Recap: An Introduction to CREtech Climate — Making the Case for Decarbonizing the Built World and Promoting ESG Initiatives

This session was kicked off by Michael Beckerman, CEO of CREtech and CREtech Climate. He shared important statistics on the real estate industry and spoke briefly about the mission of CREtech Climate. He noted that the real estate industry is the single largest contributor to climate change. Approximately 39% of emissions come from building operations, building materials, and construction. CREtech Climate is leading the way in creating the case for the real estate industry to address the climate crisis.

Michael then introduced the panelists:

• Stacy Smedley, Executive Director, Building Transparency
• Marta Schantz, Senior VP, ULI
• Michael Glatt, Vice Chairman, MACRO
• Greg Smithies, Partner, Fifth Wall
• Mark Grinis, Global Real Estate, Hospitality, and Construction Leader, EY

Prompt: Let’s make the case for this massive built world — why should they be investing in climate tech, sustainability, and ESG initiatives? How? Where do we start? Where do the dollars go?

Greg, from Fifth Wall’s perspective — why did you create a new [$350M] climate fund? What opportunities are you investing in?

Smithies: I take a capitalistic point of view. A key lesson from VC 101 is to chase large markets. A bad company in a large market will beat a good company in a small market any day of the week. Real estate is the largest asset class in the world ($270T). We spend $3–8T on new buildings every year. When this market wakes up and realizes they need to decarbonize, we are looking at the largest venture capital opportunity in the history of the world. I say that without being bombastic. If we look at the size of the entire internet market (all e-commerce combined) it is ~$1T / year. The enterprise software market is ~$800B / year. When you look at the technologies that go into decarbonizing the built world, we are estimating $2–5T of spend every year for the next 30–50 years. It is a massive opportunity.

When we think about what we invest in, we should understand the difference between implementing existing technologies and investing in R&D for new technologies. If you, as a real estate owner or operator today, bought the best technology available on the market (the best solar panels, the best installation, the best energy star compliant equipment, and switched all your electricity to green electricity), you would only handle about 50% of the carbon problem that the industry currently has. For every $1 we put out the door to implement existing technologies, we should put $1 into R&D for new technologies.

Prompt: Where will Fifth Wall be investing, conceptually?

Smithies: I like to think of it in two buckets ‘ Boring’ climate tech and ‘Sexy/Scifi’ climate tech.

‘Boring’ is pragmatic — you can install and buy it today. These companies are typically in series B rounds. Think high efficiency HVAC motors, heat pumps, better insulated windows, solar roofs. We’ve heard a lot about them, but most of these technologies are only available on a small scale. What we need to do as VCs is give them money to grow and get their products out to the largest buyers in the world. One example is the first deal out of our fund, Turntide Motors. They make high efficiency HVAC motors that are 40–60% more efficient. The capex payback periods are ~2 years. Then that motor sits in your building for 20–30 years. It’s a no brainer from a CEO’s point of view. It may seem boring, but it moves the needle for owners and operators today.

‘Sexy / Scifi’ are riskier investments. They are new building materials (think reinventing concrete, creating clean steel, and mass timber deployment). These are going to take a few years to bake, but we need them down the line.

Prompt: EY has a massive footprint, many employees, and many real estate clients. What is your perspective as a company and a thought leader in climate, ESG, and sustainability?

Grinis: As a professional services firm, we see this as a big industry and a huge opportunity to make an impact. We are 350,000 people in 700–800 offices around the world. We started this journey in earnest a few years ago. We announced we’d go carbon negative this year and carbon zero by 2025. As you look at a company like ours there are a lot of different elements to parse out. Some of the things we are doing include reducing employee travel by 35%, ensuring 75% of our customers have sustainability agenda, separately metering our buildings, and addressing renewables for our top 150 locations.

Prompt: At ULI, you do a lot of research. How can you help us make this case? ULI is the leading global real estate organization. What have you seen, heard, or written that has been particularly effective?

Schantz: Our research center, Greenprint, is dedicated to the topic of climate mitigation. Real estate has a responsibility to decarbonize and there is a business case for it as well. The business case is five-fold:

1. The financials are there. Reducing energy reduces operating expenses.
2. Investors value more sustainable real estate funds.
3. Tenants are asking for it.
4. There are non-energy benefits of sustainability, like resilience and grid reliability, when you think about the interconnected system of buildings within cities.
5. The regulations. Cities and countries across the globe are launching aggressive goals and policies that directly affect the building sector. NYC, Vancouver, and St Louis are already implementing new standards.

Prompt: Savills is one of the largest global real estate services companies. You are working closely with tenants and on project management. What are you seeing that can give us hope and inspiration that the industry will embrace this?

Glatt: First and foremost we should understand this is a human matter. The pandemic was a wake up call about how interdependent we are. Sustainability became a big topic, no matter where you lived or what you did. We have to tackle this as a global challenge and we have to take it head on. The federal government is prioritizing it. The tools I am seeing so far include AI, IoT, sensors, and drones. They are going to create more transparent and measurable outcomes. We will see more reuse, more adaptive reuse, more smart buildings. We’ll also see healthy initiatives like LEED and WELL continue to develop. And this is good for business. Our clients recognize this. We see what Blackrock put out about their investments. We are building some of the biggest HQs around the world. Disney set a responsible 2030 initiative, Comcast and Greenberg Traurig created similar green programs and guidelines. People are walking the talk.

Prompt: How do we make sure that we aren’t just greenwashing this conversation?

Smedley: Transparency is a key aspect of all of this. A common saying is “you can’t manage what you don’t measure.” We need open and transparent data, based on science, that supports all the things we say we are going to do. We are starting to see more alignment around transparency, and more sharing and collaboration. Building Transparency, an embodied carbon calculator, started as an incubated project. It is free for anyone. It is being funded so it can be made available for everyone, not to make money. Our board is made up of real estate professionals from Salesforce, Facebook, Google, Amazon, and Microsoft. They are all coming together to support open access to data.

I also think there needs to be investment in data. It is great to invest in the products/materials that are the outputs to meet these goals, but you have to be able to calculate everything effectively.

Prompt: Talk to the audience (landlords, real estate owners, big real estate companies). What is your advice? How do they get started? On day 1 what do they do?

Smithies: Realize that ESG and sustainability is core to your business. The real estate business is driven by cost of capital. We are seeing a bifurcation between the cost of capital for green projects and non-green projects. In 2017, you could raise debt around green projects about 50 bps cheaper than non-green projects. And that delta is growing. Buildings that are cleaner are cheaper to finance, run, and operate. It is just better for the business. And it is reflected in your stock prices as well. Look at something like Orsted Energy. They were a Danish oil and gas company that pivoted to 100% wind power green energy. They are now the largest wind power energy company in the world. Their stock is up 300% in the last 2 years, while all the rest of the oil majors are down ~20%.

Smedley: I like to use the analogy that learning about sustainability is like learning a new language. There will be folks that are fluent, those that can have a conversation, and those who can’t yet understand it. It is okay to not be fluent yet. We are compiling resources and you can get educated. You don’t have to be fluent in every ‘dialect’ at once. You can pick one to start (ie: operational efficiency or materials innovation). Start with one you can dig into and stick with, then move to the next one.

Grinis: This message is for real estate, but it’s also for fortune 500s. They have big real estate footprints. Remote work has driven the c-suite to think carefully about real estate. It is a unique time to implement technology, but also to drive your ESG strategy.

Schantz: I see competition as a driver. At Greenprint, we bring together some of the world’s most innovative real estate firms to collaborate on sustainability. Over the past decade we’ve been able to collect best practices from folks who just started with the goal of reducing carbon emissions. They started by benchmarking (based on their peers) and understanding data, hiring someone to work across their company, finding quick wins, moving onto capital projects, and then moving on to think about new construction, health and wellness, net-zero, and more.

Glatt: I have never seen a market that is more in the tenants favor than right now. If tenants take this seriously and insist they want to operate in buildings that meet green initiatives, the landlords will have to comply. That is the ultimate ROI.