get in front of these regulations, both because they impact themselves as businesses, but also their clients as well. So understanding those regulations and what's required will be important for contractors. So, Ryan, why don't you share what the most significant climate related risks are for construction projects.
RYAN REDICAN: Yes, Holly, that's a great question. I think one of the most significant climate related risks to construction is associated with acute risks, such as tropical cyclone, which is commonly related to. hurricane events, as well as river flood and pluvial flooding events. These all correspond with high intensity, low frequency type of events that cause significant damage to site operations. While pluvial flooding, which is associated with precipitation stress, and is most commonly referred to as a chronic risk, is also going to have a compounding effect on these acute risks.
The potential risk for locations exposed in the United States along the Eastern Seaboard and the Gulf Coast have very high exposures to this risk, and may impact local construction in a significant manner. As well as in other geographic regions, precipitation stress does pose very similar risks to construction projects. At the beginning of projects for earthworks and foundation pouring, pluvial flooding has a very significant impact to construction projects in general. But that's not the only risk we see. And in this conversation today, we'll dive a little bit deeper into some of the other climate-related risks that we do see for construction, and additional information that construction risk managers should consider for various projects under construction.
SETH YOUNG: So, Ryan, that's a great question, because what should construction risk managers be considering from project inception all the way through conclusion, as it pertains to these acute and chronic risks that we're discussing?
HOLLY TEAL: Maybe I'll start with some primary considerations, and then, Ryan, if you could add some of the detail, I think that would be helpful. So primarily, you have to have an understanding of which risks you're most exposed to. So Ryan mentioned some of the common ones, but really it's important to understand at your sites, which are the risks that are going to be of primary focus for you. So understanding the exposure, and then how vulnerable you are to those risks, so how vulnerable is your site to those risks.
And in that you need to consider the potential loss, expected losses, and the business interruption associated with those events. And with that, that will allow you to make decisions about your insurance needs, about actions you may want to take to protect your site against some of these risks. So there's different considerations, once you have that information available. So maybe, Ryan, can you go into a little bit of depth around, I don't know, say flooding? You mentioned flooding, you mentioned heat. Could you talk about some of those considerations.
RYAN REDICAN: Absolutely, Holly. I've segment it actually really into acute risks and chronic risks. So for acute risks, those are events that we can think of that risk managers consider during renewal or project inception when commonly thinking about insurance policies, so tropical cyclones, which commonly lead into hurricanes as well as river flooding. These are events that are going to have associated return periods, or expected probabilities at which these events occur. And this allows us to understand the frequency at which these events occur, as well as the intensity.
Then, based upon these various scenarios, risk managers can incorporate a scenario-based event into their emergency risk management program in which they have a protocol in place to respond to the event. And within this response, this is where, depending upon the site specific impact, which for a flood or a coastal flood as a result of a hurricane, or a river flood from a rainfall event, the site would need to consider the specific flood depth, as well as potential future flood depths due to changes in frequency and severity of these events. Then they would need to incorporate some type of protection measure to protect against the incidental floodwaters, this can be either a temporary or a permanent solution.
Temporary measures would have to be installed by site personnel identified in the emergency response plan, who would be called, or notified, prior to an event, and then have to perform an action such as deploying sandbags, or deploying temporary flood protection solutions, such as flood barriers or flood walls. Then they can also implement permanent flood solutions, such as a permanent flood wall or flood barrier on site. There are also deployable permanent flood protection solutions that can be considered, and this would all be performed within an emergency response plan. And this can be done for projects both under construction, as well as through operation to ensure site reliability.
So this not only has the pertinent response to construction managers, but also to the end client who will operate this to the building. As it relates to chronic hazards, we have for heat stress, will pertain primarily to normal health and safety documentation as it relates to ambient temperatures, as when heat waves occur above a threshold of 85 degrees Fahrenheit, so temperatures in excess of that range is where we see a significant reduction in key personnel to perform duties under normal operation. So we will see a reduction in work output, which can lead to significant delays associated with construction, and can also impact normal construction operations, such as concrete curing time. So this is where a risk manager can incorporate these findings, not only into the duration of the project anticipated, but as well as into project, logistical scheduling and planning.
There are some additional chronic risks that may impact site operations related to the supply chain, such as drought stress, which can have an effect on water as a resource, which is used as a primary factor in concrete pouring. We also have chronic factors such as precipitation, stress as we previously mentioned, which has a compounding effect on the acute factors, but also may create local ponding or localized flooding in areas that are in low lying regions, based upon site operations. So once a site risk manager understands how a site is going to be impacted by physical climate, they can take decisive measures to help mitigate and reduce this exposure at the site.
SETH YOUNG: Ryan, that was excellent. Thank you. I want to pivot, Holly, earlier in our discussion, you referenced regulatory changes. So what should those in the construction industry be doing to prepare for any revisions to regulations that may present themselves in the future?
HOLLY TEAL: I think it's really important. So I do think that we can expect that standards are going to continue to get increasingly strict with regard to protecting against wind, flood, fire resistance, for example. I also think that there will be increasing standards around energy efficiency and requirements for integrating renewable energy sources. And even requirements for green infrastructure, like green roofs and gardens that I think we'll start to see more of that, for minimizing water use and construction waste. So all of these forces, I think, will come to bear in the construction industry more and more.
And certainly in terms of policy, I think we'll see more changes and that will evolve, and there will be higher requirements that our clients bring to these projects, because they are also themselves having to meet new standards. And so in terms of preparation, I think, first, it's important to stay abreast of what are the new regulations, what are the new certification standards, the new policies, and making sure you have a process for meeting these regulations and standards, and having it built into the way that you do business.
So, as an example, measuring emissions for construction projects, you've got emissions embedded into your materials, you've got emissions that are released during construction phase, and then there's also the emissions for the building after it's up and running. And your client will be interested in all of those things. And so there's got to be a process for measuring your emissions at these different stages, and making sure that you're having that conversation with your buyer about what their expectations are for this finished project in terms of its level of efficiency, for example, in these different areas that I mentioned.
So I think, proactivity just in terms of having process, talking with your clients, training employees on the new certification standards, staying on top of new building methods, new materials, new equipment, that might be more efficient to help you to lower your own carbon footprint. I think all of these things are going to be both an opportunity for you to get ahead of this, but it's certainly something that's ever changing. And so I'm sure it will be challenging also, and so having that process in place is going to be important.
SETH YOUNG: Holly, that was wonderful. Thank you. The construction industry, I think, has a stereotype about being slow to adapt to change, and whether or not that's legitimate is probably a different conversation. But what type of long-term thinking should clients, colleagues and those involved in construction be considering when they're looking at adapting to climate change?
HOLLY TEAL: Seth, I think there's a couple of things. One, I mentioned in terms of just being aware of the regulation as it changes, policy changes, certification standards, and being on top of new technology, new materials. There's going to be continuous innovation in this space around carbon reduction from the materials you use, concrete, steel, asphalt, all of those things to the equipment that you use.
So that is definitely one piece. And of course, then understanding how those changes will impact your cost, the availability of material, because we know, new materials, if they're in high demand, it's going to be really tough to get them, we might have to pay a premium. And then also considering the insurability of the new materials, because that's a really important aspect that your customers may not be thinking about going into that.
So that's one piece of it. But stepping back, I think as a business, thinking about where you operate, I really think understanding how climate change will evolve. So looking at our NatCat risks today, for a certain project, in 10, 20 years that may look very different. So as a business, stepping back and looking at your footprint, where you operate, and then understanding which acute and chronic hazards will really be impactful to your business over the long-term and your supply chain.
And even your talent. So I think taking that long-term view, so that you can then integrate that into your long-term strategic planning, where do we want to be, how might even demand for our services change, how might our costs change. I think that long-term view is a bit different than your short-term, this particular project. All of the same things apply, it's just making sure that you're taking the long view and then incorporating that into your strategy and risk management.
SETH YOUNG: Ryan, do you agree?
RYAN REDICAN: Yeah, I definitely agree. And I have, I think, some important points to add to that thought, where when we're thinking about the construction industry, we have two areas, or two schools of thought for construction, where we have projects that are design build, and projects that are design bid build, where under a design build, there may be additional thought given to projects that have certain types of risk, given the degree of separation between the client, and the contractor, and the designer as it's really one and the same for who is going to be speaking directly with the client and advising them on the actual risk. While in a design bid build, there is a degree of separation, and may not have that degree of dialogue to discuss site specific risks in the future.
And I think Holly made a great point that when we're thinking about constructing a new asset, we not only want to understand the risk under present day, but throughout the lifetime of the anticipated asset lifespan for a structure that is going to be maybe in the ballpark of 50 years. And if we have a very long lifetime for an asset that may be exposed to river flood, or coastal flood, or hurricane from an acute perspective, but also may be implemented from a chronic perspective by heat stress, as well as precipitation stress, you're going to have to think about those factors as it relates to the design. So this is where we do see clients considering implementing these measures for future design conditions.
So one way in which the construction industry can begin to adapt to these changes, is by looking at potential flood depths in future time horizons, which are readily available from future climate projections. And that allows us to then understand, for a given climate scenario and time horizon, for a flood-exposed location that that may be prone to a tropical cyclone, or a hurricane that has coastal floods compounded by a sea level rise that is also compounded by storm surge.
The building can be designed to incorporate a worst-case event, which at inception is going to be much more cost-effective to provide a solution, rather than a retrofit 20, 30 years down the line once it has become a problem, or more of a problem for a site specific location. So I think there's a lot of opportunity here for the construction industry to help provide additional insights to clients who may be unaware of this, but also help ensure that the projects that you're working on are resilient to climate change, and can help mitigate this risk, not only for the client, but also for the asset during the construction project.
I think the other thing to harp on is also the insurability of assets. If you provide these mitigation measures, it provides a much more favorable view of the asset as it relates to the insurability of that asset. Without physical protection measures, there is a much higher susceptibility of damage to the asset, which is not only going to impact the physical damage to the site, but also the business continuity, which then may implicate the asset related to the insurability, which would then become a conversation as to how will this asset be insured, will it be self-insured and retained within the client's understanding of a potential loss, or are you going to have to seek alternatives in the market to provide a solution for this asset. There's a lot of opportunities in the construction industry to begin thinking about this, and hopefully that provides a good insight into how clients can begin thinking about site specific risk and mitigating some of the physical climate risks that we do see in the current day.
SETH YOUNG: Excellent. So perhaps just then final thoughts on what construction companies should be doing beyond everything we've discussed, or anything you'd like to reiterate for construction companies from an insurability perspective, from a climate-focused perspective, what would be the takeaway.
HOLLY TEAL: Maybe Seth, some of the takeaways is first, understand your risks, now and in the future, because they will change over time. And understand them for both your business, your construction project, and for your client, as Ryan mentioned, that's an important conversation. Second, understand the options for protecting your site. So whether it's temporary measures for the construction site during construction, or permanent adaptation measures that your client may want to install for the future.
Third, Ryan mentioned earlier emergency response plan. Make sure you're prepared with that should an event happen. And then test that, making sure that you're ready to go when something happens, if something happens. Take a proactive approach to understanding the regulations, the standards, the changing market demands.
And discuss early with your client what their expectations and needs are in the process, so that you're not midstream, and then they say, hey, did you measure the carbon footprint, for example, or have we put in place the right measures to protect ourselves from these climate risks. I think that discussion has just evolved in terms of the expectations at the beginning of the project. So those are the things I would say. Ryan, anything to add?
RYAN REDICAN: I think there's one additional item that I'd want to just add to the conversation, and that's with new materials being used in construction projects due to the items proving to be more favorable from a carbon emissions standpoint. Still need to be tested from a fire risk perspective to ensure the associated combustibility of the components. And the reason why this is important is, introducing new materials that have not been tested properly, may present a exposure, and can cause significant damage from a fire perspective.
And that is something to always consider when thinking about building enclosures, such as facades, or any type of internal structures to the building that may be using new or novel materials. This is where your insurance carrier can be of assistance to identify any new or unknown materials used previously, and is something that I'd urge construction managers who are using new materials to really ensure that the fire risk exposure meets the requirements designated by NFPA.
HOLLY TEAL: Ryan, that's a great additional point, and I think just more broadly, make sure you've got the right insurance coverage. So use the information to make sure that you've got the right cover.
SETH YOUNG: Holly, Ryan, thank you for contributing to this episode, for sharing your perspective on such an important topic.
HOLLY TEAL: Thanks for having us, Seth, it was a pleasure.
RYAN REDICAN: Thank you, Seth. It's been great.
SETH YOUNG: And thank you to everyone who listened. Thank you for joining the WTW Construction Blueprints Podcast. We will talk to you on the next one.
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