ESG conceptual image depicting the connection among its strategies
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One side effect of the Covid-19 pandemic was that it forced us, as a global community, to once and for all come to terms with the fact that we are inextricably interconnected on a massive scale. Local actions can have global adverse reactions, tail risks are not as remote as we think, and the world we live in is much more fragile than we thought. The climate crisis that had temporarily taken second place during lockdown is once again front and center on the private and public agenda, as we experience more and more of its negative impact. According to the UN, global temperatures will inevitably increase by 1.5 degrees by 2030, but we are still in time to avoid a catastrophic 3 degree increase if we rapidly reduce global emissions on the broadest scale possible.
Against this backdrop, it is unsurprising that built environment stakeholders – it is responsible for 40% of greenhouse gas emissions worldwide – have definitively woken up to the importance of ESGs. This is having a positive effect on tech deployment within the industry. I discussed why this is the case with Jake Fingert, managing partner at proptech VC Camber Creek, which is investing significantly into ESG tech.
According to Fingert, there are three main driving forces behind the ESG narrative in real estate.
Financial investors are more and more interested in sustainability and carbon footprints. Long-term investors such as pension funds view their investments through a 30-plus year lens and to them it is a no-brainer: if we don’t take care of the planet, this will have an adverse effect on their long-term investments, as climate change does massive damage to the global economy. When these large investors focus on a problem, real estate owners and operators have a strong incentive to focus as well.
On the other side of the equation, corporate tenants and residents care about the environment and climate change much more than they did in the past. Consumers increasingly want to be in a building that is certified carbon neutral, they want to work for companies that care about the environment. As this segment of stakeholders grows, it drives change.
Finally, governments have a massive impact on ESG adoption. In the US, for example, local law 97 in New York mandates CO2 emissions reductions, and at the federal level there is a lot of talk around federal legislation on climate. In Europe, access to the circa €750 billion in Recovery Fund monies hinges on countries’ abilities to reach a 55% emissions reduction target by 2030, and the goal of becoming carbon neutral by 2050. Government measures globally will be carrots (and sticks) to encourage real estate owners and operators to improve on ESG measures.
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These three measures are creating pressures on the market, pushing real estate owners and operators to take sustainability seriously and act on it. As Fingert puts it, “ten years ago, some companies were leading on the sustainability front because their principals were doing it for altruistic reasons. Today, real forces are coming into play, putting pressures beyond these reasons.”
Fingert went on to share that Camber Creek is particularly excited about the ESG tech space, and has been investing in it for over four years.
He reckons that the first step on the path to ESG excellence is to be able to accurately track and report carbon waste and energy usage. In order to make changes, you first need to measure what is actually happening. According to Fingert, Measurabl (an ESG tech platform for real estate) is the global leader in this space, and this is why Camber Creek first invested in them four years ago and followed through in their recent $50 million Series C round.
The next problem to solve, once you’ve identified and started to measure ESG underperformance, is what to actually do. There are a number of targeted solutions on the market to help companies improve their footprint. One example Fingert gave is Arcadia (a US tech company unlocking nationwide access to energy data and renewables) whose platform helps people access community solar power; Camber Creek recently invested into their $100 million Series D round, alongside Tiger Global. Tiger’s investment highlights another growing trend – the increasing interest that generalist investors have in the ESG tech space.
In general, technology will drive efficiency and help reduce consumption across the built environment. A broad variety of tools is on offer, from sensors on HVAC systems to tools to measure indoor air quality and purify it. As the pool of targeted tools expands, their value-add will improve.
Another thing Fingert has a keen interest in is carbon capture in construction. There is an array of solutions on the market, such as those provided by Exxon, 1PointFive, and Carbfix. The application of these technologies in construction is still in its early stages, but Fingert reckons it is a space to watch, as on the one hand significant funds are flowing info massive infrastructure projects for which there is an urgent need, and on the other hand sustainability has become a crucial requirement. The answer isn’t to avoid building, but to build sustainably, and as legislation for cleaner construction comes into play there will be a flurry of activity in this space.
On a more blue-sky horizon, Fingert finds drone technology to be very interesting in an ESG context. As use cases become more sophisticated, it can meaningfully reduce miles driven on roads for activities such as package deliveries. They will also be used in specific cases such as cleaning windows on skyscrapers or fixing roofs, and as these use cases become more mature, they will do a lot to reduce emissions.
In the long run, ESGs will become instrumental in building and managing cities that run more efficiently. Sustainably is and will remain a core value for businesses and society, there is no turning back.