Dear PropTech Community,
It is with great pleasure that I wish everyone a happy 2020! This last year has been a great one for me personally and professionally and things are only looking up. As we look at the year ahead I am particularly excited for the direction the world is taking. I know, you must be thinking I am the only one with this view. With all of the news about contentious politics, economic inequality and environmental concerns, it certainly feels like we are on a downward slope. But, from what I have seen talking to innovators in the property and PropTech industries, we are on the edge of a big change, one that will shape our world for the better.
Even more strangely, my optimism has nothing to do with technology, although I will say that there is some amazing stuff being developed right now. I am optimistic for the future because of what I have seen in the business world. It is more apparent today than ever before that a company’s strong proposition on social responsibility, environmental stewardship, and corporate ethics are becoming more and more important to both investors and consumers. It is as if the world has started to place more importance on what a company IS rather than only what it does.
ESG (or Environmental, Social, and Governance) is one of the main trends that we are watching at PwC because of the increasing weight being placed on it. The real estate industry consumes 40% of all energy globally, emits 30% of total carbon dioxide, and uses 40% of all raw materials.. So if we want to make progress in the looming climate crisis, our first order of business needs to be radical change across the real estate business. How a company or investment consumes energy, interacts with natural resources, and handles its waste are main factors in accounting for its environmental footprint. Social impact includes a company’s interface with the community and other institutions, how it conducts business in a broader social context, and even its labor relations. The final component, a company’s governance, includes its internal culture and ethics, whether or not it adheres to the laws and regulations, promotes diversity, and considers all stakeholders in decision-making protocols.
I truly believe that change only happens when the economic incentives are right. This shift in global consciousness is a major rethink of what it means for a company to be valuable. As a consumer, I want to know a company is looking out for me and my future generations. As an investor, I want to know that a company is building long-term value, that they are looking at the bigger picture.
I am not alone. According to the Global Sustainability Investment Alliance, global ESG-oriented investment in 2018 surpassed $30 trillion (a ten-fold increase from 2004). As the values of society shift, and the role corporations play in the larger societal context changes, investors and business leaders will only continue to strengthen their ESG positions.
With investment in ESG-oriented assets continuing to grow, state and federal policy is also beginning to find its way into the marketplace. In 2019 alone, the United States Congress proposed four separate bills that took aim at ESG disclosure for corporations and asset managers. Broadly, these bills proposed establishing ESG metrics governed by the SEC, requiring companies to be transparent in their political contributions, assess their risk of human rights violations as defined by the United Nations, and disclose their contributions to greenhouse gas emissions and other climate change factors.
It should also be noted that a strong ESG proposition can help ease these same regulatory pressures and give companies more freedom. A study by consulting firm McKinsey found that, “in case after case across sectors and geographies, we’ve seen that strength in ESG helps reduce companies’ risk of adverse government action. It can also engender government support.”
In addition to government regulation, third-party companies like Bloomberg, DowJones, and Thomson Reuters have created ESG reports and ratings criteria to assist investors in evaluating corporations against their own history and in relation to peers. Bloomberg began issuing ESG ratings in 2009, and now rates over 11,000 companies based on a criteria of 120 factors, including renewable energy, resource depletion, political contributions, discrimination, diversity, community relations, human rights, cumulative voting, executive compensation, and shareholders’ rights.
To help achieve their ESG goals, especially environmental ones, companies are turning to PropTech, or property technology. Buildings account for around 40 percent of the world’s energy usage. PropTech companies like Enertiv, Entic, Cortec and Prescriptive Data are updating commercial real estate assets to become smart buildings—leveraging data to reduce energy consumption and make buildings both more efficient and more profitable. Other firms like Blueprint Power help commercial assets sell their excess power back to the market, while startups like Urbint reduces waste and increases safety in gas infrastructure through AI.
One of my favorite companies in this field is Measurabl. They have created the number one ESG reporting software for commercial real estate and are already being used on over $2 trillion of assets in 75 countries.
While reducing energy consumption is important it is not the only way companies can promote ESG. Energy is a subset of ESG, but a far cry from being the same thing. Unfortunately, they are commonly commingled and I increasingly see energy companies make ESG-type claims on their website in order to capitalize on the macro trend.
Here is a short list of some other PropTech companies with strong ESG focus:
Four Twenty Seven: Physical Climate Risk for real estate
View: Dynamic glass for efficiency building exteriors
Arabesque: Sustainable finance
Aquicore: IoT and asset management platform
BuildingOps: Contractor management
Disruptive Technologies: Small, cheap, stick-anywhere sensors
Senseware: IoT and asset management platform
Pearl: Home sustainability certification
FitWell: Wellness certification for commercial buildings
Venture capital firms have begun shifting their own resources into ESG-oriented nonprofits. While being potential profit vehicles, these partnerships are also a way to bolster a fund’s own ESG values. At the beginning of 2019, early-stage PropTech venture capital firm MetaProp teamed up with Enterprise Community Partners, an affordable housing non-profit, to find solutions to the nation’s housing crisis. Companies in the space are embracing their position as a social good as well. StackSource, a marketplace for commercial real estate loans, has pledged 1% of its profits to local nonprofits.
Certain real estate owners have also been quite forward-thinking when it comes to ESG. CBRE Global Investors are one. They have multiple top-performing funds on ESG investment benchmarking platform GRESB and are up for multiple top awards from BREEAM, which showcases the world’s most sustainable buildings. Credit Suisse also deserves to be mentioned. They pioneered ESG investment in real estate with early studies on ROI. Corestatem, while a new fund, have had superior management and execution that has made them a favorite to outperform their peers. BNP Paribas has an impressive focus on sustainability targets and impact investment and Patrizia has turned into a powerhouse investor with their longstanding track record of transparency.
Ultimately, the cost of ignoring the cultural shift happening is much higher for companies than strengthening their “ESG propositions.” Authenticity isn’t just for hipsters, it will be an important part of a company’s brand for the foreseeable future. People are learning that every dollar they spend, every dollar they invest, is a vote. They are choosing, more and more, to vote for worthwhile causes. To bastardize a great quote by Gandhi: “Buy the change you want to be in the world. This is why I am optimistic about our future. Despite everything that might happen, we are on the right track as we learn to follow our hearts.
And yes, my sons & I are active in the Friday for Future demonstrations!
Happy new year!