Climate tech funds in real estate: A necessary means to an end

Climate tech funds in real estate: A necessary means to an end

We are undoubtedly living in an era that is increasingly being imperilled by climate change; and there is an urgent need to respond to this crisis. Today, commitments towards decarbonization and net zero carbon emissions have taken centre stage, especially with the COP26 climate conference in Glasgow implying concern over the emissions gap and the critical need to accelerate action to close that gap. The US and EU have already committed to net zero carbon emissions by 2050, while China and India have committed to do so by 2060 and 2070 respectively. There is no doubt that climate change is now high on the agenda for most countries and industries – a welcome sign of times to come.

The fact that built environment accounts for a significant 40% of all energy-related CO2 emissions, necessitates the community to consider investing more capital into the climate tech ecosystem. However, considering the pace of building decarbonization policies that are evolving currently, it requires detailed discourse regarding how much it would cost the building owners and the quantum of venture funding required to be raised to quicken the decarbonization shift. While decarbonization for buildings is a daunting task, it is still achievable provided the capital spent is in the right amount and by the right parties.

According to a survey report by CREtech, majority of the real estate firms acknowledge the industry’s impact on climate change. They agree that the real estate industry has a greater role to play in climate change, and most of them have plans to invest in climate tech over the next 5 years.  A number of factors have led the real estate industry to take cognition of investing in climate tech, the accord based largely on recent observations regarding newer, stringent regulations administered in the sector, changing tenant preferences and favourable allocation in capital markets towards “greener” real estate. Thus, propelled by obligations from investors, regulators and occupiers, an increasing number of real estate players have been led towards strategic application of climate tech solutions to achieve portfolio decarbonisation.

While climate tech awareness has been there since the early 2000s, it is only in recent times that funding has assumed significance, buoyed by a global push for net zero emission targets and new tech advancements. According to data from BloombergNEF, a record USD 17 billion in venture capital was poured into climate tech space in 2020. However, for the real estate industry that has traditionally relied on venture capital or private equity to finance climate tech, things have not picked up sufficiently and capital has not been as free flowing. Other challenges such as difficulty in retro-fitting or integrating numerous technological solutions in an asset, and getting landlords to trust climate tech solutions, come up as stumbling blocks as well.

Preliminary research estimates show that the global real estate industry requires over USD 20 trillion to decarbonize, yet the real estate industry has not even invested a billion dollars into climate tech in the past decade. To overcome such lags in the sector, venture capital firms such as Fifth Wall have opted to focus on the global real estate industry and technology for the built environment. By September 2021, Fifth Wall had garnered over USD 140 million from a handful of real estate players. Fifth Wall eventually aims to raise USD 500 million for its Climate Tech Fund, which would be utilized to invest in early-stage tech companies providing solutions towards reducing carbon emissions, achieving net-zero and producing negative emissions.

Thus, given due consideration, there lies extensive investment opportunities in climate tech in real estate.  With investors committing more capital into high level R&D companies that promise emissions reduction, climate tech in the real estate sector would achieve the required momentum to develop and enable true zero carbon emissions. After all, the impact of decarbonizing commercial real estate goes beyond just emissions reduction, it holds the key to improving the quality of life among tenants, their employees and the surrounding community as well.



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