4 Key Takeaways for the Real Estate Industry from COP27

I recently spent three days in Sharm El-Sheikh, Egypt, for COP27, the annual United Nations conference on climate change. I was fortunate enough to participate in two fascinating panel discussions:?

1. Carbon Dioxide Removal: Challenges for Emerging Technologies

• I discussed the carbon sequestration investment landscape, and how we can finance these technologies. At Fifth Wall our team is seeing a few key areas of investment opportunity, especially technology that can capture the CO2 in building materials, like cement, given our built-world focus. We’re also excited about voluntary carbon markets and the tech that can help these markets mature, in turn driving additional capital into the projects and technologies.

2. Deploying A Broad Portfolio Of Technology Solutions To Advance Energy Transition & Decarbonization

• I discussed the role of investment and venture capital in accelerating cutting-edge technologies, Fifth Wall’s unique approach to partnering with corporates to drive investment strategy, and the horizon for global decarbonization. Fifth Wall’s $500 million Climate Fund is the largest private fund to decarbonize real estate, which is the keystone industry for global decarbonization—40% of total greenhouse gas emissions come from the real estate industry.

When I wasn’t on panels, I took in everything I could—I was amazed by the global scale of the event. One moment I was hearing about sustainability plans in the Congo, the next I was having a conversation with folks working on decarbonizing industry in Pakistan.

I left COP 27 feeling inspired and emboldened to do more for everything that Fifth Wall is focused on. Even though we’ve already raised a $500 million Climate Fund, which we’re incredibly excited about, we still have to move faster and think bigger in order to match the urgency of the task at hand: In order to avert a climate emergency, we need to organize the biggest mobilization of capital in human history. And venture capital will have a prominent role in that mobilization, as our role is to deploy capital to bring technologies that do not yet exist, or are not yet commercially viable, to the market.

Here are my 4 key takeaways from COP 27, that I’ve been reflecting on since I left:

1. ?? Global connection is impossible to recreate behind a laptop

The sheer size & scale of the mobilization of human talent, international attention, capital, and technology toward fighting climate change was amazing. Fifth Wall Climate spends a lot of time thinking about, and investing in, companies that we believe have the best chance at decarbonizing the built world, but an event like this…nearly endless booths and tables from all over the world, focused on so many things…it’s really striking and inspiring to see all of the unique efforts that go into fighting climate change and working toward net-zero.?

Anyone fighting climate change knows it can get lonely. And the fight against climate change can feel vulcanized by things like industry, country, or political beliefs. However, there’s something really unifying about seeing the kind of universal consensus in this one, singular event. You really can’t get that feeling anywhere else—quite a hard feeling to recreate from behind a laptop.

2. ?? Real estate thrust into the spotlight as a carbon emitter

Real estate has squarely taken center stage in the climate conversation, as more and more people are realizing that it emits 40% of all CO2 annually. Last year at COP 26 in Glasgow, real estate started to (uncomfortably) occupy the spotlight…but this year, it’s ubiquitous. I saw real estate in the center of the conversation at the French pavilion, the Brazil pavilion, the Thailand pavilion, and the Malaysian pavilion…it’s everywhere. That’s really exciting, because if we can decarbonize where 40% of our CO2 emissions are coming from…that’s the single most important step in decarbonizing the world economy.

And it’s not that other industries that have historically been the “climate villains” (transportation, apparel, manufacturing, plastics, the fossil fuel industry) were absent—but it seemed that people are generally starting to recognize that the biggest opportunity to decarbonize the global economy has been staring us right in the face…the buildings and homes all around us.

But at the same time, I was surprised to see so few real estate companies in attendance. I hope that will change in the near future.

3. ?? It’s critical to put an appropriate price on carbon

One of the more interesting conversations I heard again and again at COP 27…and I believe that we need to appropriately capture the true cost associated with any good in the global economy. A higher carbon price allows nature- and technology-based carbon offset solutions to come online, because it would provide a security that allows for better financial planning around decarbonization efforts. Right now something like direct air capture facilities aren’t financially viable, but putting a price on carbon could help make it a reality.

At the end of the day, putting a price on carbon is simply internalizing the cost of CO2 for any good or service, so that it’s no longer an externality. Real estate is, at its most essential level, an industry where we use space to make the economy: It’s where we work. It’s where we live. It’s where we make things and where we sell things. As it turns out, the cost of that space has historically been too cheap insofar as it has not internalized the true cost of developing and operating that space.

So yes, by putting an appropriate price on carbon, everything will become more expensive. Real estate is not immune from that, and it’ll reverberate through supply chains. However, it’s a necessary step in a net-zero global economy.

4. ?? Where are the other VCs?

I was absolutely surprised to not have met any other venture capitalists at COP 27, and I was also surprised with the general lack of emphasis on new technology and innovation. (These two things go hand-in-hand, as it’s venture capital’s role to fund new tech.) Seeing as so much of the technology necessary to reach net-zero is not yet commercially viable or does not yet exist, venture capital is an essential vehicle in deploying the trillions of dollars needed annually to reach our emissions goals.?

So I’m definitely curious to see if venture will be more prominent at COP 28 and beyond, because the entire world is rooting for this new technology to exist so that we can avoid a disastrous 3oC rise in global temperature above pre-industrial levels. And venture capital as an industry is designed to fund that technology, but it didn’t feel like VC was as prominent as you would have expected in terms of who actually showed up.

There is a historic amount of money flowing into climate venture capital, and there’s so much more capital needed to fully decarbonize, so I am very curious to see if this surge of momentum for climate tech among VCs draws more attendance and participation at COP 28 and beyond.

Overall, COP 27 was an amazing event for anyone interested in climate change and I recommend attending if you have the opportunity to do so. It’s energizing, it’s inspiring, and I’m hoping to go back. I do expect that the real estate industry will continue to have a bigger presence and play a more focal role at the event, because of its ever-growing prominence in the decarbonization conversation. As the biggest emitter of carbon dioxide, it’s truly the keystone industry in our path to net zero emissions by 2050. And I expect that venture capital, too, will be more prominent and have more visibility at future COPs.