As Europe tightens regulations around construction and the UK presses ahead with its housing ambitions, startups are turning to investors to help them scale the innovations needed to transform the built environment.
The built environment accounts for a striking share of climate emissions. In 2022, buildings and construction were responsible for 37% of global CO₂ emissions, with cement alone contributing around 7–8%. Such figures keep this sector firmly in the sights of regulators and investors alike.
Across Europe, the policy signal is getting sharper. The European Union is taking steps to bring the construction sector in line with its climate ambitions of being carbon neutral by 2050, targeting both operational and embodied carbon. Operational carbon refers to the emissions produced during a building’s use, mainly from power consumption: heating, cooling, and lighting. Embodied carbon, by contrast, accounts for the emissions generated across the lifecycle of construction materials, from extraction and manufacturing to transport, installation, maintenance, and eventual demolition.
Regulatory Drivers
Two regulatory reforms are particularly significant. Firstly, the development of Europe’s Emissions Trading System 2 (ETS2), a new carbon market, launching in 2027, is putting a price on emissions generated in the buildings and road transport sectors. The second is the recasting of the Energy Performance of Buildings Directive (EPBD), which introduces new standards for new builds and mandates renovation of the worst-performing existing properties Together, these measures shift the focus from energy efficiency alone to the full climate impact of the built environment.
Unlike the original ETS, which applies to large emitters such as power plants and heavy industry, ETS2 takes an upstream approach by regulating fuel suppliers. This introduces a direct carbon cost into heating and building energy use, with the system designed to deliver around a 43% cut in emissions by 2030 compared with 2005 levels.
The updated EPBD, which entered into force in May 2024, pushes the building sector toward long-term decarbonisation by broadening the scope of what counts as energy and emissions performance. For the first time, it requires developers to report on a building’s whole-life carbon footprint, covering both operational energy use and embodied emissions from materials and construction. This obligation applies to large new buildings from 2028 and to all new buildings from 2030, imposing limits on embodied carbon in the future.
Member states are also required to publish National Building Renovation Plans, replacing older strategies, to guide the full decarbonisation of their building stock. These plans will be supported by measures such as renovation passports, strengthened energy performance certificates, and expanded one-stop-shops for advice and financing.These reforms generate the regulatory certainty needed to transform how Europe builds and renovates.
In the UK, parallel pressures are mounting. Government analysis suggests around 300,000 homes a year are needed to close the housing gap. At the same time, 14.3 million homes must be retrofitted to reach EPC (Energy Performance Certificate) band C by 2035.
The Environmental Audit Committee has warned that the UK risks falling behind in its climate commitments unless new regulation is introduced to address emissions from the construction sector. While policy currently focuses on operational efficiency, such as heating and energy use, embodied carbon emissions remain unregulated despite being equalling the UK’s aviation and shipping sectors combined.
To close this gap, the committee is urging ministers to make whole-life carbon assessments mandatory across all major construction projects, similar to the EPBD.
Although the UK is no longer bound by EU law, European building regulations exert strong influence. Many UK construction materials flow through EU supply chains, meaning products are often made to EU standards. Investors and insurers operating across Europe also apply consistent carbon reporting requirements, pressuring UK developers to match. And while UK rules currently lag, policymakers often borrow from EU frameworks, with embodied carbon disclosure likely to follow in the UK. In practice, EU reforms create a regulatory and market ‘spillover’, so UK businesses that fail to align risk being left behind in both competitiveness and access to capital.
For investors, the question is no longer whether construction will decarbonise, but who will capture the value as regulation and demand converge. Startups are already positioning themselves at the leading edge of this shift.
Founder and CEO of Reaforma, a startup attempting to apply a circular model to cement production, argues that,
“All of the climate tech startups have 25 years. If you understand it’s finite, it’s easier to convey the mission.”
Capital must keep pace with policy cycles – or risk missing the window.
What Founders are Telling Us
To understand where opportunity lies, Sustainable Times talked to five founders tackling green construction from different vantage points.
As regulation provides increasingly clear signals to the market, innovative startups are tackling green construction from different vantage points, helping the industry to reduce its carbon footprint in both the short and long term, while also improving efficiency, and driving down cost and waste. Carbon Cell is scaling a biochar-based expanding foam company aiming to replace traditional petrochemical ones. Biochar, a key component along with natural polymers in Carbon Cell’s foam, is created by processing waste biomass (typically agricultural co-products or material) in a low-oxygen environment. By avoiding burning or decomposition, biochar production fixes carbon into a stable form that lasts for hundreds of years, reducing global greenhouse gas production. Its foam material has a low or negative carbon footprint and can be used to replace conventional plastic foams in sectors including packaging and insulation.The company recently raised £1.2m led by Green Angel Ventures and Counteract, with participation from HERmesa, RCA Design and Innovation S/EIS Fund, and One Planet Capital.
Co-founder and CEO Elizabeth Lee stresses both opportunity and challenge. “There’s been a lot of conversation around concrete… part of a push in regulation for lowering embodied carbon in buildings. But regulations and building codes are extremely limiting, particularly in the UK. If there isn’t already a standard, you pay to make the category exist and then pay again for each product variant.”
Her critique highlights a common founder frustration at the prohibitive cost and wait times at private certification labs, private organisations that offer testing and analysis services within specific sectors. Lee suggests that publicly accessible facilities could accelerate innovation.
Alternative materials are increasingly being considered to reduce the overall requirement for cement. IndiNature, maker of hemp-based insulation batts, has attracted £8.5m from the Scottish National Investment Bank to establish the UK’s first dedicated natural-insulation factory. IndiNature produces natural fibre insulation made from UK-grown hemp, flax, cotton and recycled jute, offering a climate-positive alternative to conventional materials. The products lock in more carbon than they emit, regulate humidity, and avoid toxic off-gassing, creating healthier indoor spaces. Endorsed by Historic Scotland and Historic England, the insulation is durable, easy to install and circular by design — reusable or recyclable at the end of life. It also delivers strong thermal performance and certified Class A acoustic protection.
Innovation is also reshaping the way building materials are applied. Minimass, co-founded by Sarah Blake, offers a structural engineering approach that rethinks concrete beams. The firm’s reworked design reduces embodied carbon by up to 50% and cuts supply chain costs by 40%. Blake frames the opportunity simply:
“There’s no slowdown in building as we cope with growing populations and ageing infrastructure. It’s about building smarter with less material.” This is a bridge technology, cutting emissions now, even as lower-carbon cements remain in the process of development.
Technology is also providing scope for progress ahead of any large changes in the emissions profiles of building materials. 2050 Materials aggregates life-cycle data and pipes it into design software through APIs. Founder Phanos Hadjikyriakou estimates the construction sector could cut 30–40% of material-related emissions immediately if reliable data were embedded in everyday tools. “There is no uniform data platform in the sector today. What’s missing is auditable, comparable numbers that architects and developers can use at the design stage,” he says.
This approach dovetails with EPBD disclosure requirements and insurers’ growing demand for transparent reporting on supply chain or Scope 3 emissions reporting.
Similarly, Qualis Flow leverages data from across the supply chain to identify waste and flag inaccurate materials, a problem that costs the UK construction industry an estimated £14 billion annually. The company recently secured a £7.2 million Series A round led by climate-tech investor Systemiq Capital. By digitising receipts and transfer notes, Qualis Flow enables real-time insights into carbon impact, cost, and compliance.
Institutional Finance Demands Sustainability
The wider investment landscape is suggesting an institutional shift. Banks are increasingly directing capital toward sustainability-linked loans and green bonds, compelling housebuilders and developers to meet higher standards on carbon reduction, waste management, and energy efficiency. Major institutions such as Barclays, Lloyds and NatWest are no longer treating green finance as peripheral but as central to their lending strategies, embedding ESG criteria into loan agreements and benchmarking frameworks. This shift is not only redefining which projects secure funding but also accelerating innovation across the built environment by making sustainability a prerequisite for investment.
The scale of these commitments underscores the momentum. Barclays’ originally set a target to facilitate £150 billion of sustainable and social financing between 2018 and 2025 but has since raised its ambition dramatically, pledging US$1 trillion of sustainable and transition financing by 2032. Lloyds has likewise committed significant resources, with £2.1 billion allocated in 2022 to fund sustainability improvements in the social housing sector. Alongside this, its Green Building Tool assessed 240,000 social housing units, providing the data needed for developers to drive forward decarbonisation. These measures signal that sustainable finance is becoming the foundation on which future construction projects are judged.
Unlocking the Potential Construction
A further uptick in investment has the potential to accelerate adoption by addressing some of the biggest friction points holding back the sector. Certification, for instance, remains one of the most significant hurdles for early-stage materials. Founders repeatedly point to the prohibitive cost and time involved in navigating private testing regimes. Investors could play a catalytic role here through their investments covering these expenses and shortening the path from lab to site.
A similar approach is needed for first-of-a-kind deployments. Without reference cases, housing providers and landlords are reluctant to commit, leaving innovative solutions stranded in pilot purgatory. Financing for these early projects could create the proof points the wider market needs to follow.
Equally important is the digital backbone that makes carbon data comparable and auditable across the value chain. API-driven tools like 2050 Materials, or site-capture platforms such as Qflow, can only scale if investors and incumbents recognise them not just as software plays but as critical infrastructure for the transition.
And while cost has often been cast as the enemy of decarbonisation, the most promising solutions show that carbon and cost savings can go hand in hand. Minimass, for example, demonstrates how lighter, smarter designs can win tenders outright, without the stigma of a ‘green premium’.
Europe’s tightening regulations and the UK’s urgent building agenda mean that decarbonisation of the built environment is no longer an aspiration but an inevitability. Startups and scaleups are showing that innovation is already addressing the sector’s hardest problems, from cement and insulation to data and supply chains, but their ability to scale depends on timely capital.
