How The Venture Capital Firm Is Tackling The Real Estate Industry’s Contribution To The Climate Crisis
Fifth Wall, a VC firm that focuses on innovation and technology for real estate, is now a certified B Corporation, emphasizing the shifting mindset on sustainability overall and paving the way for other VCs.
The real estate industry accounts for 40% of the world’s consumption of energy while emitting 30% of total global greenhouse gases, and using 40% of its raw materials. Given this, the industry has a responsibility to find solutions that reduce its negative environmental impact by implementing long-lasting solutions to address climate change.
I caught up with Michael New, Chief of Staff at Fifth Wall to find out more about this decision to become a B Corp and what the future holds in store.
Afdhel Aziz: Michael, welcome. Please tell us a little bit about how Fifth Wall came to be (including its intriguing name) and its investment focus?
Michael New: There’s an interesting phenomenon that started happening in real estate over the last ten or so years, in which the largest owners, operators, and developers in the industry have started to embrace the idea that technology and innovation are good things; that some of the old ways of operating in the worlds’ largest asset class are tired, and that technology might offer an opportunity to modernize, to become more efficient, and to offer a better experience to tenants and consumers.
Fifth Wall was founded in 2016 with the intent to capitalize on those resultant opportunities. Brendan Wallace and Brad Greiwe, the firms’ two co-founders, raised initial investment capital from real estate corporations, in addition to traditional “financial” investors that typically invest in venture capital funds. By bringing these real estate corporate partners to the table – in many cases the largest potential end-users of the very technologies in which we invest – and working with them to understand their technological pain-points and priorities, we recognized potential synergies that could be realized for Fifth Wall, our portfolio companies, and each of our corporate partners.
Fast forward to 2020 and Fifth Wall has approximately $1 billion in commitments and capital under management from more than 50 of the largest owners and operators of real estate spanning 11 countries.
As for the Fifth Wall name: real estate traditionally has referred to the four walls that surround us. The fifth wall is the additional intersectionality of technology into that traditional four-wall conception. Technology, innovation, the future of the Built World – that amalgamation, collectively, is the “Fifth Wall.”
Aziz: Thanks for sharing that. How did the journey to becoming a B Corp start?
New: About a year ago, several of our corporate partners started to ask us how to better apply Environmental, Social, Governance (ESG) standards in the framework of their massive real estate assets. We recognized it was important that we not only be competent in advising them on these initiatives — “talking the talk,” – but that we also serve as an embodiment of best practices — “walking the walk.”
We’ve always tried to run our firm a bit differently than other venture firms. We have different stakeholders – and a different value proposition to those stakeholders – than do other venture capital firms. With this differentiated positioning comes a responsibility to our corporate partners, our portfolio companies, our local community, and society at large — to act responsibly and to treat our employees and constituents well in pursuit of progress for the real estate industry.
We began the B Corp certification process intending to use it as a framework for auditing our internal practices and to learn where we could improve as a company. As we completed the B Impact Assessment, we realized that by formalizing in writing some of the things we were already doing, we had the opportunity to meet the thresholds required to become a B Corp.
Achieving certification was a meaningful milestone for Fifth Wall, but it’s only the beginning of a much larger journey – to help the real estate industry re-evaluate its contribution to the global climate crisis and identify, invest in, and partner with, the innovative new companies that we believe will preserve a future for our and future generations.
Aziz: How important is it that the real estate industry rapidly become more sustainable, especially in the context of climate change?
New: It may be surprising for some to learn that the global real estate industry is the planet’s largest offender when it comes to climate change. According to a 2016 report by the World Economic Forum, the industry accounts for 40% of the world’s consumption of energy; emits 30% of total global greenhouse gasses; and uses 40% of its raw materials.
As regulators call on building owners to decrease emissions or face substantial fines, we believe a reasonable path forward for real estate owners and operators is to adopt revolutionary technologies that will reduce the industry’s negative impacts – since they can’t move buildings on. We believe there is an enormous opportunity for investment into technology and R&D, which can result in innovation to address the environmental offenses being committed by real estate and construction.
We believe now is the time to do something about the real estate industry’s contributions to the climate crisis.
Aziz: How can venture investing catalyze this change? What are some examples of investments that may have promising potential?
New: Earlier this year, we announced our intention to launch the Fifth Wall Carbon Impact Fund to help build a global consortium of climate-forward real estate companies seeking to catalyze change through strategic investments. Our goal in proposing to launch such a fund is to help the global real estate industry minimize and eradicate its greenhouse gas footprint, and our intention will be for the fund to invest in businesses that might help owners and operators of real estate do just that.
Aziz: Finally, what advice do you have for other VC’s who may be looking to also get B Corp certification?
New: While the certification process certainly isn’t for the faint of heart, it’s important to note that when we began this journey, it was without an expectation of meeting the criteria for certification. We’re believers in the notion that you can’t manage what you can’t measure, and we were simply looking to better measure and understand how we stacked up against other companies. We were pleasantly surprised to learn that some of the things we did, which felt to us like standard procedure, were in many respects quite progressive.
It costs nothing but time and energy to run that audit, and even doing that is a first step in the right direction. If you, like us, after taking that first step come to realize that the values espoused by B Corp certification align with those of your firm, and that the additional work required to achieve certification is realistic, manageable, and worth the effort, then don’t be deterred by the process – embrace it. The juice is absolutely worth the squeeze.