The built environment – from the materials used in construction to the use and maintenance of the buildings – contributes to almost 40% of global CO2 emissions. It is only right that sustainability and ESG should never be just buzzwords in the built environment ecosystem.
According to the European Building Stock Observatory, over 75% of buildings in the EU are built before 1990 and are considered energy inefficient. In Germany, it’s reported that real estate is responsible for about 30% of Co2 emissions, causing 115 million tons of CO2. Should these be modernized at once and what about the cost? How do we ensure that modernizations are sustainable and comply with present and future regulations in ESG?
This is something that Predium is aiming to tackle with its ESG software platform for the real estate industry. Founded in 2021, the Munich-based startup wants to help companies manage their buildings in an economically and ecologically forward-thinking way, to help make this sector greener and more planet-friendly. The startup raised €1.6 million last year and has been growing fast since. We spoke with Jens Thumm, Predium’s CEO and Co-founder to find out more.
In this interview, Jens shares insights into ESG reporting for real estate, how to balance modernization with ROI, as well as the barriers and challenges to obtaining global net-zero by mid-century.
How did you get started with Predium?
Maximilian, Mohamed Ali and I met at the Center for Digital Technology and Management (CDTM) in Munich. We have a very similar mindset in important aspects and definitely wanted to start a company. The reason we went into real estate with the ESG theme is that we wanted to do something that would be economically successful and at the same time contribute to climate and environmental protection.
Whether it’s the melting glaciers I have seen for example in the Everest region in Nepal, dried-up riverbeds, severe weather events, I think we’re all aware that we must make a lot of moves very quickly to keep the earth livable. Together we looked at various markets and industries and analyzed where we have a correspondingly large lever to change something. We found it in the real estate industry.
Buildings are responsible for almost 40 percent of CO2 emissions worldwide. The more real estate managers, developers, housing construction companies and real estate investors we can show that they can use our platform and the Predium Action Engine behind it to modernize their properties sustainably and thus keep them profitable in the long term, the greater the positive impact. For the companies themselves, for the climate, for all of us.
Walk us through Predium’s solution – how does it collect and present ESG data for real estate?
In the first step, we provide our customers with a very comprehensive overview of the ESG status quo of the respective property. We tap into data sources, collect information on energy consumption, CO2 emissions and other building information, regardless of whether data comes from property or facility management or from billing and Excel spreadsheets. The Predium Action Engine developed by us can read data in a wide variety of formats from a large number of sources and process it automatically. The interfaces can be individually configured accordingly. Whether Excel spreadsheet, pdf, paper, or data packages from smart homes. All this data is collected, processed, and made available to users via a very user-friendly cockpit. This means that our customers have all the important ESG data at their fingertips, clearly and at any time.
In the second step, we can use the Predium Action Engine to perform a very precise profitability check of various modernization measures. In other words, Predium enables its customers to easily and, most importantly, data-driven, define and prioritize actions, simulate actions in advance, and later track action implementation. This also includes an ROI and risk analysis that automatically incorporates all internal and external influencing factors, such as legal ESG benchmarks, thresholds, savings potential and possible government subsidies.
In the third step, we support dynamic reporting of the measures. Good ESG management software is also an important tool for communicating with investors, boards, regulators, and other parties. They want to know how the properties’ ESG, and financial performance is evolving and what upgrades are planned next. Manual data entry and compliance with internal and external reporting standards used to be very time-consuming and error prone. We solved that with Predium.
COP27 underscored the dire state of our climate. What do you see as the top three barriers/challenges to obtaining the targets set out by COP26, especially towards securing global net zero by mid-century and keeping 1.5 degrees within reach?
On an individual level, climate changes occur on a different scale and time frame than we are used to in our everyday lives. On the other hand, we feel the effects very concretely – only then, of course, it is too late to react. This is a fundamental problem. We can only be made more aware of it and keep appealing to think today about tomorrow and the day after tomorrow and the years to come.
In addition, many people are currently facing very concrete everyday problems. The last few years were marked by a pandemic, and now we are experiencing the Russian war of aggression with all its economic implications, such as inflation. People worry about whether they can afford housing, whether they will still have a job tomorrow. These are new emotions for many people. Many people say: Climate change? Okay. But for now, let’s deal with the very obvious challenges of everyday life.
Politically, it is also complicated. Politicians in Western-style democracies must, fortunately, pay attention to the concerns and needs of their constituents. In other words, simply passing laws and regulations over their heads, even if they may be well-intentioned and scientifically correct, is also not an option in view of upcoming elections. Competition between economic units and countries also plays a major role. If one taxes CO2 emissions immensely and the other does not, the other currently has an economic advantage. These are all structural challenges. This makes it even more important to develop new technologies that help us balance economic growth and environmental protection. And that help address these problems through entirely new solutions.
What do you think is the most significant outcome of COP27 and its implications for the real estate industry?
First, COP27 was a milestone and a call to action for the real estate industry. Never before have there been so many events on climate protection, housing and construction as at COP27.
The topic of ESG has been buzzing around the construction and real estate industry for several years. But this time, a real shift can be felt. Companies are realizing that if we don’t address the issue of sustainability in concrete terms now, we will come under heavy political and economic pressure if we fail to meet certain benchmarks. And they will certainly come. But our impression is that most decision-makers in the industry are very open to the ESG issue. That was quite different five years ago.
Then it became clear that the construction and real estate industry would have to build and modernize differently, and urban planners would have to plan differently. With a view to climate impacts that we are already feeling today and those that are yet to come. This starts with the building materials. Before a building is even standing, an enormous amount of CO2 has already been emitted, even before the first heating or air conditioning system has been switched on and the first light switch has been flicked on.
What sets Predium apart from other real estate ESG management platform?
Predium was developed specifically for the real estate industry and its requirements because real estate is very complex and different. Most of us don’t even know exactly how much energy we use in our homes or how much CO2 we produce per square meter. The final bill comes once a year, and smart metering is still rather the exception in existing properties. The house, the apartment, the office are real black boxes when it comes to energy efficiency and CO2 emissions.
Now imagine an investor or a real estate company with dozens, hundreds or even thousands of residential units. All of them are of different age, different type of construction, different materials, heating and air conditioning systems, different state of renovation. We open these black boxes and say: look, if you do this with this property, you will save money in the medium term, maintain the value of your assets and by the way: contribute significantly to climate protection.
Even more importantly: Predium does not stop at a one-time description of the ESG-situation but goes the decisive steps further: planning of measures profitability checks of individual measures and targeted individual reporting of ESG data and modernization measures to portfolio managers, investors and authorities. All these steps used to involve an enormous amount of work and administrative effort for companies. We have completely eliminated this pain point. With us, all this is available at the push of a button and in real time.
On top of ESG compliance and decarbonization, what do you think are the top three challenges that real estate will be facing in 2023?
In Europe, the USA and other markets, real estate companies will continue to come under pressure from various factors:
First, rising costs for energy, construction and raw materials – triggered, among other things, by Russia’s war of aggression on Ukraine and globally disrupted supply chains.
Second, regulation will increase and legislators will enforce pressure that regulation will be implemented. We will see this especially in Europe with many real estate companies struggling to adapt their strategies to the Sustainable Finance Disclosure Regulation.
Thirdly, the shortage of skilled workers. Once the building materials arrive, there is often a shortage of trained workers. Keyword: demographic development.
All this delays the construction of real estate and energy modernization and makes both much more expensive. This is precisely why it is important to preserve existing housing stock for as long as possible. We can only achieve this through very economically conceived and precisely targeted modernization. For this, however, as a decision-maker I have to know which modernization measures make the most sense, when and where. That’s where we come in again.
What is next for Predium?
We operate in a very traditional B2B market. Relationships have often grown over decades. We are therefore even more pleased about the very strong business development last year and the trust placed in our technology. We expect demand for our products and services to remain strong in 2023 and the coming years. I believe we offer exactly the right technical solution at the right time for the real estate industry.