Proptech industry forces put emphasis on ESG conversation

The proptech industry is helping businesses and schools return to their former in-person format. But the budding industry might also help transform the legacy real estate industry to become more ESG-oriented and efficient.

The proptech industry is set to transform the nearly $10 trillion global real estate market by solving many of its inefficiencies and dragging the industry into a more ESG-friendly approach.

Before the pandemic began, Venture Capital Journal reported on the growing opportunity that venture investments in proptech, or property technology, offered the real estate industry. The covid-19 pandemic has only made that opportunity greater.

As pandemic-related shutdowns began in March 2020, the real estate market became recognized for its inefficiencies and its inverse relationship with the growing ESG movement. But proptech may have the power to change that.

“Once covid-19 hit, it became really clear to a lot of people what proptech actually means,” Monica O’Neill, a partner at venture firm MetaProp, told Venture Capital Journal.

VC Proptech
Monica O’Neill, MetaProp

Proptech has already helped many businesses and schools during the covid-19 pandemic through such technologies as clean air filtration systems and keyless entry, among other venture-backed innovations. But now the real estate industry may need to not only utilize such technologies as employees everywhere return to the office at pre-pandemic levels, but also to improve on the inefficiencies within the real estate industry that the pandemic helped expose.

“The use of real estate technology is going to help us come back to normal,” said O’Neill, a private real estate investor veteran who recently joined New York-based proptech investor MetaProp. Last year, MetaProp raised $100 million for MetaProp Ventures III. The firm is currently raising for a fourth vehicle called MetaProp Growth Select I, according to a regulatory filing.

“A lot of institutional investors will find that a lot of those technologies help us track data on carbon usage, water usage and facilitate further compliance with ESG,” she added. “It will also help institutional investors and real estate managers respond better to their ESG goals.”

O’Neill told affiliate publication PERE that the reason she joined MetaProp to make proptech venture investments was because she’s convinced the sector is going to make buildings cleaner, safer and greener.

“I’ve been working with institutional investors for 30 years now,” she said. “But in the last few years, those investors have begun to care deeply about the UN Social Compact. They care very much about ESG and also about diversity. It seemed to be a perfect pivot for me to help all the institutional investors that I know to find a way to augment their real estate portfolios in a meaningful way.”

The private real estate community sees a growing emphasis on ESG and sustainability factors, but doesn’t possess the same momentum in ESG as other asset classes.

In a survey of institutional investors in venture and other asset classes, 88 percent of LPs said that they take a manager’s consideration of ESG factors into account when conducting due diligence, according to Venture Capital Journal’s LP Perspectives 2021 Study. However, according to PERE’s Investor Perspectives 2021 Study, only 38 percent of the real estate investors surveyed consider a manager’s ESG credentials a major part of their diligence process, compared to 31 percent in 2020.

But proptech offers a clear opportunity to make real progress on ESG in a way that extends beyond the basic clean energy goals of real estate owners being declared in recent years.

“We can improve our ESG and environmentally friendly policy by putting solar panels on the roof, but it doesn’t really dig deeper into how that technology can really improve the efficiency, management and investment success of the buildings,” Patrick Wigan, managing director at Vienna-based family office Wigan Acquisitions, told VCJ.

According to O’Neill, proptech investments are currently being eyed by investors of all kinds, from big-name real estate investors to small family offices. But it might just be the smaller, more mission-driven family offices that are best positioned to make an impact in this space.

“We, as a small, versatile offshoot of an old family office can move quite quickly to try and find where the real needs are in the market,” Wigan said.