Rome Wasn’t Built in a Day – Why Concrete Decarb Won’t Be Either
An expert interview with a built environment investor
Did you know that concrete and cement are not the same thing? 🙃 Rae Oakley explains the key differences and expands on our cement piece into concrete, drawing from her experiences as an Investment Manager at Prologis Ventures. Prologis is the owner of 1.2B square feet of real estate across 19 countries, with a commitment to Net Zero across all three scopes by 2040. 🤯 In her role, Rae reviews startups in low-carbon materials, construction, and real estate technology every day. Not only that, but she also studied architecture and worked at two built environment startups. We are lucky to get her (hot?) takes.
She offers a behind-the-scenes on the value chain that connects cement to concrete, differences between the two on profit margins, innovation areas in concrete, and what she looks for when evaluating concrete startups.
At the end of the article, Climate Insiders get the full list of concrete startups that Rae has seen, a list of under-the-radar climate roles for business folks (chief of staff, VC, corporate sustainability teams, and more!), and rocket ship climate startups that are growing fast and making money.
Over the past two weeks, I found very strong, mid/senior level job opportunities through my network that I would personally jump on if I were recruiting from Microsoft to a climate VC fund and unicorn climate startup. The job postings are linked out to the person who posted the role so you can network your way in. 💪 I’m so stoked about these roles that I’m offering a 2-week trial (expires in 48 hours) just so you can check out what you would be getting bi-weekly if you’re a Climate Insider.
What surprises you about concrete?
The fact that we have made concrete basically the same way since Ancient Rome. The Romans mixed lime, water, and volcanic ash to create a material that could set under water, allowing them to build harbors in the Mediterranean Sea that have lasted over two millennia.
Today we make concrete in a very similar way: we combine cement with water, sand, and aggregates (small rocks) to create a mixture that meets our building and infrastructure needs. Two millennia later, not much has changed when it comes to concrete.
Figure 1: Roman vs. Modern Concrete
Source: Rae Oakley
I am also blown away by the fact that the world is expected to add a Manhattan’s worth of buildings every month between now and 2060—most of which will be made of concrete. If we want decarbonized cement technology to scale, we must find solutions that will meet and exceed the needs of today’s concrete users.
2. In our last issue, we discussed how the cement value chain is heavily concentrated by major players on both ends, with thousands of intermediaries in between. Can you help us understand the value chain for concrete and how margins compare between concrete and cement?
The value chain for concrete typically looks like this:
When working with new products, most players in this value chain bake in a financial buffer to ensure they are covered if things go wrong on a project. When several players bake in these buffers, we arrive at the “deal-killing contingency,” which compounds costs and pushes the product out of budget. For a low carbon concrete product to make it into a project today, it must overcome this deal-killing contingency in a meaningful way.
Most value chain stakeholders operate on razor-thin margins, e.g. ~2-3% for general contractors or ~3-6% for ready mix suppliers, whereas the ends of the value chain operate on slightly larger margins. Holcim, for example, a leading cement producer shows its EBIT margin at 23% in their recent earnings report, and most real estate developers aim for a 20% margin on new projects. Across the board, these low margins disincentive innovation; however, cement and development’s relatively higher margins polarize innovation towards the ends of the value chain.
What are some key challenges you’ve seen startups face in the concrete space?
The innovation of a commodity like concrete means most startups will need to reach large scales to achieve price parity. However, the funding of first-of-a-kind plants requires iron-clad offtake agreements, which most developers are not prepared to make due to their intermediated value chains. Creativity in this area is a must if we are to see these startups through the valley of death. Shout out to Aureus Earth for their creativity in financing mass timber projects.
I’ve also seen how difficult it can be for startups to overcome the general risk aversion that most real estate developers and contractors hold towards material innovation. It makes sense – if things go wrong, there are both financial and human safety implications. I’ve seen startups successfully mitigate this by finding partners who have expertise in material or construction innovation and are comfortable with managing unknown unknowns.
What do you look for in concrete startups?
For a new product to gain traction, I’d argue there must be some benefit to value chain stakeholders in addition to its carbon reduction: it could be a performance enhancement, a project schedule reduction, or some other cost efficiency. It is nearly impossible for players with such thin margins to justify a green premium unless there is some additional benefit. As an example, CarbonBuilt has focused on driving down input costs for concrete producers that leverage their technology to produce low-carbon concrete blocks.
What are additional innovation areas you’ve seen in concrete?
I’ve seen a wave of startups that are reducing carbon intensities by simply doing more with less. One example is leveraging advanced reinforcement techniques (like steel fibers) to reduce the amount of concrete needed for a project. This reduces material and labor costs for developers. Example companies include SigmaSlab, Structure Pal, and Weav3d.
“Pre-cast” over “pour in place” methods can help utilize less concrete and/or offer carbon sequestration capabilities. Pre-cast is a less popular method today due to the high transportation and handling costs associated with off-site construction, but it’s more commonly employed in cold climates to reduce scheduling delays caused by inclement weather. While pre-cast will struggle to gain market share due to additional factors like longer lead times and less design flexibility, developers may find these products useful for additional geographies. I would keep watch on CarbiCrete and ZS2 Technologies.
An equally compelling solution is to not use concrete at all! Leveraging bio-based materials like mass timber instead of concrete can offer a premium feel for tenants and a reduced project schedule for developers. While these products have less developed supply chains and often require increased collaboration from the design, construction, and permitting teams, these are products that could gain market share as the built environment looks to decarbonize. Kenoteq, Plantd, and Woodoo are examples here.
Any hot takes on the space?
My takes are lukewarm at best, but I’ll offer you a prediction. My investment thesis towards low carbon concrete is that the key will be in the startup’s ability to scale, which relies on developers demanding low carbon solutions.
I’ve also developed the perspective that soon, both real estate investors and institutional fund investors will factor a property’s whole-building life cycle carbon analysis into their investment evaluation. This includes how the building was made, how much carbon it emitted in the past, and how much it will emit in the future. New rules like the SEC’s Climate Disclosure Requirements and the Climate Corporate Data Accountability Act (SB 253) are signaling this future.
So, on one end of the value chain, we have emerging low carbon technology solutions in need of customers. And on the other end, we have investors looking to deploy capital into low carbon portfolios. Right in the middle, there’s a gap where developers sit. For anyone looking to enter the space, my advice would be to keep a close watch on what the large developers are saying and doing, as this is likely the key to unlocking early growth.
Here are Rae’s favorite reads on concrete:
Additional sources: