As world leaders turn their attention to tackling climate change following COP26 in Glasgow and governments develop key commitments, this is an opportunity for industry to step up and do its part. Because if there is one thing we have learned from recent climate research, it’s that we do not have time to waste.
Contrary to popular belief, the real estate industry is the world’s largest contributor to the climate crisis. It is the climate culprit hiding in plain sight, while the transport, agriculture and mining industries have attracted a disproportionate share of attention from regulators, the media and the public.
But statistics don’t lie: globally, real estate consumes 40% of energy annually, emits 40% of greenhouse gases and uses 40% of raw materials. A recent report by the United Nations’ Global Alliance for Buildings and Construction found that despite a small dip in 2020 due to the pandemic, we were not on track to cut emissions 50% by 2030 to meet mid-century climate goals. And as real estate consists of assets fixed in place – we can’t easily move buildings – it is most imperilled by climate change.
Immediate action from real estate leaders is not only needed, it’s the right thing to do. First, we must evaluate the climate risks real estate faces. Research by Four Twenty Seven found 35% of REITs’ properties were exposed to climate hazards, including sea-level rise, flooding and hurricanes. That sort of risk has a direct impact on investors, tenants and consumers, who are demanding clarity on the risks associated with their assets. Real estate leaders must be more transparent in measuring, reporting and managing such risks.
Around 28% of a building’s emissions are in ‘embodied carbon’ – the emissions that go into making materials such as steel and concrete. The other 72% comes from its operations – lighting, HVAC and appliances. New and emerging technologies are proving there is enormous opportunity for property managers to significantly reduce their emissions in these areas.
Older buildings can be retrofitted with energy-efficient HVAC or plugged into district energy or microgrid systems that use renewable energy. Sourcing sustainable building materials for construction is crucial, along with smart meters for tracking energy use and efficiency. And technologies such as rooftop solar, green roofs, energy-efficient lighting and spray foam insulation can significantly improve all buildings.
These are important and necessary steps the industry must take, but they are not enough. Even if buildings are to be powered fully by renewable energy and equipped with the best energy-saving technology we have, they can still only get about half way to true carbon zero. These goals were adopted at COP21 in 2015, yet we have seen little progress.
We have seen other industries announce bold, ambitious climate tech investment funds. Amazon launched a $2bn Climate Pledge Fund last year, while Microsoft has announced a $1bn Climate Innovation Fund and Unlivever has said it will invest €1bn via its Climate & Nature Fund.
Unfortunately, the real estate industry has done little to address these issues, investing just $95m in climate technologies over the past 10 years. To put that in context, Morgan Stanley estimates $50trn will be needed to decarbonise the US economy alone.
Making the first move
So what is holding industry back? No firm seems willing to make the first move. To disrupt real estate’s collective paralysis, we must aggregate capital and resources to make more meaningful investments into climate technology that can help it decarbonise. Fifth Wall’s climate tech fund is one example: it is a group of sustainability-focused real estate owners who have come together and pooled their capital to invest in climate tech.
The fund seeks to invest in technologies throughout the real estate lifecycle, from materials to demolition and recycling, that can address the industry’s carbon footprint. We are investing in technologies that tackle some of the toughest challenges in physics and engineering, such as clean concrete, green steel and upcycling, to ensure our industry is addressing every aspect of our emissions contributions. To benefit from tomorrow’s innovations, it is essential we invest in those technologies today.
Thankfully, start-ups and the wider industry have recognised the opportunity for decarbonising the built environment. These are precisely the advancements we need to invest in to achieve the goal of a more sustainable world, and importantly, the fund is available to UK-based investors.
We recognise real estate’s role in contributing to climate change and are stepping up to play our part. The challenges we face are all-encompassing in scope and global in reach. But what’s at stake – our world, home and families – gives us no choice but to invest in the solutions that can deliver us from the cliff’s edge. As the world begins to narrow its focus on these areas following COP26, make no mistake that the real estate industry understands its role and stands ready to lead.
Brendan Wallace is co-founder of Fifth Wall