Increasing concerns about the impact of climate change are causing companies to seek out ways to reduce their carbon footprint. While the commercial real estate sector isn't as carbon-intense as other industries, it still contributes to the problem, which is why it must become part of the solution.
That's leading climate change and proptech investment firm Fifth Wall to launch the Carbon Impact Fund to help building owners reduce their carbon footprint. Here's a closer look at the fund and how it can help solve a key problem facing building owners.
Digging into the Fifth Wall Carbon Impact Fund
There are many ways to solve the global carbon emission problem. For example, installing renewable energy-producing components like solar panels can reduce the need for power produced by carbon-spewing fossil fuels. Meanwhile, planting trees or building carbon-capture and storage equipment can pull carbon dioxide out of the air. A third approach is to reduce the amount of energy used by increasing the efficiency of a building, vehicle, or piece of equipment.
Fifth Wall is taking that latter approach to tackling climate change with the Carbon Impact Fund. It aims to help building owners reduce their emissions -- and make a profit in the process -- by making commercial buildings more efficient so they use less electricity. That can include making HVAC systems (heating, ventilation, and air conditioning) more efficient and upgrading windows and cladding so buildings don't lose as much energy.
Fifth Wall is looking to raise $200 million for the fund, aiming to deploy that capital into systems or products created by companies that will reduce the cost of operating buildings in the future. The target is that a building owner can recoup their investment in upgrading their facilities in three to five years. That short payback period means the return on investment for these capital projects will be well worth the cost, even for building owners that aren't prioritizing their impact on the environment.
The opportunity Fifth Wall sees in building efficiency
Improving the energy efficiency of existing buildings can have a significant positive impact on the environment. That's because roughly a quarter of the world's electricity goes to heat, cool, and ventilate buildings, according to data from research firm Global Efficiency Intelligence. Because of that, companies that make their HVAC systems more efficient can have a noticeable impact on carbon emissions.
Further, it's much less carbon-intense to retrofit an existing building to make it more energy-efficient than constructing a net-zero building from scratch. That's because the manufacturing of building materials like steel and concrete -- two key components in new commercial buildings -- contributes 11% of the total greenhouse gas emissions, according to data from the United Nations Environment Programme.
For comparison's sake, the operational energy of existing buildings contributes 28%. This means building retrofits can reduce the amount of energy needed to operate a facility while eliminating the emissions produced by the building materials required to construct a new building.
Meanwhile, there are two other noteworthy financial incentives for reducing a building's emission profile other than lower operating costs. First, governments appear poised to impose fines on facilities that don't improve their efficiency rating in the future. For example, Fifth Wall estimates that building owners in New York City could be on the hook for a collective $10 billion in annual fines if the city doesn't hit its 2050 climate targets, which is more than the cost of retrofitting those buildings now.
Also, companies increasingly are prioritizing achieving specific ESG (environment, social, and governance) targets. One way to deliver on their goals is by renting space or owning a green building. Thus, a building with lower emissions profiles will likely increase in value in the future, while those that don't prioritize reducing their environmental impact could lose value relative to a greener alternative.
Saving green by going green
Fifth Wall is helping lead the charge toward a cleaner future. The fund manager sees a win-win-win outcome, as investments in its Carbon Impact Fund should save money for building operators, reduce carbon emissions, and enrich fund investors.
Given the potential financial rewards of improving a building's energy efficiency, existing building owners should explore ways to reduce their current carbon footprint, since that investment could produce an attractive return while helping the environment at the same time.