- London is the leading city for investment in green construction tech designed to decarbonise the built world according to new research by venture capital firm A/O PropTech
- Total investment in green construction tech over five years tops $4.5bn, with Europe representing half of the top ten cities for deals
- Cities have the potential to become carbon sinks if developers and owners adopt bio-based materials and circular economy principles in building structures
- Up to 60 gigatonnes of CO2 could be stored in the global building fabric by 2050, equivalent to four-fifths of the carbon stored in the Amazon rainforest
Low carbon building practices, crucial to achieving greenhouse gas emissions targets, attracted record levels of venture capital funding in 2022 with investment levels soaring to $2.2bn.
Venture capital raised by companies involved in green building design, building materials procurement and lower carbon construction methods has been steadily increasing over five years, achieving a combined annual growth rate of 84%, as investors focus on addressing the problem of carbon generated by new building and construction.
Embodied carbon is expected to account for half of total emissions from the built world by 2035, the other half coming from operational emissions generated from the day-to-day running of existing buildings. Even accounting for rising retrofit rates, the problem is increasing exponentially as a rising global population and urbanisation are set to increase the real estate footprint across the world by 76-230 billion square metres by mid-century – at least fifty times the area of Greater London.
The Future of Building in a Low Carbon World, a report by A/O PropTech, the venture capital fund specialising in the built world, reveals:
-
Low carbon legislation and technological innovation are driving rapid change, bringing greener building practices into the mainstream and seeing +200 startups raise capital from investors since 2017.
- A new wave of low carbon and bio-building materials could turn global cities into carbon sinks almost as large as the Amazon.
- Investment in disruptive technologies is increasingly targeted at the architecture and engineering industry, transforming design methods and advancing low carbon building options.
- London, UK
- San Francisco, CA
- Tel Aviv, Israel
- Los Angeles, CA
- Oakland, CA
- Vancouver, Canada
- Las Vegas, CA
- Paris, France
- Zurich, Switzerland
- Oslo, Norway
Gregory Dewerpe, founder and Chief Investment Officer of A/O Proptech, said: “The built environment is one of the biggest contributors to carbon emissions and there is a growing recognition that we need to tackle this problem urgently. In our last report we considered the huge opportunity to retrofit buildings to tackle operational emissions, but this alone will not tackle the extent of the issue. New technologies that can lower emissions during the construction process are vital from design software, to more sustainable building materials to technologies that speed up and accelerate construction. All of these new technologies can play a part in reducing the overall impact of the built environment.
“Rapid urbanisation and housing shortages globally are exacerbating the climate impact of our cities and urban areas so we must build better, greener and faster to address the problem head on, before it gets any worse. A/O PropTech is proud to be at the forefront of this change to help build a better world.”
More than $4.5bn of early-stage capital was invested in companies directly focusing on decarbonising the architecture, engineering and construction sectors between 2017 and 2022, involving more than 452 deals, according to the report from A/O. Companies vary from those that design and construct low carbon buildings, such as 011H, to procurement hubs for more sustainable building materials, such as Timberhub, and manufacturers of prefabricated building components.
As total investment reached a new record in 2022, there is also a shift to slightly later stages of investment with more deals being done at Series A and B, than at Pre-Seed to Seed – which suggests that parts of the low carbon construction segments are maturing. Close to 40% of deals in 2022 were estimated to be Pre-Seed and Seed, compared to over 80% in 2017. The proportion of Series A and B deals – which invariably involve bigger sums – has increased to nearly 50% in 2022, from 10% in 2017.
Between 2017 and 2022, over 80% of investment was concentrated in North American start-ups but over half of the deals done occurred in Europe. Over the same period, London was the pre-eminent city for deals and more than half of the cities in the top ten are in Europe.
Top cities by number of deals since 2017
Deal distribution and type:
Legislation driving innovation
Regulations across Europe and the US, aimed at reducing embodied carbon, are creating opportunities for technologies aimed at the architecture, construction and engineering sector. Increasingly, green building practices are being brought into the mainstream.
Legal limits on carbon per square metre of new construction, Environmental Product Declaration (EPDs) databases and certified Life Cycle Analysis (LCA) methodologies and standards are being introduced, which are set to tighten over time.
A Life Cycle Assessment, accounting for the environmental impact of a building, must now accompany all major developments in London and is an increasingly common requirement with local authorities elsewhere in the UK.
In France, half of the construction on public buildings must be bio-based by 2030. To achieve this target, 25% of materials will need to be bio-based, by 2025.
In the UK, the London Plan requires LCAs for public sector projects, with national regulation expected to be announced by 2024 ahead of the Future Homes Standard in 2025.
In the US, regulation is also focused mostly on the public sector, with some states such as California and Colorado implementing carbon caps on the most polluting building materials and incentivising others.
Across Europe, there is significant policy variation. Regulatory frameworks in France, the Netherlands, Denmark and Finland are more advanced than in the UK. The penalties can be more severe with non-compliant buildings less likely to receive permit approvals.
Bio-based materials are critical to greener construction
Investment in low carbon building materials has grown rapidly over the past five years as the need to swap traditional materials for low carbon, bio-based or recycled alternatives has become more urgent. In many markets, fast-growing materials with high yields – such as bamboo, straw, and hemp – have significant potential to satisfy a large component of future construction demand.
Timber has seen the greatest market adoption, with regulations increasingly permitting its use in mid to high-rise structures, although the ability to trace timber to source and obtain sustainability accreditations needs enhancing.
In Amsterdam, a new neighbourhood, called Madela Buurt, made entirely from wood, is being built in the south of the city. When completed in 2026, 80% of the homes will be affordable. By the Amstel river, a 73m residential building called HAUT has been constructed using a hybrid timber-concrete system which reduced carbon by 50% compared to traditional construction.
In Helsinki, a ‘Wood City’ is being built in the Jätkäsaari neighbourhood, containing residential, office and municipal buildings and hotels.
Investment in low carbon cement solutions has also been significant, reaching $267 million this year, and totalling $406 million since 2017 across 40 deals. As much as 60% of cement manufacturing emissions are caused by traditional cement chemical reactions. Low carbon cement alternatives can reduce cement emissions by up to 70%.
Carbon sink potential
As technology and low carbon construction practices become more mainstream, cities could play a role as carbon sinks and storage facilities.
Potentially building structures could store up to 60 Gigatonnes of CO2 in the global building fabric by 2050, the report finds, equivalent to four-fifths of the carbon stored in the Amazon rainforest. That could rise to 106 gigatonnes of CO2 by the end of the century, according to a recent study by the Potsdam Institute.
Architecture software opportunities
Greater awareness of the importance of the design phase to reducing the overall carbon footprint means that investment into software that addresses architecture and design issues is growing. Venture capital investment in the architectural software sector represented just 2% of green construction technology funding from 2017-2019. However, by 2022, investment exceeded $183m and represented 8% of allocation.
With invested capital growing at a 142% CAGR (Compound Annual Growth Rate) from 2017-2022, and deal count increasing at a 13% CAGR, this is a clear growth area.
