Circular Buildings Business Models
Background business models
BAMB and Business Models
In October 2017 the BAMB work package on business model delivered its report to the European Commission.
The title “Building as Material Banks and the need for innovative Business Models” already strongly indicates that a transition to circular economy practices in the construction industry requires a different perspective how we plan, or model our businesses.
The concept of Buildings as Material Banks
‘Building as Material Banks’ can be seen as the wider concept where corresponding business models reside. In its essence, a business model is describing the way ‘how we actually make money’ by defining the value proposition and build up an understanding if the model is economically viable. This is done by providing insights on how we create value, and market and deliver the offerings to the different roles in the construction industry value network.
As for the many different assets in a building, we need to understand the reuse potential by design and how we would assess the value of these assets in present use and when these assets become available for reuse or recycling. For multi-cycle products, do we adhere still to the different accounting depreciation rules or will the (residual) value be prescribed by the market via supply and demand mechanisms that are fed by the relevant information on these assets? And what will be the effect on the residual value assessment of assets if other factors become more important in the value assessment, like with products and materials that improve indoor air quality and directly impacts the productivity of building occupants?
When we link this all to the BAMB project, the material bank on its own will not generate money. We need to understand who owns the material and data (and makes the decision to reuse), who will need this for re-purpose, etc. So, the concept of material banks contains many different business opportunities, that have a value for the different roles in the industry. How to capitalize on this, we first build an understanding what type of mechanisms are to be considered to successfully extract the value out of the BAMB outputs and have a way to assess the value and reuse options to the industry. These mechanisms, or business models, enables the concept of material banks.
Front runner case studies
For the report, we also looked more closely on the challenges of two of the pilot projects, and some front runner case studies to better understand current challenges and information needs, and assess how the BAMB project outputs could support the business models of the different roles in the industry. The team has interviewed four “frontrunner” cases which have pioneered in incorporating elements of building circularity. The study included well-known cases such as the new Venlo city hall (the Netherlands), PROgroup (Luxembourg), Rotor DC (Belgium) and Karlstad hospital (Sweden), while taking a fresh focus on business aspects such as value propositions, stakeholders, financials and operations. Main learnings from these front runner case studies:
- Growth in building material circularity: There is ample room for growth in building material circularity business models. In comparison to more developed building sustainability elements such as energy, building material circularity is still a rather new concept in many aspects. The maturity of business models varies significantly: down-cycling and recycling at raw material level date back a long time; product-service systems for shorter lifecycle items are growing; supplier buy-back agreements for structural components are being explored. In the newer business models, how to put retrieved products/materials back into the economy, as well as how to establish solid financial cases for involved stakeholders, are among the topics which still need further substantiation.
- Holistic approach is key: Successful circular building projects are devised with a holistic view on sustainability elements such as energy, user health, water and materials management where synergies and trade-offs arise. Furthermore, a common success factor in circular building design emphasized by all is stakeholder engagement from the very beginning. Early co-design processes with end-users, technicians, suppliers and communities take everyone’s needs into consideration, therefore resulting in a more holistic design, as well as creating the foundation for future support.
- Public procurement can be a powerful driver: Public procurement can play a significant role in mainstreaming circularity practices. For example, healthy building materials remained expensive and niche in Sweden till municipalities started including them as requirements in their tenders. Being one of the largest client groups, demand from the Swedish public sector pulled the entire supply chain and significantly lowered extra cost over time by economy of scale. Finished public building projects are well positioned for further awareness raising and experience sharing.
- Regulatory considerations: While energy has become core for most building codes and certification systems, material circularity has received much less attention in comparison. Moreover, some of the major challenges faced by new circular building business models are related to regulations. As a consequence of increased residual value with circular practices, the discrepancy between building (component) market value and book value will likely widen and needs to be properly managed in e.g. accounting and taxation. In another example, important circular business models such as product-service systems with third-party ownership (e.g. leasing) may not be feasible for some building materials due to leasehold property legislations.
- Market demand needs more attention: Most frontrunner cases demonstrate the design phase of material circularity, such as choosing Cradle-to-Cradle® certified products and setting up supplier buy-back agreements, which facilitates the supply side of used building components. It is known that supply exceeds demand in today’s second-hand building material market. Therefore, in addition to improving technical feasibility and information management on the supply side, further attention is needed to direct stimulation of second-hand market demand, which would be of utter importance to the actual final realization of material circularity in the building sector.
The BAMB project has primarily aimed to explore the technical innovation and information needs to enable reversible and transformational building, where products/ components/ materials can be used and reused through multiple lifecycles. Through the assessment and findings so far, it was clear that an industry scale enablement of the “buildings as material banks” concept have to ensure the adequate digital representation of buildings and their contents is an integrated way, where guidance, support and protocols for building or product design are offered, and to support among other things the developing of a marketplace where products, components and materials are exchanged for reuse.
The current fragmentation of currently available solutions and initiatives, and the absence of fast upscaling reuse in construction, underpins the necessity of integrated tools and platforms supporting the Buildings as Material Banks concept.