How bad is it, really?
Today we’re taking a small departure from our usual discussion on climate technologies to explore something that is probably top of mind for everyone… goals and goal tracking. Like many of you, we’ve spent the last week refining our 2024 goals and setting up our goal trackers. And also like everyone here, we’ve had goals that just didn’t happen (umm, when did we say we’d complete a Spartan Ultra race?).
To reduce the risk of goal slippage the standard advice is to set SMART goals that are Specific, Measurable, Achievable, Relevant, and Time-Bound. So, instead of saying “I want to be more active”, say “I will walk 12k steps per day at least 6 days per week in 2024”. And thanks to widely available fitness trackers, like FitBit, it is easy to measure and track our progress against that goal.
To address and mitigate the risks from climate change, everyone is adopting goals and monitoring their carbon performance. This has created a new SaaS vertical around ESG tools, which have become critical for industries including real estate to navigate regulatory changes, improve competitiveness, manage risk, and meet investor/stakeholder expectations. Climate change is a significant risk for real estate assets between the physical risks (such as extreme weather) and transition risks (including changes in government regulations). Tools are needed to help real estate companies and investors stay compliant with regulations, reduce operational costs/ improve operational efficiency, ensure long-term resilience, and provide a key differentiator to attract tenants.
Carbon Risk Real Estate Monitor
The Carbon Risk Real Estate Monitor (CRREM) tool does exactly what the name implies; it helps users analyze their carbon performance and understand the stranding risk of their real estate assets to help them identify the most cost effective initiatives to reduce their carbon footprint and increase resilience to climate change. It works by having users input data about their real estate asset(s), including building characteristics, energy consumption, grid decarbonization measures, renewable energy generation, and more, to calculate the carbon emissions of the asset(s) as well as benchmark against other assets and compare against decarbonization expectations.
Based on this information, the tool is designed to help real estate investors and asset managers understand their;
Risk; baseline the carbon intensity of their real estate assets and compare against other assets and goal (net zero emissions by 2050) to understand current and/or future projected gaps
Compliance; alignment with climate related regulations and industry benchmarks
Opportunities; identify areas to reduce carbon emissions and improve energy efficiency
The CCREM tool is one of many flavors of ESG tools. Other products include;
GRESB; Measures the environmental, social, and governance (ESG) performance, including carbon emissions, energy efficiency, water consumption, and more to provide a standardized benchmark for real estate companies to measure and compare their sustainability performance.
RICS Whole Life Carbon Assessment; A collection of tools and methodologies to understand the carbon emissions for the life cycle of a building from construction to operations.
Carbon Delta Climate Value-at-Risk; Provides an outlook on how a company’s market value could change based on the impacts and risks of climate change
Science Based Target Initiative; Helps companies set science-based greenhouse gas emission targets that are in line with the Paris Agreement.
And many many more
So what’s the problem?
The key pitfall for the climate crisis is we can’t all agree on what the goal should be and do not have ways to accurately and precisely measure it.
These tools all have different scopes, features, methodologies, and required inputs for understanding the carbon performance and stranding risk of real estate assets. The CRREM tool focuses on the operational carbon emissions whereas the RICS tool looks at the full lifecycle of a building, the GRESB tool expands to include other ESG performance metrics, some allow user entered goals while others benchmark against decarbonization pathways aligned with the 1.5C target in the Paris Agreement, and that is before you get to localization complexity. This allows companies to “choose your own sustainability adventure” that best matches their incentives instead of what is best to mitigate climate change and its effects.
The other key issue is the accuracy and availability of data. Let’s revisit our fitness goal example from earlier; now imagine that fitness trackers didn’t exist and instead you were measured against a combination of user entered data, aggregated location specific data, and/or standardized assumptions. You may say the hike you took contributed 6k steps to your daily total, but other hikers reported averages closer to 7k steps and based on active time and standard steps/minute it should be 5.5k steps; which number would you pick? These carbon trackers have the same issue; they use a combination of user entered information, benchmarks, and assumptions, which are inherently inaccurate. Instead of dozens of SaaS companies providing carbon trackers, we need dozens of companies providing in-building sensor arrays for everything to accurately and precisely measure carbon intensity. But those companies are a lot harder to build, scale, and just don’t have the return multiples and timelines VCs require, so instead we keep building more and more SaaS companies (which is a rant topic we’ll continue on another day).
We’ve always heard that doing something is always better than doing nothing. But sometimes just doing something isn’t good enough. We collectively need to decide if there is an absolute number that we need to meet to address and mitigate climate change and if so what that number is. Otherwise no one, besides the VCs, win.