VC Funding for Proptech Skyrockets as ESG Monitoring Advances

Venture capital has been pouring into proptech startups this year as technology to track carbon emissions and decarbonize buildings scales up in advance of new SEC rules for ESG disclosures.

A record-high $4B in VC funding was pumped into proptech during Q1 2022, according to a report from investment bank Keefe, Bruyette & Woods. The record surge in proptech investment is being fueled by investment funds that increasingly are putting their money behind ESG-oriented startups.

On March 17, the SEC announced a proposed rule that will require SEC-registered companies to include climate-related disclosures in their registration statements and periodic reports to investors, including information about climate-related risks that are reasonably likely to have a material impact on their businesses.

According to the SEC, the required information about climate-related risks will include disclosure of a company’s greenhouse gas emissions, which the release said “have become a commonly used metric to assess a registrant’s exposure to such risks.”

Buildings of all types are estimated to produce as much as 40% of global greenhouse gas emissions. Cities are moving to require CRE owners and landlords to measure and reduce carbon emissions while converting to renewable energy.

These impending carbon-emission reduction requirements and the approaching SEC disclosure requirement are making startups which specialize in monitoring and certifying decarbonization efforts a red-hot commodity.

The VC haul for proptech in Q1 represented a 41% increase over the amount raised in the fourth quarter and a gain of 31% compared to Q1 2021. The surge in VC investment in proptech during Q1 is an acceleration of a record year that saw proptech VC funding total $11.7B in 2021.

As the proptech sector matures, a consolidation of major players is unfolding, with many early-stage ESG startups now for sale and nearly 60 M&A deals announced in the first quarter.

Two acquisitions have been made this year by SmartRent: a $135M purchase of maintenance and resident service software startup SightPlan in March, and a $13M acquisition of smart-home startup iQuue in January.

So far, the crypto collapse hasn’t impacted ESG monitoring startups that use blockchain like Cleartrace which is expanding a transparent real-time monitoring system for energy use in buildings to certify that ESG targets including 100% renewable sources of electricity are met.

JPMorgan Chase is planning to deploy the Cleartrace platform to monitor and certify renewable energy use at the bank’s New York properties as part of a five-year plan to decarbonize the portfolio.

The Austin, TX based blockchain platform matches energy output of a building to corresponding demand by monitoring power use in real time.