Construction Sector

Sector Overview

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The construction sector is one of Europe’s strategically important economic ecosystems because it is directly linked to housing, infrastructure, industrial facilities, public buildings, energy systems and urban development. In the EU, construction accounts for more than 5% of gross value added, while broader industry sources estimate that the sector represents around 10.9% of EU GDP, 48.7% of total gross fixed capital formation, more than 3 million enterprises and more than 12 million workers. Most firms are very small: FIEC reports that 95% of construction enterprises have fewer than 20 workers. 

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Recent market conditions are challenging. Eurostat reported that EU construction production fell by 1.3% in 2024 compared with 2023, and in March 2026 construction production was still 0.6% lower year-on-year in the EU, although it increased by 1.2% month-on-month. FIEC’s 2025 statistical report also states that EU construction investment contracted by 2.0% in 2024, with housebuilding particularly weak. 

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Sustainability Relevance of the Sector

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Construction is a high-impact sustainability sector because its environmental footprint extends across the full building life cycle: raw material extraction, cement and steel production, product manufacturing, logistics, construction-site operations, building use, renovation, demolition and waste recovery. Globally, the buildings and construction sector accounted for around 32% of energy demand and 34% of energy- and process-related CO₂ emissions in 2023; cement and steel used in the sector are also major embodied-carbon sources. 

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In Europe, buildings are central to climate and energy policy because the EU’s Energy Performance of Buildings Directive aims to achieve a zero-emission building stock by 2050. The European Commission also links building renovation to the Renovation Wave strategy, which aims to at least double the annual energy renovation rate by 2030. 

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Environmental Dimension

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The main environmental issues in construction are operational energy use, embodied carbon, construction and demolition waste, raw material intensity, land use, biodiversity pressure, water use and local pollution. Operational emissions arise mainly during the use phase of buildings through heating, cooling, lighting and appliances, while embodied emissions arise from materials such as cement, steel, aluminium, glass, insulation and plastics.

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Circular economy is especially important. The European Commission states that construction and demolition waste accounts for more than one third of all waste generated in the EU. This waste stream includes concrete, bricks, wood, glass, metals, plastics and road-maintenance waste, many of which have high recovery potential if selective demolition, sorting and recycling systems are properly implemented. 

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EU policy increasingly shifts the sector from “energy-only” sustainability toward whole-life performance. The Level(s) framework uses core indicators covering carbon, materials, water, health, comfort and climate-change impacts across the full life cycle of buildings. This makes it a useful sustainability management framework for construction companies, developers, investors and public authorities. 

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Social Dimension

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The construction sector has significant social impact because it provides large-scale employment, affects housing affordability, determines the safety and accessibility of buildings, and involves complex subcontracting chains. However, occupational health and safety remains a critical risk. Eurostat reported that in 2023 close to one quarter, 24.0%, of all fatal workplace accidents in the EU occurred in construction. 

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Labour conditions are also a governance and social-risk issue because the sector frequently uses subcontracting, temporary work and posted workers. The European Labour Authority prioritised construction in 2023–2024 through activities addressing fair labour practices, information, enforcement and cooperation. 

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Skills are another sustainability constraint. FIEC’s 2025 labour-shortage position paper states that construction remains one of the EU sectors with severe and widespread labour shortages, which is particularly important because renovation, digital construction and low-carbon building techniques require new skills. 

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Governance and Regulatory Context

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The EU regulatory environment is becoming more demanding. The recast Energy Performance of Buildings Directive, Directive (EU) 2024/1275, sets the objective of a zero-emission EU building stock by 2050 and strengthens requirements for both new and existing buildings. 

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The revised Construction Products Regulation, Regulation (EU) 2024/3110, introduces stronger sustainability-related requirements for construction products and creates the basis for digital product passports, which are expected to improve transparency, traceability and environmental-performance disclosure. 

The EU Taxonomy also affects construction finance by defining when new construction, renovation and building-related activities can be considered environmentally sustainable. Compliance generally requires contribution to climate objectives, “do no significant harm” safeguards, and minimum social safeguards. 

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Key Sustainability Risks

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The sector’s main sustainability risks are high embodied carbon from cement, steel and other materials; weak renovation rates; low-quality recycling or downcycling of construction and demolition waste; occupational fatalities and injuries; labour shortages; fragmented subcontracting; insufficient life-cycle data; biodiversity loss from land development; and exposure to climate risks such as heatwaves, flooding and extreme precipitation.

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A major structural issue is fragmentation. Because most construction firms are SMEs or micro-enterprises, sustainability data collection, life-cycle assessment, digital product information, occupational safety systems and supplier due diligence are harder to standardise across the full value chain. 

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Key Sustainability Opportunities

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The largest opportunities are deep renovation of existing buildings, low-carbon materials, circular design, modular construction, digital building information modelling, selective demolition, recycled-content materials, energy-efficient building systems, heat pumps, on-site renewables, green public procurement and whole-life carbon reporting.

The EU Construction Transition Pathway identifies the need for a greener, more digital, resilient and competitive construction ecosystem, including safer buildings and affordable housing. This supports the view that sustainability in construction should not be limited to carbon reduction, but should also include affordability, resilience, skills, safety, circularity and digitalisation. 

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Recommended Sustainability KPIs for the Construction Sector

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Core environmental KPIs should include whole-life carbon intensity, embodied carbon per m², operational energy use intensity, share of renewable energy, recycled-content material ratio, construction and demolition waste recovery rate, landfill diversion rate, water use per m² or per project, biodiversity impact assessment coverage, and percentage of projects applying life-cycle assessment.

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Core social KPIs should include fatality rate, lost-time injury frequency rate, safety training hours, subcontractor safety audit coverage, declared-work compliance, employee turnover, gender diversity, workforce training hours, and percentage of workers trained in green and digital construction skills.

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Core governance KPIs should include EU Taxonomy eligibility and alignment, EPBD compliance readiness, sustainability due diligence coverage, supplier ESG assessment rate, anti-corruption training, digital product passport readiness, environmental product declaration coverage for key materials, and project-level sustainability reporting coverage.

 

Sector Outlook

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The European construction sector is entering a period in which sustainability performance will increasingly determine access to finance, public procurement eligibility, investor confidence, asset value and regulatory compliance. The most important transition will be from a traditional project-cost model to a life-cycle value model, where carbon, energy, safety, circularity, resilience and social safeguards are measured from design to demolition.

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The sector’s sustainability maturity remains uneven, especially because of SME fragmentation and weak data availability. However, EU regulation, public procurement, renovation policy, digital product passports, Level(s), EU Taxonomy requirements and investor pressure are creating a clear direction of travel: construction companies that can document low-carbon, safe, circular and compliant project delivery will be better positioned in the European market.