It is no longer a viable option for capitalism to ignore the carbon impact

In our current model of capitalism, carbon emissions and environmental damage resulting from business operations are externalities that can be largely overlooked by businesses and investors. But, as consumers, policymakers, and society at large begin to demand that businesses operate more sustainably, the costs associated with the status quo are rising and investors are taking notice.

Social license to operate is rapidly evolving towards a more climate-conscious standard, dictated by government policies and tax models, consumer demand and investor perspectives. And if a business is caught greenwashing or putting too much emphasis on its green initiatives, it can face a public backlash and even face legal and financial penalties.

The real estate industry is a major contributor to climate change and environmental degradation, but owners of commercial buildings are largely not responsible, or willing to be held accountable, for their property’s carbon footprint. . The venture capital firm Fifth Wall is a player working to invest in technological solutions for the climate impact problems of the real estate sector. Recently certified as a B Corporation, a certification awarded by the independent nonprofit B Lab to businesses on the basis of verified environmental and social performance, Fifth Wall seeks to help the real estate industry create scalable solutions to reduce emissions of carbon.

“Particularly around climate technology, sustainability technology and green technology, we strive to be a trusted confidante for many large real estate companies, and they look to us to help them identify the new technological trends that can benefit their businesses, not in six to twelve months, but also in five to ten years. And that’s the role Fifth Wall plays, ”explains Michael New, Fifth Wall’s chief of staff.

To understand how the growing importance of sustainability is starting to cost the real estate industry, and as part of my research for B Corporations, I spoke with New and Tyson Woeste, a partner who oversees the company’s sustainable investment practices at Fifth Wall, about the company’s role in tackling climate change and becoming a B Corp .

Christophe Marquis: Earlier this year, you announced a Carbon Impact Fund to help the real estate industry mitigate, and ultimately eliminate, its greenhouse gas footprint. Can you explain why this fund is focused on real estate and why now is the time for real estate leaders to embed more sustainable practices?

Tyson Woeste: Real estate is the biggest contributor of greenhouse gases. If you care about climate change, I think the first thing you should tackle is the real estate industry. It’s a bit that simple, isn’t it? And so, that’s been true for some time, but what has changed in this externality framework over the last 12 months or so is three things.

First there are the regulators. In New York, Los Angeles, Washington, DC, Austin and Hawaii for example, there are aggressive carbon taxes that focus on the real estate sector. Basically, regulators impose a short deadline and significant taxes targeting the real estate industry, which has set it within deadlines that matter to policymakers.

Another externality breaker is formed by large companies, such as Amazon, Microsoft, Google, which adopt decarbonization plans in which they make decarbonization commitments and deploy a five-year decarbonization plan. These companies then carry out audits and demand performance from their suppliers. If you demand carbon performance from your suppliers and you are Amazon, these are data centers, logistics centers and office space. All of a sudden there are huge demands on the owners to decarbonize coming from the customers in this case.

And then the third externality breaker is public and private markets. In the case of climate change, activists have been very successful in getting the message across to large capital distributors, such as pension funds, endowments, as well as distributors who have explicit low-emission allocation mandates. carbon or carbon free now that capital is looking for a place to sink.

As real estate is the most important asset class, it actually becomes a cost of capital issue for the real estate industry.

Marquis: Outside of the Carbon Impact Fund, can you tell me a bit more about what Fifth Wall does?

Michael New: Real estate is the largest asset class on Earth, but we believe it has historically underinvested in technology, compared to other larger industries. When Fifth Wall was founded in 2016, there were early signs of technological disruption in real estate. We saw an opportunity to partner with leading real estate owners and operators across all industries and asset classes in the US and overseas, to invest in technologies where real estate companies are likely the largest end users. potentials. And our model is based on facilitating these types of partnerships between our holding companies and our limited partners (LPs).

Some of the companies in our portfolio don’t immediately look like real estate technology companies. But these are companies whose diffusion can be accelerated by access to major real estate players, such as business owners or by promoting partnerships with tenants in large office buildings. We try to look at our investments in terms of how we can, through our network of limited partnerships, our real estate knowledge and our distribution expertise, accelerate the growth of this business. This gives us a differentiated value proposition for our portfolio companies and our LPs.

Our goal is to think more carefully about the types of businesses we want to invest in and how they can add value to our sponsors.

Marquis: In what ways is Fifth Wall itself adapting to be more resilient to market and consumer demands for climate-conscious businesses?

New: When we first completed Impact Assessment B for the first time, we realized that even though we were indeed a startup, there was already a lot of things we were doing ‘right’, but we knew we could still do it. better. We viewed the B Corp certification process as a framework for auditing our internal practices and learning where we could improve as a business. With the help of the B Corp certification process, we have formalized a variety of policies that affect employee relations, our supply chain, and operations in general.

We enhanced employee benefits with an employee wellness policy and also added a community service policy that gives employees three days off to donate to the community. We have also formalized an environmental and local purchasing policy to support green and local businesses.

As we progressed through the B impact assessment, we were also moving into a new office, so we were able to apply the B Corp thinking to many facilities management decisions regarding our new office space. These were all easy things for us to do, and sometimes already have been do so informally, but are now commemorated.

The most important thing to remember is that one of our goals is to help the global real estate industry minimize its greenhouse gas footprint, and our intention will be to invest in businesses that could help owners and operators. real estate to do so.

About Michael Brafford

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