Green construction practices attracted record levels of venture capital funding in 2022 with investment rising to $2.2bn.
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.
Venture capital raised by companies involved in green construction, building design, building materials procurement and lower carbon construction methods has reached a combined annual growth rate of 84 per cent 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 that 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 and investment in disruptive technologies is increasingly targeted at the architecture and engineering industry, transforming design methods and advancing low carbon building options.
More than $4.5bn of early-stage capital was invested in companies directly focusing on decarbonising the architecture, engineering and green 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 per cent of deals in 2022 were estimated to be Pre-Seed and Seed, compared to over 80 per cent in 2017. The proportion of Series A and B deals – which invariably involve bigger sums – has increased to nearly 50 per cent in 2022, from 10 per cent in 2017.
Between 2017 and 2022, over 80 per cent 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 green construction deals since 2017
San Francisco, CA
Tel Aviv, Israel
Los Angeles, CA
Las Vegas, CA