Building green: how engineered wood is transforming sustainable architecture

At the dawn of the Neolithic Revolution, humanity discovered the power of building with wood, marking the shift from a hunter-gatherer lifestyle to permanent settlements. This fundamental advancement, alongside the rise of agriculture, laid the foundation for the civilisation we know today. For over 10,000 years, timber was the primary building material, until the Industrial Revolution introduced concrete and steel, which combined the strength and durability of stone with the workability of wood. As a result, from 1900 to 2015, the share of concrete in building materials skyrocketed from 19.8% to 76.3%, and steel consumption surged from 74 to 444 million tons. Meanwhile, the share of wood in construction materials plummeted from 19.8% to just 2.8%.

Timber’s renaissance: innovations in sustainable construction

Concrete and steel revolutionised architecture at all scales, enabling safer, more durable homes, and the construction of skyscrapers, shopping centres and transport hubs that would be impractical or impossible to build from stone or wood. However, this came at a significant environmental cost. The buildings and construction sector is the primary source of greenhouse gases, contributing an estimated 37% of global emissions.¹

With the climate crisis growing more urgent, policymakers and companies with net-zero targets have embodied emissions in their crosshairs. Besides using more recycled materials, and fewer materials overall, one way to reduce embodied emissions is to substitute concrete and steel with sustainable alternatives like wood. Steel and concrete together account for over 10% of global carbon emissions. In contrast, wood is renewable, can be grown sustainably and offers unique carbon benefits. A single cubic metre of engineered wood products (EWPs) stores 1 ton of CO₂ and avoids emitting over 2 tons compared to concrete. Unlike steel and concrete, which generates net emissions, wood can be carbon-negative, locking away CO₂ for the long term and offering better recyclability and reuse potential.²

Advances in EWPs are revolutionising modern construction, enabling the creation of timber skyscrapers through industrial prefabrication techniques. These wood components are manufactured in factories and assembled on-site, reducing waste, enhancing safety, and accelerating construction timelines. Timber’s inherent properties—lightweight, elastic, and flexible—make it especially suitable for construction in earthquake-prone regions, offering both resilience and sustainability in one material. This innovation highlights the expanding potential of wood as a key player in sustainable and efficient building practices.³

A single cubic metre of EWPs stores 1 ton of CO₂ and avoids emitting over 2 tons compared to concrete. Unlike steel and concrete, wood can be carbon-negative, locking away CO₂ for the long term and offering better recyclability and reuse potential

Wood has come a long way since the Industrial Revolution, however. In recent decades, a new category of construction-ready wood has emerged that could lead timber’s comeback. EWPs like laminated veneer lumber (LVL), glued laminated timber (glulam), and cross-laminated timber (CLT) are revolutionising timber construction. These materials are stronger, more durable, and more resistant to warping and decay than traditional wood. Their strength allows them to replace concrete and steel in structural elements, making them ideal for everything from beams and rafters to floors, walls, and roofs in both residential and high-rise buildings. Indeed, using a wood-based structural frame could cut overall material consumption in construction by up to 50%, whilst decreasing the structural frame's weight by as much as 70%. EWPs also offer significant advantages in weight, transport costs, and ease of prefabrication, reducing overall material usage and construction time. With added benefits like sound absorption, insulation, and a biophilic aesthetic, EWPs provide a sustainable, efficient alternative to conventional building materials.

Harnessing growth: how new regulations are driving demand for timber in construction

Timber demand closely follows construction and renovation rates, which have dipped recently due to high interest rates and inflation impacting house-building schemes and project financing. Construction rates are projected to rebound in 2025, driven by a reduction in borrowing costs, improved credit conditions, and increased investment in large infrastructure projects supported by industrial policymaking.⁴ In Europe, around 20% of 2020’s building stock is forecast to be renovated by 2030.⁵ Meanwhile, demand for mass timber – EWPs designed for structural use, such CLT, glulam, and LVL – is expected to increase by 49% by 2050.⁶

The rise of carbon taxes may further drive EWP adoption by making high-emission materials like concrete and steel more costly

This growth forecast positions EWPs to benefit from the tailwinds of new and upcoming environmental regulations. In the EU, for example, the Energy Performance of Buildings Directive (EPBD), set to become mandatory later this decade, will introduce a standardised sustainability measurement and certification scheme for buildings, including life cycle emissions reduction targets. The rise of carbon taxes may further drive EWP adoption by making high-emission materials like concrete and steel more costly.

Many countries are also implementing domestic regulations that could drive timber demand. France, for instance, has introduced a cap on a building’s emissions, covering both the embodied emissions that arise during construction and process-related emissions calculated over a 50-year life cycle.⁷ Others, including Denmark, Finland, Sweden and the US, are introducing timber-friendly policies. These include emissions limits, minimum bio-material mandates, and changes to building codes that permit the use of EWPs in taller structures, reflecting their superior strength and structural properties.⁸

In addition, the US has allocated USD 5 billion for low-carbon infrastructure procurement under the 2022 Inflation Reduction Act (IRA).⁹ Several states, including California, Colorado and New York, have also introduced procurement policies to cut embodied emissions, incentivising the use of low-carbon materials like EWPs in both public and private construction projects.

These developments point towards steady growth in EWP demand. However, if EWPs are to make our buildings more sustainable, we need more sustainable wood.

Conserving our forests: addressing timber supply challenges and opportunities

While EWPs may facilitate the storage of carbon in buildings, it is forests that play a pivotal role in removing CO₂ from the atmosphere. To maintain this balance, EWP demand must align with a sustainable wood supply that preserves our forests’ ability to sequester carbon.

The growing incentives to use timber in construction are also incentivising governments and businesses to address these supply and demand issues

In the EU, for instance, sustainable timber production currently supports around 522 million m³ of wood products annually¹⁰. Theoretically, this would be enough to construct over 1,200 Empire State Buildings or 71,500 Eiffel Towers. Some countries are boosting this supply by investing in forest regeneration, upgraded mills and better processing facilities, alongside EWP innovations to maximise sustainable use.

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However, it is anticipated that the sustainable wood supply will grow by a mere 5% in the near term. Meanwhile, the demand for timber is already exceeding this limited supply and continues to rise across a number of industries. In the EU, only 10% of the wood supply is used in construction, with the majority being used for paper and packaging (about 40%), fuel (around 25%), and other sectors such as furniture and exports (approximately 25%). This imbalance between sustainable supply and demand presents significant challenges, including deforestation, longer transportation times, higher emissions, and the environmental impacts of illegal logging.

Nevertheless, the growing incentives to use timber in construction are also incentivising governments and businesses to address these supply and demand issues. And the solutions are clear. Better forest management practices will help ensure sustainable supply and reduce biodiversity loss, while interventions like better tracking systems that make it easier to identify illicit wood can help combat illegal logging and deforestation. Elsewhere, more recycling and waste reduction measures, along with measures to reduce demand from other sectors, can also relieve the pressure on our forests. Governments and businesses can indirectly enhance sustainable supply by investing in the timber supply chain, for example by implementing low-emission transportation methods for timber.

The sustainable building material of tomorrow and a growing investment opportunity

The momentum behind EWPs is creating valuable investment opportunities, particularly as sustainable supply challenges are addressed. With policy changes, carbon pricing, and consumer pressure driving demand for greener materials, timber, particularly EWPs, is projected to grow by 3–4% annually, expanding its global market from 111 billion tons today to 163 billion tons by 2030.¹¹ This reflects timber’s rising role as a sustainable alternative to traditional materials like concrete and steel.

Timber’s growth will be driven by increasing regulations and demand for resource efficiency. Large, vertically integrated companies are well-positioned to meet these shifts, as the construction sector moves towards low-emission, high-carbon-storage materials like EWPs. These materials are set to rival traditional materials in both performance and sustainability, making them key targets for investment.

Timber, particularly EWPs, is projected to grow by 3–4% annually, expanding its global market from 111 billion tons today to 163 billion tons by 2030

From an investor’s perspective, Lombard Odier’s outlook for timber is largely motivated by these dynamics. We believe that decarbonisation policy and regulation, particularly Target Net Zero commitments, will amplify demand for timber products like EWPs as effective substitutes for fossil fuel-based materials such as steel or concrete. New EWPs – such as CLT and other laminated lumbers – offer enhanced sturdiness and durability compared to traditional lumber products, making timber a more viable option in construction. This shift presents a compelling opportunity for investors looking to align with the sustainability trends shaping the future of building materials.

This renaissance of timber as a construction material could spark a new architectural movement, bringing the warmth of historic buildings to modern spaces and ensuring the sustainability required of the buildings of the future. Wood may be a traditional material, but EWPs are poised to become a cornerstone of sustainable construction.