Smart surfaces BOX 1 Smart surfaces are advanced materials or coatings that can adapt and respond to environmental conditions, providing improved building efficiency through higher surface albedo, reflecting more sunlight. These surfaces can be implemented as part of a retrofit, further limiting the consumption of energy in a building and its environmental impact. For example, the Smart Surfaces Coalition and the city of Baltimore have estimated that implementing smart surfaces city-wide could reduce carbon emissions by 17 million tonnes over 30 years, while delivering an estimated net present value of $13.5 billion. Source: Smart Surfaces Coalition14 The IEA pathway to net-zero emissions states that 20% of existing building stock needs to be zero- carbon ready by 2030, 50% by 2040 and more than 85% by 2050. Achieving these targets would require retrofit rates to increase to approximately 3% annually by 2030 and 4% by 2050 (from less than 1% in 2024).15 Today, roughly 75% of building stock in the European Union is energy inefficient.16 In other regions, the share of energy-inefficient buildings is probably similar or higher, though a lack of readily available data makes it difficult to say with certainty. In line with the IEA target of annual retrofit rates of 4% by 2050, the global retrofit market is projected to grow by 8% per year from 2024 to 2050, increasing in value from $500 billion to $3.9 trillion17 (Figure 2). This growth rate surpasses that of the overall construction market, which is projected to grow at 4% annually during the same period. Projected global retrofit market size (2022-2050) to meet IEA net-zero targets, in $ trillion FIGURE 2 0.00.51.01.52.02.53.03.54.0 Compound annual growth rate (CAGR)2022 2024 2030 2040 20508%3.9 3.4 2.9 0.5 0.2 Notes: The European retrofit market has been extrapolated to the global market Retrofit rates required to meet IEA net-zero scenario by 2050: North America 3% by 2030, 4% by 2050 Europe 3% by 2030, 4% by 2050 Asia-Pacific 3% by 2030, 4% by 2050 Latin America 2.3% by 2030, 3% by 2050 Middle East and Africa 2.3% by 2030, 3% by 2050 Share of global assets: North America 7%, Europe 11%, Asia-Pacific 60%, Latin America 8%, Middle East and Africa 14% Source: McKinsey analysis Circularity in the Built Environment: Unlocking Opportunities in Retrofits 7

Circularity in the Built Environment 2024