Proptech Showtime...

Sea level rise, heat waves, storms, and droughts. Climate change threatens the built environment in ways that have serious consequences for our health, viability, and economic vitality of our cities.

In 2022, the impact of climate change has been highly visible. With over 8,600 km2 of area burned, it was the year with the highest number of fires since 2006; Hurricane Ian caused approximately $67billion in damage, making it a top 5 US storm; Additionally, more than 15 separate weather and climate disasters have been counted during the year that have caused billions of dollars in economic damages.

In the near future, the impact is only expected to increase. $34 Billion worth of U.S. Real Estate on (both) coasts could be regularly flooded within the next three decades. On top of that, more than half of all recently built (< 10 years) houses in the US are situated in areas that are prone to wildfire risk, and approximately half are in areas at risk of drought. In total, around 16% of today’s population lives in hazardous areas. Over the next 30 years this will is expected to increase to 21%.

Proptech and climate tech can make a huge difference in turning the tables for our future.

We at The Proptech Connection are seeing increased interest in climate tech in developing markets as they accelerate large projects in commercial, residential and mixed-use development. Also, the world of Proptech and Cleantech are converging and

VCs have played a significant role in driving innovation and growth in the proptech sector. The sector has attracted significant attention and we are seeing many "generic" or "tech-agnostic" investor relationships in our network looking for proptech deals. Climate Tech startups raised around $19 billion across 500 venture deals in the first half of 2022 alone.

The real estate industry continues to evolve, proptech and climate tech startups will play a crucial role in shaping its future, and VC investors will continue to play an important role in supporting growth and development.

With $70.1 billion of investment, Global Climate Tech Venture Capital had an exceptionally strong 2022. The US invested more into Climate Tech in 2022 than entire 2006-2011 combined. Europe's venture funding into Climate Tech more than doubled in 2022, out investing China for the first time (!). Combined with a huge rise in India and other countries around the world, Climate Tech VC grew 89% globally from 2021.

And although this is a huge amount, it is not enough to reach net-zero emissions in 2050.

Annually, US$9.2trillion is the necessary investment, while currently less than $1trillion is being invested. It will take $83.3 trillion to decarbonize the world’s buildings.

Changing policies + macro drivers

There is a need for change. Countries all over the world are reassessing their policies regarding climate change.

The USA for example has the Bipartisan Infrastructure Law, the Inflation Reduction Act (IRA), fosters Climate Tech innovation, accelerates progress that’s been made and expands the current system of clean energy tax credits, providing greater long-term certainty for business on their returns on investments. In 2021, the EU implemented a law that requires member countries to reduce emissions by 55% before 2030 and be climate neutral by 2050. In October 2022, the council of the EU decided that all new buildings should be zero-emission by 2030, and existing building should be zero-emission by 2050.

England and Wales banned buildings with poor energy ratings. It is proposed that the minimum EPC rating for private rented properties is to be raised from E to C.

A report from last month suggests that the deadline for this will be in 2028, three years later than the originally proposed deadline. To paint the picture: 85% of UK’s commercial stock falls below this threshold.

China and Saudi Arabia have committed to achieving carbon neutrality or net-zero emissions by 2060. India has pledged to get there by 2070 and Brazil has committed to carbon neutrality by 2050. The latter promises to reduce total emissions with 37% before 2025 and up to 43% before 2030.

The trends

Despite the strong macro, social, governmental and cost drivers for continued investment in climate tech, firms operating in this space are facing economic headwinds on raising capital.

Whilst challenging, we at The Proptech Connection continue to see some great technology emerge with robust sales pipelines as developers look to compete on user experience as well as building efficiency.

We are working with some large developers on strategic planning for both new developments as well as retro-fitting existing assets.

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