RET Ventures’ Jameson Hartman On Looking for the Social in ESG

Lately, however, Hartman and his RET colleagues have taken a closer look at the “S” — that being socially oriented startups — in environmental, social and corporate governance trinity “ESG.” What they see, Hartman said, are challenging and exciting trends for the industry and society as a whole.

Last week, Hartman spoke with PropTech Insider about how the “social” in ESG is often overlooked and hard to define.

The interview has been edited for length and clarity.

PropTech Insider: One doesn’t usually think of the social in ESG as a separate issue. What is RET Ventures’ particular view of that aspect of environmental, social and corporate governance?

Jameson Hartman: In general, I think that the category largely takes a second seat for venture money. People find the “E” as the golden star of technology solutions that are hitting the market and going to change the world. But, as we see it at RET, any technology that is, quote, win-win-win for a resident, the owner and the community is a solution that we’re excited about, and should be backed. We think that social has potential opportunities, potential technology solutions. That’s probably the main reason it seems like it’s a little bit under the radar.

Basically, how do you define social in ESG?

I would probably define the social as what it is not. The “E” is very clear. It is anything from an environmental standpoint, whether it has a bottom-line impact, a broader impact on carbon or an overall environmental impact. Then anything on the “G” side, which is governance, is reporting, business practice standards, etc. Anything that doesn’t fall into those two categories, but still has a broader positive impact societally, I would call “S.” And sometimes they’re not mutually exclusive.

I would define social as something that broadly benefits residents. You could say solar has an environmental impact, but it also could be beneficial to residents’ wellness in the property because they value green sustainable energy. So that would also be a social investment as we perceive it — if residents are benefiting physically, mentally, emotionally, whatever it might be.

What do you see as the issues, problems and opportunities involved in the social part of the ESG equation?

Probably the issue or problem is the easiest to discuss. The opportunity is because it has been given less attention. I think the main reason it’s been given less attention is because people largely perceive an “S” solution, an “S” technology, as investment: a zero-sum game. For instance, the owner gives up some financial advantage to the resident by making the rent lower so that residents can afford to live in the building. That’s not a win-win.

The idea would be to reframe and find solutions that are win-win-win. We have a company, Stake, which is a financial kind of wellness platform for residents. The resident can be better off by saving money, getting cash back developing a financial balance sheet and understanding financial products and intelligence. The owner will still be paid at a market-rate rent, but the resident is now benefiting because they have financial security and this financial product that they can utilize and learn how to better save and spend. 

There are a lot of products out there that market themselves as financial wellness. Like, “Hey, you can get this credit card, and you’ll get all these points.” But, at the end of the day, is the resident truly better off? Are they going to get points by paying rent and then go out and spend those points elsewhere, and then, after two years of living in a community, be worse off than if they figured out a sustainable method? That’s reframing it as to what are solutions that are a win for the owner, resident and community, and that’s what we’re seeking.

We also have an investment in a company called Plugzio, which at face value comes off as an “E” investment, because it’s EV charging. But we view it as an equitable way to deploy charging at all property types, because it’s affordable and convenient. So you can now have a Class C affordable housing building that can deploy EV charging at scale, and more affordably. That’s great for residents who otherwise wouldn’t be able to own an electric vehicle because there’s no way to charge their car, and now they can. That’s a social benefit.

What has made RET focus on the social aspect right now? Is it something that has been overlooked by tenants and landlords through which you expect to increase LP funding and profits?

It’s both. We don’t perceive it as sacrificing one for the other. We think that every company that we invest in has a social bend we view as profitable and a completely economically viable company. It’s not pure altruism. In general our focus has been there because social has probably taken a little bit of a bad rap in terms of people perceiving it as a zero-sum game. So there’s less attention, less money and fewer solutions. 

We don’t view it that way. We think owners can benefit by deploying a solution like Stake or other solutions within our ESG fund, and residents can benefit, too. Candidly, it’s probably good for us that there’s a little bit of a negative perception in terms of: can companies that are focused on “S” be profitable? That means, if we back them, we’re probably going to be one of the few backers and have exposure to more companies and have more opportunities. We’re not competing and pushing up the values of all of these startups, which might otherwise occur.

Is RET finding it more difficult to discover investment-worthy companies in the social category, compared to environmental and governance?

No, not necessarily. I think this is a good point to raise, though. The “S” is a little bit harder to quantify in impact. It’s easy for me to say, “I’m an energy company and I can reduce your utility bill by 10 percent.” And then I can show you that I’ve done that. It’s harder to say what financial wellness means. That’s a little bit more ambiguous. There are companies that we’re seeing that do that very well, and I think those are the companies that, in my mind, are more successful because they can prove to us that there is a quantifiable impact for the owner and the resident.

Following COVID, psychologists say that many people, especially young people, are more socially isolated and anxiety-ridden. Is there a discernible throughline from that idea to the social proptech startups that RET considers worth funding?

There is a secular trend toward these types of solutions. To your exact point — psychologists saying everyone’s so lonely — I think there are residents seeking out these platforms. We’re definitely seeing adoption, which is good. And owners wouldn’t be deploying it without knowing what their residents will actually utilize and what’s positively impactful.

Do you see socially focused startups lagging behind environmental ones? Is there momentum toward bridging that gap?

I think so. Again, I think it comes back to quantifying the value. It’s easy for a company in the “E” category to say, “Here’s my value prop.” It’s easy for that to make its way up the corporate ladder and have somebody say, “Yep, let’s pilot this. Let’s deploy it.” We’re seeing a lag purely because that’s a harder lift, not because there’s no interest from the property owners’ side of things. They just want to make sure that they understand and can quantify the impact of decisions they’re making.

Has RET developed tools to quantify socially based startups’ impact?

We have not, but that is the exact reason for a company like Fitwel, which we invested in. They help quantify that. They’ve worked with the CDC, and they can scientifically say that making this decision as a building owner has this quantifiable impact on your residence. We encourage our portfolio companies to make sure that they’re tracking and doing that.

The demand for housing and the lack of supply finds multifamily owners in a highly competitive market right now. How are these socially oriented companies addressing that?

Part of our ESG fund has a focus on housing affordability in terms of housing access. We have made an investment in a company called Juno, which is a more sustainable and hopefully more economic development platform in the long run. That is an area of interest as developers figure out a way to build things more sustainably and faster so that they can make it affordable for future residents.

What has changed to make RET focus further on the social impact in ESG?

In part, it’s how our LPs perceive it. Also, there has been less focus on the “S” because, in general, society sees it as one hand paying the other, a zero-sum game as I mentioned. It’s been kind of a general trend that we’re hopefully trying to push back against and say, “No, it’s not a pure handout.” We’re not in the business of finding solutions where our LPs are going to just hand out benefits to residents and not see some benefit themselves.

Philip Russo can be reached at prusso@commercialobserver.com.