Landsec is one of few property companies to embrace TCFD reporting, but ESG real estate specialist GRESB is hoping a new resilience scorecard will help turn the tide, reports Mike Scott
Although real estate is one of the sectors most susceptible to the physical impacts of climate change, there have been few TCFD reports in the sector to date. But Rick Recourt, associate for climate risk and resilience at GRESB, the ESG benchmark for real assets, expects this to change in the next year, as companies come under increased pressure from investors and mortgage providers.
“There is a demand for better models to understand climate risks,” he says.
“For the past two years, TCFD has been cited as the biggest ESG issue over the next five to 10 years. It’s a very important part of the direction we have been moving in.”
Real estate is fixed in its location, you can’t move your assets away. If sea levels rise or temperatures increase, it will affect the value of your assets
He adds: “Real estate is by definition fixed in its location, so if new regulations or energy efficiency requirements are introduced, you can’t move your assets away. The same holds true for physical risks. If sea levels rise or temperatures increase, it will affect the value of your assets.”
There are a number of different risks for the sector and it is important to know which ones to prioritise. However, that is not always easy because the risks differ from location to location. “In the Amsterdam residential property market, there is a problem with the poles on which many houses are built starting to rot, for example. That’s not an issue for other markets. Meanwhile, in Germany, research shows that the biggest insurance pay outs are for hailstorms. That’s not something that is captured in many climate change research models.”
The insurance sector has been working on climate change risks for decades and understands them well, but it’s a newer challenge for investors and mortgage providers. “Insurance contracts roll over annually, but mortgages and investments in properties have a much longer time horizon. Yet if insurers pull out of certain markets, asset valuations will fall significantly. There’s a huge imbalance there.”
GRESB has teamed up with risk consultancy Verisk Maplecroft to launch a new product, the Climate Risk & Resilience Scorecard to help real estate companies, and the funds that invest in them, to assess their readiness to deal with climate risks. “The scorecard provides you with a clear picture of your assets’ location-specific ESG and climate risks exposures; insight into how well you are managing these risks; and where you have the greatest potential for improvement,” GRESB says.
One company that has published a report is Landsec, which teamed up with Willis Towers Watson’s strategic risk consulting team to help it fully understand how its climate risk would change over time and under two different climate change scenarios, of a 2C and 4C average global temperature increase.
Gathering all the necessary data from a range of properties was a challenge “with some data points difficult to access or deemed commercially sensitive”, Landsec says. A significant amount of internal engagement was required to ensure relevant stakeholders understood why the information was important.
“It was also important to engage the investor relations and corporate communications teams to ensure the response to the TCFD guidance could be effectively integrated into annual corporate reporting,” the company adds.
Salesforce will pursue net-zero carbon building certification through energy efficiency, renewable energy procurement and embodied carbon of building materials
One company that is boosting demand for energy-efficient office space is San Francisco technology firm Salesforce. The company was cited in the 2019 TCFD progress report as an example of best practice on environmental metrics, particularly with its 2018 achievement of net-zero greenhouse gas emissions and delivering a carbon-neutral cloud to all its customers.
According to the company’s Step Up sustainability commitment, all new major Salesforce office spaces from 2020 will align with LEED Platinum V4 standards, and the company will “pursue net-zero carbon building certification through a focus on energy efficiency, impactful renewable energy procurement and the embodied carbon of building materials.”
Salesforce is lead tenant in the vaulting new Salesforce Tower in San Francisco, which has been fitted out with the first blackwater recycling system in a commercial high-rise, the result of an innovative partnership between Salesforce, Boston Properties and the City of San Francisco.
This article is part of our Climate Risk briefing. See also: