As Carbon-Cutting Tops ESG Priorities, Proptech Firms Pounce

Fresh regulatory pressures and unrelenting reminders of climate change’s ill effects have helped propel carbon reduction to the fore in commercial real estate’s environmental, social and corporate governance (ESG) initiatives. 

It’s no surprise, then, that the emphasis on decarbonization is making proptech companies specializing in technology in the field more important to the real estate industry, according to experts.

“Decarbonization has really elevated amongst the broader set of sustainability considerations to the top of the heap,” said Matt Ellis, co-founder and CEO of Measurabl, a San Diego-based global ESG technology company focused on real estate.

“Decarb is a part of the sustainability experience,” Ellis said. “It is not a siloed or standalone effort. To do decarbonization well and at some degree of scale, you’ve also got to have data in the first place to drive those decisions. That’s a very significant exercise in its own right — acquisition of data, cleansing of data — and, in the case of decarb, that would be things like project and utility data, as well as building characteristics, to understand those projects and where they might be applied in the building.”

Moreover, decarbonization goals now require greater scale to be effective.

“When we’re thinking about decarbonization, historically it has been very much an asset level conversation,” Ellis said. “We think about a building and its optimum journey in terms of carbon energy, net operating income. What I see now is our customers — multi-fund ownership,  with dozens if not hundreds or even thousands of buildings — taking a top down portfolio-wide view of the organization to get to net zero or to decarbonize. And, then, looking backwards from that, to which assets can I drive to that outcome. So, more top down as opposed to bottom up. You still got to do both. But I think scale is a really interesting change in how people are thinking and going about this.”

The catalysts for change have flipped, too, Ellis said. Where in the mid-2000s investors and pension funds such as  APG, PGIM and CalSTRS drove demand for technology to cut carbon, now it’s newer government regulations combined with greater occupier demand.

Brendan Hermalyn, CEO and founder of Thalo Labs, notes the same transition from investor to regulatory pressure. Thalo Labs is a three-year-old proptech startup based in the Brooklyn Navy Yard that works in the built environment to accelerate the reduction and removal of greenhouse gasses from the atmosphere.

“If you look at a more emitting sector like energy, it is highly regulated,” said Hermalyn, who holds a Ph.D. from Brown University in planetary sciences, as well as master’s in engineering, mathematics and geological sciences. “We are measuring the emissions coming out of all these systems. Often, we’re scrubbing exhaust and doing things with it like carbon capture. In fact, the transportation industry is heavily regulated. Then you look at the built environment and you say, ‘Boy, we’re not there just yet, are we?’

“We don’t quite know what’s coming out of our exhaust stacks. And that’s incredible, since the built environment, of course, is responsible as at least the second-largest source of emissions globally, just heating and cooling our buildings. It might be actually the worst, especially because we haven’t been really measuring refrigerant loss yet. If you go to places like New York City and most metropolitan areas, especially in the Northeast and Europe, we’re not talking about the second-worst emitter. It’s super dominant.”

The Bronx-born Hermalyn describes Thalo Labs as a climate tech company and said his transition from planetary sciences to his present career came about naturally.

“I’ve spent a lot of time making stuff that measures greenhouse gasses, whether that’s from space, on planet Earth, or deployed from boiler rooms, HVAC systems and heat pumps,” he said. “So, for me, it’s kind of the same in many ways, all these cool technologies. If we can bring them to bear, and, as the cost has come down for developing these sensors and technologies, it has made it very possible to get to this incredibly subtle inflection point that has happened. It has become cheaper to measure what’s coming out of the exhaust than it is to estimate it or to guess at it. And when you can measure it, it unlocks these huge other opportunities to not just measure and know what’s happening, but to actually reduce the emissions coming out.”

Calling it a terrifying unforced error, Hermalyn said 70 percent of boilers and cogeneration units leak uncombusted natural gas — chiefly methane — which is 84 times worse a pollutant than CO2. Even worse is the effect of leaked refrigerants, he added.

“Buildings are electrifying and switching over to heat pump systems and others,” said Hermalyn. “We can help make sure that it is a net-zero system, because leaking is a very, very big concern as we switch to more refrigerant-based products. If methane is bad, refrigerant is really bad — maybe 3,000 to 1 in terms of a ratio of greenhouse gas potential. Which is why we have designed and built our own carbon-capture systems in terms of removal. We’re operating those with some clients here in New York City. We think we’re operating one of the largest direct air capture plants in the Northeast as a result of this, in terms of total amount, and we’re excited to scale this.”

Two other proptech companies addressing urban decarbonization from different angles are Brightcore Energy, an Armonk, N.Y.-based clean energy company focused on geothermal heat pumps, LED lighting and solar to attack building emissions, and CarbonQuest, a Manhattan-based company that specializes in reducing buildings’ carbon footprint.

“Our baseline when we’re looking at buildings — if they’re  properly approached and all the boxes are checked, which is important but very doable — we’re looking at a 40 percent diminishment in upfront costs for these gas source heat pumps,” said Mike Richter, president of Brightcore. “I can’t stress enough how dramatically different the market opportunity is, because suddenly you’re cost competitive. You can be neutral when it comes to the capex. So it’s something that a building owner should consider when they’re looking to [a building’s] end of useful life or deep retrofits.”

Brightcore employs a specially licensed water hammer that drills geothermal wells in a less disruptive, lower-impact manner, overcoming existing barriers to geothermal for dense, urban settings in New York City and other similar locales.

Founded in 2019, CarbonQuest takes a different tack toward reducing carbon emissions.

“We support decarbonization of the broad built environment, primarily emissions from natural gas usage on site, boilers for heating and hot water, as well as fuel cells, through a technology that we have developed that we call distributed carbon capture,” said Brian Asparro, COO at CarbonQuest.

The field is quite crowded, Asparro said.

“In terms of the options that a building owner or manager has to effectively, immediately and reliably reduce emissions there are a number of different things to consider, from energy efficiency to on-site power, solar, battery storage, as well as considering things like lighting and other measures. But largely what we’re tackling is natural emissions from natural gas.”

The potential is huge, Asparro said. Some 20 percent of building emissions in the U.S. come from on-site natural gas use, primarily for heat and process loads, he said. In New York City specifically, natural gas is the biggest carbon emitter. 

“So, while it’s crowded, there’s not a simple and easy way to use technology to reduce emissions from natural gas,” Asparro said. “One is building electrification. There’s a lot of work that’s occurring in that space, which will continue to proliferate, but capturing exhaust from existing facilities is one thing that’s being picked up by our customers. We see it becoming even more relevant in the future.”

Proptech is also addressing reducing carbon emissions in the construction process, said Brittany Harris, CEO and founder of Qualis Flow, a London-based company that helps construction teams track all the materials they’re using and the waste they’re generating.

“This accounts for more than 90 percent of the construction industry’s embodied carbon and Scope 3 emissions,” said Harris, whose company was founded in 2018 and now has an office in Manhattan. Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain, according to the U.S. EPA.

“In tracking all this data, we’re helping construction teams identify the really low-hanging fruit on how they can eliminate carbon by sourcing things more locally and more sustainably,” Harris said. “But we also look at the broader picture of how they can unlock the circular economy in the future, and so consume less materials and generate much less waste.”

Qualis Flow has construction teams photograph material delivery receipts. AI then digitizes and audits that data, flagging users as to where there are opportunities to reduce carbon emissions and waste. “It takes all the boring, repetitive admin, detailed work off their hands and just feeds them the important information that they need to act on so that they can do that,” Harris said. “The biggest thing that we found working with construction teams is that the technology threshold needs to be incredibly low. We sort of say internally, if you can take a selfie, you can use Qflow. That’s pretty much the tech literacy threshold that we ask of our clients.”

The 50-person company operates mainly in the U.K., but is deployed across more than 200 construction sites  in the U.S. and Australia, as well.

Founded in March 2022 and based in Toronto, Adaptis is a proptech startup that is a carbon management platform for buildings, said Sheida Shahi, its co-founder and CEO.

“We help building owners, stakeholders in buildings — that includes private building owners, institutions, municipalities — make better decisions about their return on investment when it comes to their existing assets and new construction projects,” said Shahi. “We look at the whole life cycle assessments for buildings — which include upfront, embodied carbon, operational carbon, which is energy use — as well as end of life and circularity of a building.”

Adaptis emerged from the doctoral work of Sheida Shahi and fellow founder and CTO Aida Mollaei.  “We have multiple patents pending for how the circularity of a building can accurately be assessed,” Shahi said, “including science-backed salvage value assessments, optimization for reuse and recycling of materials, and circularity assessments as a whole for existing buildings and new construction projects.

“So, by running whole life cycle assessments that are the pillars of circular construction, we can evaluate and document the carbon that a building produces and then optimize the reduction of that so that we enable circular construction to make financial sense for building owners.”

The pressure and confusion over government regulations such as New York City’s Local Law 97, as well as the ability to adapt decarbonization software to a wide variety of properties in large real estate owner portfolios, are two reasons that tech giant MRI Software acquired eSight Energy, now known as MRI Energy, three years ago, said Andy Birch, vice president of product marketing for MRI Software.

“The reality is that I think some of the carbon legislation that’s going on is just super confusing for most people,” said Birch.

In any case, MRI’s wide range of real estate owners and operators requires more adaptable and sophisticated carbon reduction software, Birch said.

“The key thing about us that’s slightly different to a number of the leading providers in the marketplace today is really the concept of hardware independence,” he said. “So we have a lot of different integration techniques that provide a comprehensive way to get information from different systems, as opposed to some of the building controls-type organizations that provide more of an end-to-end solution or single-stack solution. We recognize that’s fine and works well, but if you’re an organization that has multiple buildings with multiple different kinds of building control systems, then you need some capability to measure apples against apples.”

As such, MRI has seen marketplace interest in a solution that integrates with facilities management systems, Birch said.

“We’re taking the information that we get through our insight and turning it into action,” he said. “We’re using it in terms of preventative maintenance-type routines and real-time alerts and alarms to generate a work order concept for an organization to investigate why something is using more energy than expected, outside the various tolerance ranges, and effectively address those concerns. The reality is that where you’ve got a big campus operating more than maybe 20 buildings, simply by addressing that in an organization [that] generates a return on investment.”

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

CORRECTION: This article was updated with the correct spelling of Andy Birch’s surname.