An investor-led initiative launched yesterday will help real estate investors and managers to assess, manage and mitigate climate risk and to develop climate scenario-based strategies. The research will be carried out by the Austria-based Institute for Real Estate Economics (IIÖ), with the support of GRESB, the ESG Benchmark for Real Assets, and funded by APG, PGGM and Norges Bank Investment Management (NBIM).
The future implementation of carbon regulations consistent with the goal of the Paris agreement to limit global warming to 2 degrees or less is one of several plausible scenarios for future climate transition risk. The initiative will develop 1.5 and 2-degree decarbonization pathways for real estate assets by applying global carbon budgets as identified by the Intergovernmental Panel on Climate Change (IPCC). Each pathway will extend to 2050 and be comprised of annual estimates of building-related carbon emissions and energy performance – expressed in kWh per m2/ft2 and CO2 per m2 /ft2 respectively – aligned with the global warming goals as set out in the Paris agreement.
The initiative builds on the Carbon Risk Real Estate Monitor (CRREM)* project, funded by the European Commission, which analyzed carbon risk in the European commercial real estate sector earlier this year. This initiative will expand the CRREM project to include major real estate markets outside the EU, and the residential sector. The decarbonization pathways developed for each market and sector can be used as a proxy measure for transition risk and help the real estate industry meet the recommendations of the Task Force on ClimateRelated Financial Disclosures (TCFD).
“Decarbonization pathways based on a transparent methodology that is aligned with the Paris Agreement offer a tool for understanding and managing transition risks, enabling investors to benchmark assets and derive significant risk indicators. The positive industry feedback in the CRREM project confirms this conviction and it seems to be the logical next step to extend the approach we developed for EU commercial real estate to further countries and the residential sector.” – Prof Dr Sven Bienert, Managing Director, IIÖ Institute for Real Estate Economics
“Property type-specific transition pathways will be an important addition for assessing the ESG performance of both listed and private real estate investment portfolios. The transition pathways enable GRESB to not only assess ESG performance against industry peers, but also against the commitments made in the Paris Climate Agreement. For the wider real estate investment industry, the pathways will be an important tool to understand and mitigate the longterm systemic risk associated with the retrofit investments required to transition to a low carbon economy.”- Sander Paul van Tongeren, Managing Director of GRESB
The decarbonization pathways will be released for public consultation by February 2020. Relevant market participants, including investors, managers, Real Estate Investment Trusts (REITs), green rating systems and other stakeholders, are encouraged to share their views on the decarbonization pathways and help develop a common language for assessing climate transition risk in real estate.
For additional information on the project methodology, see the CRREM report ‘Stranding Risk & Carbon’.