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CREtech London | Real estate given wake-up call on ‘dangerous’ offsets

In one of the hardest hitting sessions at CREtech London, a panel of VCs gave real estate several warnings about its approach to sustainability and the future of climate regulations.

Taking aim at some net zero policies, Roelof Opperman, Fifth Wall’s partner and co-head of Europe, said: “Voluntary offsets are going to be very dangerous and very bad.”

Many of these offsetting projects, he said, are in places that lack “the best government systems”, which creates uncertainty about whether money actually ends up where it should.

The other concern is that these offsets are not necessarily permanent.

Opperman said: “I love planting trees, but the problem with the tree is you don’t know how the tree is going to do. Is the squirrel going to bite the tree? Is the tree going to fall down and then release carbon back into the atmosphere?”

But the discussion on venture capital and climate change went far beyond offsets. The panellists, experts in climate tech investment, delved into topics ranging from decarbonisation strategies to regulations and the small ways real estate can help.

CREtech London 2021 VC session

Decarbonisation strategies miss huge chunks of emissions

Strategies to cut carbon often focus on Scope 1 and 2 emissions – a company’s own emissions and energy use –  because those are relatively easy to measure. But that ignores a large portion of a company’s greenhouse gases.

Nicole LeBlanc, partner at 2150, said: “People are really focusing on that, but the majority of emissions are coming from Scope 3 [supply chain emissions].

“It’s really important that all of us are going to have to figure out how we’re going to combat Scope 3 emissions – and where we’re going to be able to have the most impact is in that space.”

Prepare for ‘super aggressive’ regulations

“The government reaction to Covid is really a precursor to what we think governments are going to do with climate change,” Opperman said, calling the pandemic a “dress rehearsal.”

Once governments realise what impact climate change will have on their populations and their safety, regulations will start coming “super aggressively,” he said. Unfortunately, the industry is far behind and Opperman predicts that it will eventually have an costly moment of realisation.

Nikola Samios, managing partner at Proptech1 Ventures, emphasised the urgency that should create. In Germany, he said, “You have millions of homes that don’t meet certain energy efficiency standards… that you simply will not be able to rent out as a residential real estate owner over the next five, six, seven years.

“These will be stranded assets – and it’s millions – so they need to be transformed right now because it takes time.”

Re-think returns

If decisions in real estate are made based on financial concerns, developers need to broaden their definition of ROI, Gregory Dewerpe, founder of A/O Proptech, argued.

He said: “We know how real estate owners and operators think: it’s all about ROI. I think it’s very important they rethink a little bit the definition of ROI.

“It’s not only the cost-benefit relationship of doing something or implementing a climate-friendly solution, but they should add into the equation the cost of not doing anything. That far trumps any cost aspect.”

The industry will also have to accept lower returns in the future because sustainable real estate is operationally more intensive and expensive. But the upside, Opperman said, is that doing so means your company will survive – unlike those that ignore the problem.

Climate tech investment takes time and patience

Dewerpe also warned that investing in sustainable tech involves a lot of uncertainty, which is why A/O Proptech launched an evergreen fund with no end date.

“That was specifically to be able to stay as long as it takes to see value and support entrepreneurs… because there’s a trend, there is a movement, but there’s still a question mark about the pace and velocity.

“In a way Covid, has been a blessing in disguise: everything has been accelerated. But if it wasn’t for Covid, maybe we would have to sit on this stuff for 15 years, 20 years. Who knows?

“That’s the only way that we can try to support bolder ideas and allocate capital in a way that maybe is less traditional in the VC model – just because the problem at hand is so important that we have to do more.”

Play a small role

LeBlanc said the “stars are starting to align” with money and regulations targeting sustainability. But for the world to avoid a “catastrophic” rise in temperatures, real estate will have to adopt a range of tech products and sustainability initiatives.

She said: “I think we’re going to hit our targets, not by having one amazing solution come in and solve everybody’s problems, but incrementally: everybody’s going to do 5% here, 10% here.

“And then by 2030, we’ve actually hit all our targets. It’s just going to take everybody working in concert together with different technologies and different players.”

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