Brick by Brick: Electrifying the Future of Our Built Environment
Buildings stand as both a challenge and an opportunity when it comes to combating climate change. The carbon emissions generated from the built environment must be dramatically reduced in the next decade; and trade contractors play a critical role in the rapid and widespread electrification of homes and buildings.
At Generation Investment Management, we focus on investing in high quality companies and management teams that we believe are driving the transition to a more sustainable economy.
We invested in ServiceTitan, a cloud-based software platform built to power the trades, because we believe they are poised to be instrumental in this transition — by empowering contractors to both run their business more efficiently and accelerate buildings electrification.
Buildings contribute a staggering 26%¹ of global energy-related emissions.
Heating and cooling poorly insulated homes and the electricity consumed by commercial activities are major examples of where those emissions come from.
Operational buildings emissions need to be reduced by about 50% from their 2022 level by 20301 to get on track to reaching net zero by 2050. This would mark a complete reversal of the trend of the last decade. In the US, there are over 1 billion fossil-fuel machines that need to be electrified across 121 million households, with equipment such as heat pumps, induction stoves, rooftop solar, electric vehicles and their chargers².
We have seen a confluence of technology and policy solutions that could accelerate the transition.
To pick one example of a readily deployable technology, modern heat pumps can produce three or four units of heat by using just one unit of electricity and can also be used to more efficiently cool buildings. If run on clean electricity, they can heat or cool buildings with no emissions. Currently, 16%² of homes in the United States use electric heat pumps for space heating and we believe that penetration will dramatically increase over the next decades.
On the policy front, the Inflation Reduction Act (“IRA”) represents the single biggest climate investment in United States history by orders of magnitude, and is an important catalyst for the electrification of the economy, including buildings. There are US$9 billion in rebates and US$37 billion in tax credits earmarked for the energy transition across residential and commercial buildings. While the IRA can be a significant catalyst, timing and implementation remain uncertain. We are seeing contractors and their customers struggle with the complexities of navigating these incentives.
These technologies and policy benefits cannot contribute to decarbonisation without a critical player: the contractors.
Executing the building efficiency transition are residential and commercial contractors across a variety of trades, including plumbers, electricians, and HVAC (Heating, Ventilation, and Air Conditioning) technicians. It is the contractors who are installing lower carbon technologies and performing energy retrofits — and more often than not, on the residential side, the consumer electrification journey is channelled through the contractor.
While mostly small businesses, contractors are a “titan” employer base in aggregate — in the United States alone, there are over 1 million trade contractor businesses³ operating across various types of trades and company sizes.
We believe that ensuring contractors have access to the best technology to run their business will enable the trades to power the built environment transition.
It is with the backdrop of urgent decarbonisation, and the recognition of the pivotal role of trade contractors in this, that we invested in ServiceTitan. The company’s core mission is to build the operating system that powers the trades, making them more successful and more efficient.
ServiceTitan provides an end-to-end business management software platform that gives contractors the tools they need to run and grow their business and manage their back office. The company serves over 11,000 customers in a variety of residential and commercial trades, and more than 100,000 technicians run on ServiceTitan. Their software includes customer-related modules, field services functionalities, and fintech capabilities, such as payments and financing. It enables contractors to drive more revenue while reducing costs.
The decarbonisation of buildings offers an enormous, structural opportunity for ServiceTitan. As the trusted partner to contractors, the company is poised to accelerate this transition in 3 primary ways:
1) By continuing to deliver software that helps their customers grow faster and operate more efficiently
2) By demonstrating to contractors that there is a lockstep relationship between ServiceTitan’s return on investment and sustainability
3) By helping contractors tap the readily available technologies and swathe of rebates and credits for decarbonisation
By continuing to deliver software that helps their customers grow faster and operate more efficiently
Because a large number of trade contractors’ companies are small businesses, they often lack the IT support that helps drive productivity improvements and makes them more competitive. ServiceTitan is able to support these underserved businesses and help them grow. This was imminently palpable when we attended ServiceTitan’s landmark yearly conference, Pantheon, with almost 3,000 industry participants.
The more fully customers utilise the platform, the more they benefit. This is encapsulated in the Titan Score, a measure of how much of the platform a customer uses: contractors with the highest scores grew twice as fast as those with the lowest scores. Given the labour shortage in this critical industry, digital tools like ServiceTitan will only become more important in doing more with less, and to ultimately attract new talent to the trades as a whole.
By demonstrating to contractors that there is a lockstep relationship between ServiceTitan’s return on investment and sustainability
What stood out in our research is that there is a strong correlation between the return on investment that ServiceTitan’s customers experience and sustainability. We conducted a survey involving 100 contractors⁴ on the ServiceTitan platform with impressive findings: customers reported that the scheduling, dispatching and field automation features bring significant value from less wasted trips, lower fuel costs, fewer office staffers and less paperwork, and importantly, happier customers. As a result of reducing wasted trips, 87% of ServiceTitan customers reported a reduction in fuel usage, nearly double that of non-customers. Those savings are substantial: the majority of respondents saw reductions of fuel costs between 10–30% per year. Given the macro-economic environment, fuel will continue to be a significant cost for contractors, so these savings may be even bigger in the future.
Customers do not necessarily buy ServiceTitan with sustainability in mind, but by utilizing the software, their businesses are operating more sustainably.
By helping contractors tap the readily available technologies and swathe of rebates and credits for decarbonisation
We are working closely with ServiceTitan to create growth opportunities for their customers from the buildings’ energy efficiency transition; for example, by making it easier to tap into the new tax incentives provided by the federal government. This includes modern workflow tools that reduce the administrative burden of accessing rebates, and access to working capital for contractors so their customers can benefit immediately, at point of sale, from rebates on equipment such as heat pumps.
We believe that the sustainability transition is both an economic opportunity and a moral imperative. ServiceTitan is on the frontline, empowering trade contractors, homeowners and building operators, to make meaningful strides toward a more sustainable and more prosperous future.
[1] Breakthrough Agenda Report 2023, IEA https://www.iea.org/reports/breakthrough-agenda-report-2023/buildings.
[2] Rewiring America Pace report, 2023
[3] Source: Bureau of Labour Statistics data
[4] Survey conducted by Generation on 100 contractors, of which were 70 ServiceTitan’s customers and 30 non customers
