June 7, 2022
April 4, 2022
Ask anyone in Real Estate what they are actively looking at and they will tell you - ESG. Never has 3 letters caused such concentrated fervent activity since I realised my brother had left me an IOU.
Once perceived (allegedly) as falling under the department ran by the “hippies” who wanted us all to bike to work, the corporate commitments made in the last few years, owing to the very serious ramifications of not doing anything, has put it, rightly, on the forefront of the agenda.
Whilst the importance of ESG isn’t new news, recent events in Europe have highlighted what achieving these commitments will take. The invasion of the Ukraine by Russia has highlighted the real costs of behavioral change. The costs of this will be significant + its hard to see how on the back of a debt funded pandemic how some economies (+ companies) will be able to meet these commitments.
The EU imports 90% of the gas it consumes +as the figures below show a lot of this energy need is sourced from Russia.
The invasion has posed significant implications for global energy markets with countries looking to address both energy inflation and energy security. This has led to seismic fluctuations in the cost to provide a core need: energy.
The price of gas has increased 12x when comparing Jan 2020 to Jan 2022 - meaning countries in Europe have used 50% more coal to meet their energy needs (Jan 21 v Jan 22). As such, the price of coal has gone up 5x.
The social global cost of carbon is estimated at $125 per tonne + the US Energy price index is up >25% in the USA. China + India haven’t fully committed to net zero by 2050 + they are expected to grow significantly in the next 20 years. And then there is inflation considerations for other staples like food. Final point to note, is that we need to invest in renewable energy technologies which has a cost + a time lag + many of the resources needed for some of these technologies are sourced from….Russia.
This is why we at the PTC think this is ESG’s seminal moment. A lot of effort + good intent has been made around companies pushing forward + committing to the wider ESG need. As one of the largest emitters of Carbon, Real Estate is at the forefront of this - and it really should be. Much fly shaming has gone on of late but annual carbon emission from aviation is less than the annual emissions from cement alone, and the broader concept of construction accounts for a much higher figure - 20 to 40% depending on sources.
However, given the future headwinds (on the back of a difficult + transformational 2 years for RE) it will be interesting to note those who will go all in on their pledges + those who refrain. As someone noted to us recently in New York, it is the CEO’s in 2 roles time who will have to face the music, not the CEOs of today.
These macro drivers + the upcoming global challenges, mean we at the PTC are really liking forward thinking portfolio analysis+ protection techs at the moment. Lifecycle Assessment of carbon has been around for a while + a number of companies are factoring this process into projects.
We have also started to see a number of climate techs emerge which are using predictive data analytics to measure the variable weather impact on a buildings cost/risk profile/management.
Factoring in such factors may seem slightly left-field for an IC paper, when getting good sites is already hard, but with the rise of multi-stage, mixed use sites which can take decades - we think this will be an essential consideration. For many this type of Proptech adoption will be the ace up their sleeve.