The Climate Tech Frenzy Could Change How PropTech Firms Position Themselves

As much as we like to think of technology as our savior, it’s still up for debate whether or not it can save us from the worst effects of climate change. A Harvard study examining technology’s impact in mitigating climate damage to U.S. agriculture concluded, “we cannot simply innovate our way out of danger,” according to economist and study co-author Jacob Moscona. The researchers estimate that tech has mitigated about 20 percent of potential U.S. economic damage from climate change since 1960. Twenty percent is not negligible, but it’s not the kind of help you might expect.

The researchers estimated that tech could mitigate only 13 percent of projected economic damage from climate change by 2100. While the research focused on American agriculture, a similar argument could apply to climate change-focused innovation in other industries, such as commercial real estate. Sure, technology can help us be more efficient, but reaching our net zero goals will be hard to achieve without significant, painful investment. 

Despite the pessimism of some, investment in climate technology is growing at a supersonic pace in nearly every global industry. This is true in commercial real estate as well. Last year was the first time that investment in clean energy equaled global investment in fossil fuels, according to data from Bloomberg’s commodity research arm. 2022 also marked the first year that investment in clean energy surpassed $1 trillion, with an increase of more than $250 billion from the previous year. These staggering numbers will only get bigger as federal, state, and international decarbonization policies are implemented, and legislation like the Inflation Reduction Act floods industries with tax credits and incentives.

The global climate mobilization has had an outsized impact on commercial real estate, which has been in the spotlight for its collective carbon emissions. Policies like New York City’s Local Law 97 threaten considerable fines for building owners who don’t comply, and the deadlines are getting closer. Property owners are turning to new technologies, everything from rooftop wind power to carbon capture systems. The climate tech frenzy has only just begun, and real estate is getting swept up. The implications are huge throughout the industry, but especially for PropTech.

Shades of green

The U.S. invested more in climate tech in 2022 than the entire Clean Tech boom spanning 2006 to 2011. If keeping the current pace, the U.S. will have invested more than $100 billion in climate VC by the end of this year. There are 83 climate tech unicorns as of January 2, 2023, collectively valued at more than $180 billion. I could provide countless more of these statistics, but you get the point.

The sheer size of the investments is interesting enough. But what’s more intriguing is how some PropTech companies may change how they position themselves to cash in on the climate gold rush. A weakening economy slowed VC in PropTech last year, with international VC declining 38 percent, according to the Center for Real Estate Technology & Innovation (CRETI). But part of the reason the PropTech startup investment may have taken a hit is that companies are re-categorizing themselves as climate tech firms. “Our assumption is that PropTech VC isn’t down as much as many think because of this,” said Ashkán Zandieh, Managing Director at CRETI. Zandieh thinks it’s likely easier to raise money as climate tech rather than PropTech right now.

The assumption makes sense. After all, the climate tech market could offer more attractive returns for a company that traditionally thought of itself as a PropTech. McKinsey reports that spending on getting global real estate to net zero between now and 2050 will require $1.7 trillion annually. Everyone wants a piece of that pie. “This is the single largest CapEx super cycle any industry has ever seen,” said Othmane Zrikem, chief data officer of the VC firm A/O Proptech.

Many sustainable building technologies are, essentially, climate tech. So, it comes down to how PropTech companies want to be seen by the investment market. Less established startups that provide decarbonization solutions could re-fashion their company’s perception, which could work toward their advantage. PropTech still draws plenty of investment capital, but if climate tech is hotter, why not play up to that market? This could work for any number of technologies that startups provide, even something like flexible office tech, which could shrink the space needs of occupiers and be viewed in some ways as better for the environment.

PropTech firms with sustainable tech have seen surging interest from investors despite a weaker venture capital market. We’ve lived through recessions before and come out okay on the other end, but we haven’t lived through the climate-fueled natural disasters that are rapidly growing. “When the house is on fire, you have to extinguish it regardless of whether the neighborhood is growing or going through a rough period,” said Sam Ramadori, CEO of BrainBox AI, a PropTech firm that provides energy efficiency software. This sense of urgency may drive climate tech investments through thick and thin in the decades ahead.

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A wealth of opportunity 

Not all real estate climate tech startups will survive, and the mad dash for venture capital could lead to false claims. The Center for Real Estate Technology & Innovation is a PropTech VC aggregator, and Zandieh said they’re careful of including some climate-tech-focused companies in their newsletters and ask themselves why firms claim that coveted label. “There are some bad actors out there that will greenwash, but we don’t want them to ruin everything,” Zandieh said. “By and large, there are mostly good climate tech companies out there.” The nature of venture capital also means that if a company isn’t good enough or is greenwashing, it will be exposed eventually (even if they take some folks down with them, unfortunately).

Previous boom cycles in climate tech have not lasted, but most VCs I spoke with said it feels different this time. The strong tailwinds in the climate space, like government policy and corporate occupier appetite, have created a new paradigm. More evidence of this is a big name in real estate that has signaled a shift into climate tech: the VC firm Fifth Wall.

Fifth Wall launched in 2017 with the thesis of investing in software to modernize the real estate industry. But last summer, it opened a fund explicitly focused on decarbonizing real estate that has already grown to $740 million. Fifth Wall already manages more than $2 billion focused on PropTech, but the shift to real estate climate tech is a philosophical evolution and emblematic of the enormous opportunity. Real estate is the largest carbon emitter among global industries, but only 6 percent of climate tech VC has thus far gone toward decarbonizing the sector, with most global venture capital geared toward electric vehicle batteries and other renewable technologies. Fifth Wall believes the market will focus on low-hanging fruit climate tech in the next few years and then shift later to harder-to-develop tech like carbon-negative cement.

So many investors have made sustainability commitments, so these investments will likely continue. There has been some ESG backlash from more conservative states, but it’s questionable they can mount a strong enough defense to slow down the green investment tidal wave. This rapidly increasing injection of venture capital will provide a wealth of opportunities for PropTech companies and may even change how they categorize themselves. Modernizing the real estate industry is hard enough, but decarbonizing it could be more challenging. For a PropTech firm already working on climate-adjacent tech, this opportunity could lead to a rethinking of corporate strategy beyond just changing a logo. Given the enormous sums of money being poured into climate technology, it could be a very lucrative move.

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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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