Episode 13, Game Changers and Transition Makers: Confessions of an environmental capitalist

Elena:

Hello and welcome to ESG Matters at Ashurst. I'm Elena Lambros, the Ashurst Risk Advisory ESG partner. Welcome to the latest episode of Game Changers and Transition Makers. In this episode, I'll be joined by Sam Marks CEO at Setmetrics, an engineering grade building analysis platform designed to provide technology for the building upgrade and retrofit industry. This technology allows users to rapidly create an accurate thermal twin of a building, unlocking hourly energy consumption forecasts, and powerful project optimization tools. Hi Sam, welcome to the podcast. We're so happy that you joined us today.

Sam:

Thank you very much. Really great to be here, Elena. Appreciate the opportunity.

Elena:

I thought we might start by just telling our listeners a little bit about yourself.

Sam:

Sure. I'm now getting into my forties and have had a varied career as initially starting my career as a chartered accountant, so a little bit different from some others maybe in the entrepreneurial stage in their forties, but started off as a chartered accountant with Coopers & Lybrand and PWC. Spent a lot of time then with General Electric overseas before coming back to Australia and starting probably my first real business in about 2009 doing corporate advisory management consulting. That led to me really falling in love with the startup space and probably for the last 15 years now have been really focused on startups, specifically sustainability, a little bit of healthcare and some aviation in the background, which is not as closely linked, but very much around that sustainability software technology space for the last 15 years.

Elena:

Yeah, fascinating because it's a really good space to be in and obviously there's a lot of focus in terms of what you can do around technology and sustainability and how that's going to help. So what is Setmetrics setting out to do?

Sam:

So from a mission perspective, Setmetrics is intending on being a global platform for non-residential real estate and helping them optimise their long-term and energy performance for their assets, effectively decarbonizing the existing building stock. We're not focused on new builds, we're focused on buildings that already exist, and what we're really doing is we're a cloud-based platform that is a energy modelling tool. We have a rapid tool that within five minutes gives you a very good idea and understanding of how your building is operating today from the energy usage perspective. And then over the next probably 15 hours of human time start to get a fully calibrated energy twin that some of our customers call it that tells you, how's your building working today, and then how do you optimise it? How do you get to net zero? How do you reduce your CapEx and OpEx and how do you increase the value of your asset? By making it greener and also making it more cost-efficient for the tenants.

Elena:

That's great, thank you. So I was really curious to understand how this model can make some recommendations around getting to net zero and what you might do. So what sort of things would that include?

Sam:

So the software itself is less of a recommendation engine and more of a software platform that provides people the opportunity to try different ideas in an engineering grade platform to let them understand if I was going to make a change to my building, what's the actual impact? So quite often people would look at an LED upgrade, really easy, straightforward concept. You take out old halogen lights and replace an LED. What we've found, which is really interesting with Setmetrics and we've proven this on a number of occasions, is all technologies have different impacts, whether it's old technologies or new. And therefore replacing an LED, sorry, or completing an LED upgrade is not necessarily going to get you the targets you wanted to achieve because they will change the heating, the cooling within your building. So within Setmetrics, you can model all that up.

We had a customer in the United States who had a 15% expected energy savings by replacing LEDs, they replaced them. It turns out they were 5% worse off across their building because their users within the tenancy actually increased their air conditioning to offset the difference in heating and cooling coming out of the technology. So it becomes a really interesting way to say, "Do I really know how I'm changing my building and what's the impact with that?" We can help customers with what's called electrification. So a big push at the moment in Australia and specifically Victoria is coming off gas and moving to electrification using solar and renewables for heating. Setmetrics can model all that up and make sure that, A, your ideas should and will eventuate in what you hope they do do to achieve your sustainability credentials.Again, it's a little bit like a sandpit. You throw in your ideas, you play with different concepts and you model it up and see, "Is it going to get me the financial return I wanted? Is it going to get me an increase in the neighbours rating I was after? Am I going to get the green star improvement that I was hoping or in the US for some of our customers leads rating?" So all of that can be modelled up in a really well-structured engineered format prior to actually making a decision to spend the money and go ahead and do it. Historically, those tools just haven't existed and therefore people will make decisions on the best information they have and after the fact work out, did it work or did it not work?

Elena:

Yeah, that's amazing actually because I think one of the focus areas I've noticed around buildings, everyone talks about there's lots of nice new buildings and the neighbor's ratings and there is a lot of different things that you can do to improve that at the moment. But fundamentally we have all of these existing buildings that were not built to think that way, right?

Sam:

A hundred percent. It's really cool for us, I mean that's one of the things that I love about it. We've been looking at a building that was built 120 years ago and we can help make that building the best version of itself today based on the current technology in the platform. I sort of joke that I have mirrors at home, I'm not Brad Pitt, I know what I look like. There's only so much I can do to fix that. And if you look at buildings, the building, once it's built is built. There's only so much you can do to a building that's 10, 20, 30, 50 years old. But with Setmetrics you can work out what you can do. How do you optimise the performance of that building with the best technology we have today at very little cost, which is a modelling tool, which is what Setmetrics does. Now historically it was done by humans and spreadsheets and it took probably six to 12 weeks versus what we see with Setmetrics, which is probably the first passing in five minutes and a detailed calibrated model in about two days.

Elena:

Yeah, well that's really impressive and I really like the idea of the building becoming the best version of itself. And there's something to be said to be able to have some beautiful buildings from the past remain as they were, but just more energy efficient.

Sam:

A hundred percent. And if you think about embodied carbon and all the issues that people are starting to consider now once a building's built, it's built and if you're going to pull it down and build another, well that's actually really costly and really not great for the environment. So how do you make the most of the buildings that exist and get them performing to the level of brand new buildings? And with Setmetrics we can model it up really quickly.

Elena:

And then I guess just following on from that, how did your idea come about and what were you trying to address in terms of thinking through this?

Sam:

Yeah, good question. So for full disclosure, I'm not one of the founders. I came on board over the last three years. There's two founders, Adam Muiznieks and Matt Connolly who started it off actually almost like an embodied carbon talk about 10 years ago. And that evolved and changed to a point where about three years ago, my former chairman from a former business I was involved with reached out, he's an investor and said, "Can I spend some time with Adam and Matt helping them take what was an amazing product and commercialising it based on customer feedback, pricing and sales and roll it out?" I stepped in full time as the CEO to this business technically probably 18 months ago, probably informally, probably two and a bit years ago. But for me, why I loved it was my old business, we used to do energy upgrades for customers like Coca-Cola and Honeywell and Goodman Property Group and these sort of guys.

And the biggest challenge we had was proving upfront what the building was actually operating as with the electricity in gas bills, what we thought we could do with it once we'd installed all our hardware and software and then afterwards being held accountable based on fact of what we had actually done. And we had a team of people who used those spreadsheets. We had a team of sort of six to 10 people who would spend 10 to 12 weeks building a model for Coca-Cola or Mercedes or Goodman. And it was cumbersome and it was difficult. And what Adam and Matt had created was a brilliant software platform that could do that really quickly. It was independent, it was backed up by an enormous amount of data from around the world and very quickly gave a tool to people to use that in my opinion, is only going to become more and more prevalent.

There's statistics that prove coming out of the US and Australia that there's less engineers going into building engineering and the commercial engineering space today than there was five, 10, 15 years ago. A lot of them are going into software engineering, and so you're going to have less people who actually need to solve a bigger problem. And Setmetrics therefore is a productivity tool. As I said before with those hours, one of our customers has shown us that what used to take them 15 working days Setmetrics can do in under 15 hours. Now that's a 10 times gain. I don't know the exact number off the top of my head with a certain number of engineers that are less out there, but the same amount if not more work required, then this is a fantastic tool to do it. So it became a really interesting opportunity for me to sit down and go, "Well, what do we do with new buildings? How do we make them the best version of themselves?"

And net zero is coming 2030, 2035, whenever the slippage will be, and also one of the biggest frustrations I always had was people when they're selling product are out there trying to sell the product they've got, and most of the time are doing it honestly and mean the right thing. But if you only look at one thing on its own, it's really hard to understand the total impact. And that LED upgrade concept I gave you before is exactly that, the best of intentions. You should see that by putting an LED that uses 15 watts versus the halogen that uses a hundred, you save 85 watts. But the reality is it can impact the rest of the building. And that's the same for chillers, that's the same for HVAC, that's the same for batteries. They all have a different impact and most people, when they're selling you a product model up the one product, they don't model the entire building because they just don't understand or don't have the time or no one has the budget to spend on it.

So Setmetrics gives you a really clear whole building view of should you make that decision. The other pieces that I find fascinating, which was great, was Adam had created what is effectively a tracking piece to say afterwards, "Okay, I've made that decision. Am I getting the results that I thought I would get?" And Setmetrics runs a tracking bucket that effectively says to you, based on the actual climate and what the weather's like today or tomorrow and the next and the past six to 12 months based on the actual usage and the number of people in the building. Am I getting what I wanted to get out of that change, whether that's an upgrade of chillers or LEDs, et cetera. And historically that was really hard to measure and verify. And so Setmetrics gives that back to the owners and the users to say, "Did I get what I paid for?" So there's great validation there.

Elena:

Yeah, absolutely. So then you've got that ability to model different impacts and make some different choices and then also feel very comfortable that once you've made that implemented that you actually are getting the best value for money that you can do, which is perfect, right?

Sam:

Yeah, we said there's three buckets, model, optimise, and track. And that's exactly what you just summed up a hundred percent.

Elena:

Yeah, that's a simple way of looking at it for something that I'm sure is quite complicated. And then in terms of what does success look like for you in Setmetrics? What are you trying to do in terms of expanding or what's the new focus for the business?

Sam:

Yeah, good question. I think the technology's proven. I think we've had used the two industrial logic been signed off by some of the biggest companies in the world. Our customers include Honeywell, Siemens, Blackstone in the US, we've recently announced we're doing some work with Autodesk. These are big global conglomerates and they're all saying this is pretty interesting. And so now the challenge we've got is how do we ramp it up and grow? What does the success and what does the next steps look like? Because we've now got that validation, we now need to grow it and ramp it up. And we want more people to use the software because we see a value add. It's not a nice to have.

We're not a charity. We want people to get the value proposition and understand it and want to use it. And we've recently been brought on as part of Climate Salad's Global Growth Programme, which is fantastic for us in relation to how do we actually launch this company, not just in Australia but around the world. We've got customers now in the US and Canada, but we've got a small footprint. And I think if I look at what does success look like, it's more users, more people, more buildings. People who are saying, "Wow, I see the value proposition here and how can I make a decision on my building without going through Setmetrics? Why would I? Because how do I know I'm going to get the results that I expected and why haven't I played with five or six ideas before I actually went ahead and made a decision?"

And those ideas happen quickly, it's day or two days of work. It's not months. So I think for us it's growth, growth, growth. We're looking at the moment in a funding round to get some backers. We've had some fantastic shareholders support us in Australia and the US who are individuals and high networks. So we're now going through the next stage of growth around venture capital and strategic investors. And the plan is to get that to a point where the business is well-funded, we can invest really heavily in sales and marketing and also continue to improve the product through ongoing R&D and customer feedback. So there's a bit in that, Elena, but it's a fun stage. It's a busy stage.

Elena:

I going to say it sounds like a very exciting stage, right? And then the stage where you can actually start to realise, see your influence in terms of getting to net zero and understanding your impact, which is also quite an exciting thing for you, I imagine.

Sam:

It's brilliant. We're doing some work with a hospital group at the moment and they've effectively asked us to put together through our software a study of how do they get to net zero by 2030 and they couldn't do it. This is a number of hospitals across a large area, and historically it just wasn't even possible to work out. How do they find the budget, where do they spend the money, and then how do they use the tour to pitch? We're being brought in by opportunities with some of our customers for the Brisbane Olympics who want to be the first net positive Olympics by 2032.

And people are saying, "Well, how do I get there?" And without a tool like Setmetrics, it's really hard to work out how to get there and continue to review and keep going and go back. There's great engineering firms out there doing studies, but those studies are usually timely and costly and they're stagnant once they're built, it's built. With Setmetrics it's a live operating breathing sort of platform that as the business and the building continues to grow and improve, you can track all that and make sure you are on track to be net positive or net zero

Elena:

And in a short timeframe as well. So those are two really great examples. Net zero by 2030 for hospitals and the Olympics has definitely got a lot to think about in terms of being climate positive, first climate positive Olympics in 2032. And then probably leads into my next question then. When you are thinking through all of the things that you do around Setmetrics and all the different impacts that you can have, what do you think is really what you think is key to reimagining the current system or changing the game?

Sam:

With any technology, and I've been for better or for worse, been involved with startups for 15 years. You need to have good supporters in your customer base who want to change. They need to understand there's a need and we need to communicate. There's a value proposition they need to change. I think change management is huge, but you need a few people who are prepared to say, "Hey, the time is now. We can do this." There's a term I use probably too often, and when I have interviews or conversations and I talk about being an environmental capitalist, and if people take that the wrong way, they apologise. But really what that means is I've learned the hard way that people aren't going to make change unless there's a real value proposition at the end that makes them money and saves them money. Because the reality is these are all corporates and they'll do the first one or two buildings or examples of any product to prove it and work it.

But people aren't a charity and they're all being held accountable to return on investment or EBITDA. And maybe this came back to my chartered accounting background, but there's a clear bottom line that people need to hit. So we need to be able to show people that there is a reason to make change for the environment for the better, which is actually a financial improvement. It's a better return investment. It's a reduction in CapEx, it's a reduction in OpEx. It's an improvement in your weighted average lease of your building, which attracts better tenants and therefore a high yield. These are all reasons that Setmetrics can be used to help people say, "Wow, actually I need to make a change." So that's on us. We need to show that we can add value. And when we do, then people go, "Wow, let's use this platform."

Elena:

Yeah, absolutely. I think that's also one thing that I see quite a lot on is use this absolutely, everyone wants to get to net zero and that it's incredibly important for a number of reasons. But use it to take the opportunity to think through what actually you can do better and how you can use it to improve your business strategy or whatever it is. There are a lot of things that you can do that will have a financially positive outcome as well.

Sam:

Yes, is the answer. I agree. We've got, I won't say the customer is, but one of our customers calls us the so what. And the interesting piece is we've now got neighbours ratings, we've got Green Star, GRESB, all these different fantastic tools to tell you how you're going today, but then, so what? What do you do next year? If your neighbor's ratings for today and everyone with the new IFRS S1 and S2 coming through, people are going to be held accountable to their performance and sustainability credentials. And it's great to report out that my Green Star or my neighbours or my leads or GRESB is X today, but so what? What is it next year? People want to see improvement.

Setmetrics is the so what. We come in over the top and say, "Right, we understand that you're currently a neighbor's rating at 4.1. By putting it through Setmetrics, you can model out how to get to 4.7 or 5.2 on your neighbor's rating and this is the cost and this is the return on investment and this is your credentials' improvement for your sustainability metrics." And it's a fantastic way that I think is going to become more and more off the back of these accounting standards changes, but also expectation from shareholders around ESG to say, "Well, it's great, we know where you were last year, but what are you doing about next year?" And as I said, to be the so what is probably not a bad thing.

Elena:

That's not a bad thing at all. So you can do the answer to their shareholder expectations, I think that sounds like a pretty good place to be.

Sam:

Yeah, certainly help them guide down the path of where do they go and how do they get there, but also provide that tracking report to say, "Have you achieved it? And if not, why not?"

Elena:

Absolutely. Just changing track a little bit to your more personal commitment. Do you have a personal commitment to net zero in the next 12 months?

Sam:

Yeah. It's funny. Adam Muiznieks and I, Adam, one of the co-founders I mentioned earlier, we're doing a webinar for one of our customers recently and we got asked something similar. And it's interesting, firstly, as an individual, rather corporate, it's hard to measure net zero. My wife and I are currently renovating our house and it's been front and centre in relation to insulation, solar, batteries, all of those conversations. We've gone part of the way. We haven't gone all the way yet. Probably the biggest step change for me was I bought an electric vehicle and signed up to that in September, October, and I'm loving it. I think there's challenges like everything with the infrastructure and the growth, but I think for exactly the same reason I talked about Setmetrics, the more people that adopt, the more the infrastructure will be built out.

And I think it's only to be better. I think I'm loving it. So for me, part of my big step was buying the EV. It's great. I'm consistently looking at solar and batteries. Solar's a no-brainer batteries, do they stack up yet over the life? I'm not sure. So I haven't gone down that path yet, but that's an arm wrestle I'm happy to have. So yeah, very conscious of it. We try and do a lot of... it's a balance, but we try and do as many Zoom calls rather than get on the next plane out to the US or to Europe. But there is also a time when you need to balance that and say human interaction makes a big difference. So very aware and conscious of it, Elena, I think I can always do better, but we're trying.

Elena:

That's great to hear. And then finally, if you could provide this sense with one action to take away, what would it be?

Sam:

Two corny catchphrases maybe for you.

Elena:

To say or two.

Sam:

Yeah, look, one that I've used and I sort of tell myself all the time, "Life's not a dress rehearsal." You don't get a second chance at this thing called life. And you can make mistakes along the way, but as long as the intentions are good and you learn from it, then get out there and have a shot. And making changes with startups and innovative changes that make a difference on a global scale. A lot of people taking risk and spending money and investing money and maybe losing money, but hopefully making more money. And so for me, probably step one is life's not a dress rehearsal. The other one, which is definitely not me, I think it was Mahatma Gandhi, he said, "Be the change you wish to be in the world." If I'm not doing it and my family's not doing it and our customers we can't convince to do it, then no one's going to do it. So they're probably the two big ones.

Elena:

Thank you. Thanks Sam. On that note, we'll leave it, the podcast today, but thank you so much for joining us. It's been really great hearing about the work you're doing at Setmetrics.

Sam:

Fantastic. And I really appreciate the opportunity. Thanks to you and Ashurst. It's been great. Thank you.

Elena:

Thank you for listening. I hope you found this episode both worthwhile and insightful. To learn more about our podcasts visit ashurst.com/podcasts. This Game Changers and Transition Makers miniseries follows on from our 30 For Net Zero 30 series, and I would encourage you to click on the link in the show notes to find out more. To ensure you don't miss any future episodes, subscribe now via Apple Podcasts, Spotify, or wherever you listen to your podcasts. And while you're there, please feel free to leave a rating or a review. In the meantime, thanks again for listening and goodbye for now.