In theory, this should be a golden age for startups selling services and solutions around sustainability. Not only is climate change right at the top of the corporate and political agenda but investor cash is pouring into companies in the cleantech and impact space. Set against that,though, is the aftermath of the covid crisis, characterised by rocketing inflation, fractured supply lines, expensive gas and political uncertainty. Everyone knows that something has to be done to address a whole raft of environmental issues, but businesses may have survival or growth rather than decarbonisation or climate change mitigation on their minds.
But maybe it was ever thus. Last week, I spoke to Chris Bennett – Managing Director and Founder of Evora Global – about launching a consultancy and software business hard on the heels of the great financial crisis. I was keen to hear his thoughts on building a sustainablity-focused business in turbulent economic times.
Bennett was in his mid-forties when he made a decision to step away from corporate life to establish a sustainability consultancy business aimed squarely at clients in the real estate industry.
He was working for a real estate advisory firm at the time. The management had asked for new business ideas and Bennett put together a proposal to enhance the sustainability offer. As he recalls, his idea – pitched in a kind of open competition – was soundly rejected. “I came last,” he admits.
Perhaps that’s not surprising. Turn the clock back ten years or so, and sustainability in general and climate change in particular wasn’t ranking quite so high on corporate to-do lists. In those days, climate science was still actively being dismissed in many quarters and the slightly friendly-sounding term, “global warming” had yet to be replaced by the much more urgent “climate emergency.”
A Gap In The Market
But Bennett detected a gap in the market. As he saw it, the real estate sector was profoundly exposed to the effects of rising average temperatures. That exposure included not only the cost of overhauling buildings – including adapting heating and air conditioning – but also planning for disasters such as flooding and extreme weather events. In his view, real estate investors needed advice and data – and this was much more than a nice-to-have.
Returning to the present day, his insight has been to a great extent vindicated. The company he founded, Evora Global works with 200 funds who between them manage property assets valued at around $1 trillion. But he acknowledges sustainability was not initially an easy sell and even in the post-COP26 era climate change still fails to ring alarm bells in some quarters.
After The Crash
So what are the challenges?
Well, you have to convince potential customers that a seemingly abstract or distant problem is worth consideration in the here and now and that investment in sustainability makes sense when there are other concerns and opportunities.
In Evora Global’s case, it probably didn’t help that the company launched in the long tail of the global financial crisis. “In 2011, business was picking up again (in the real estate sector) but there had been redundancies,” he says.”So the people we were approaching said: this sounds interesting but not yet.”
So why the resistance? Real Estate investors tend to be pretty sharp people and even at the beginning of the decade, projections about the impact of rising temperatures and sea levels were widely disseminated and largely accepted. Enough, you might think, to spur a property investor with assets in, say, Florida, to consider measures to protect their assets..
But then as now there were other concerns. “In 2011, property prices halved then came back again quickly. To make money, asset managers who were investing in property didn’t have to do much. So they weren’t thinking about sustainability,” says Bennett.
After much wearing out of shoe leather – what Bennett calls, walking the square mile – the turning point came when Evora secured investment firm Schroders as a client. Putting in the work to secure clients with a profile in the industry was key.
Let’s return to the present day. Surely, sustainability is a much easier sell? Like shooting fish in a barrel, you might think.
Well, yes and no. According to Bennett real estate businesses are aware of the need to manage enviromental risks – both the physical threat to properties and investment risk – but many are thinking in terms of the present day and immediate future, rather than the longer term.
Risk assessment, he says, is often based on benchmarking against other companies, rather than a measurement of the performance of the business itself. This, he argues, can result in investors thinking they are doing better than they are. Added to that, an investor that holds property for perhaps six years is probably looking at the risks during that period. What might be forgotten is that when the time comes to sell, if the impact of climate change is set to worsen, then the next buyer – if there is one – is going to expect a steep discount. “So we are encouraging people to look at two, not one hold periods,” says Bennett.
In that respect, there is a real challenge in terms of encouraging the kind of long-term thinking that will result in businesses changing the way they do things.
The Regulation Factor
Bennett sees regulation as a major factor in driving change. In the property investment sector much of that regulation is around reporting. Bennett cites the Task Force on Climate Related Financial Disclosure, a Financial Stability Board initiative to improve the quality of reported information. Transparency around risk will ultimately require portfolio managers and investors to actively address client risk.
There is a bigger picture here. These days, Climatetech is increasingly become a magnet for investors, but the success of the sector will depend on how willing the wider business community is to recognise and respond to climate risk. The response will look different depending on the sector. Heavy industries such as steel will have to decarbonise. Logistics companies are looking at overhauling their fleets and using data to optimise their operations. Many businesses will be under pressure to reduce the impact of their supply chains. All this means opportunities for startup companies who can provide technology, advice and/or data.
Even so, companies in the sustainability space may not always have the easiest sell and there will be resistance. Evora’s experience suggests that resistance can be overcome.