Resilience Management: A Multifaceted Approach to Real Estate Investing

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position. Please refer to official GRESB documents for assessment related guidance.

Current policies to fight climate change aren’t enough to stave off higher temperatures. Even if we manage to meet every global objective to reduce our carbon footprint, we’re still on track for a 2.4°C warming above pre-industrial levels by 2100. In fact, even if the world collectively mobilizes every single resource needed to transition to a low-carbon economy, the globe is still expected to warm up by 1.5°C to 2°C by the end of the 21st century.1 Climate change is here, and it’s at the forefront of financial and real asset discussions. 

At Manulife Investment Management, we recognize that physical climate risk has progressively become a core real estate issue. As the impacts of climate change are increasingly felt worldwide, it’s vital for our investors, employees, and tenants to understand the importance of addressing it. While we continue our efforts to mitigate climate change by transitioning our operations and supply chain to low carbon, we also recognize that we must build climate resilience within our real estate portfolios and across our management practices. 

Climate resilience: an adaptation and management approach

Climate resilience can be best thought of as the ability to prepare for, endure, and recover from the shocks and stressors, including the long-term effects of climate change and business risks associated with it. In our real estate business, we’ve built a three-step approach for resilience management that involves creating awareness, continuous evaluation, and integrating standards into operational practices. 

Our approach to building a resilience plan against climate change is to:

  1. Raise awareness—To arm our teams with the right information and build internal capacity to manage climate risk and improve resilience
  2. Evaluate risks and opportunities—To identify and understand climate risks and   opportunities
  3. Integrate best practices—By embedding resilience into our business through tools and processes to mitigate and manage climate risks
  1. Raise awareness

There’s still a lot of uncertainty and confusion on resilience and how it relates to climate change. While some of this is due to the inherent uncertainty regarding exactly how the climate will change, it also comes from a lack of awareness and understanding of this rapidly evolving topic. Raising awareness is vital to educating real estate stakeholders to understand the reality of climate change, how the climate is expected to change, how climate change can put a business and its operations at risk, what we can do to mitigate it, and how we can prepare and become resilient to its shocks and stressors. 

We’ve implemented two approaches in improving climate risk and resilience awareness.

  • Training

Training is an effective tool to build internal competencies on climate change risk and resilience and the potential consequences for our business. We train our various teams by providing them with the knowledge and know-how to digest information and make better-informed decisions. For example, in 2019, we conducted an education session for our leadership team, in partnership with the Intact Centre on Climate Adaptation. We also held training sessions for our property operations and investments teams to give an overview on climate change risk and resilience and why they’re important. 

  • Access to climate data

A fundamental component to better understanding and analyzing climate risk is data. We use several sophisticated climate risk analytics and modeling tools to provide relevant and usable information to assess and quantify climate risk and incorporate it across our business teams. The type of data provided and level of detail vary based on the business and team function. 

Team function Business need  Data support
Portfolio management Require high-level information on how climate change may affect the value of assets Provide portfolio-wide physical and transition risk evaluation data 
Acquisition Require understanding of potential physical risks to inform underwriting decisions  Provide acquisition team with physical climate data for every new deal
Property management Require understanding of the risks they’re subject to and how resilient they are to them  Continuously evaluate our entire portfolio using third-party climate data and internal assessments and share results with teams through internal platforms and integrated processes

  1. Evaluate risks and opportunities 

Identifying and understanding the climate risk to a company or portfolio enables the development of resources and tools to manage that risk and improve resilience effectively. Our real estate business takes a global portfolio approach to understand our climate threats, inventory our existing resilience practices and features, and identify improvement opportunities for climate change management. 

Our approach includes an evaluation of both the real estate portfolio and property levels. On the portfolio level, we conduct an assessment to evaluate our current methods and programs that address or intersect with climate risks and resilience. On the property level, we use third-party forward-looking climate models and conduct property-level surveys to understand property-specific risks and resilience practices. Property-level assessment includes three components:

  • Exposure assessment—Where we use forward-looking climate data to understand exposure to location-based physical climate-related risk
  • Sensitivity assessment—Where we survey our property teams to understand property-specific features that enhance risk, such as building conditions and surroundings, floors and equipment below grade, and historical climate events and impacts
  • Resilience assessment—Where we use industry guidance and best practices to inventory property-level resilience practices, such as management and planning practices (e.g., risk evaluation, emergency management planning, business continuity) and physical building features (e.g., water sensors, storm shutters, flood protection)

Using the results of our property assessment, we’ve developed a portfolio risk and resilience model that supports our team in identifying properties at high risk and assessing the level of preparedness for those risks.

  1. Integrate best practices 

Once improvement opportunities for climate change management have been identified, it’s necessary to develop new standards to enhance the resilience of current practices. We integrate our resilience standards into our global portfolio-wide proprietary Sustainable Building Standards program. As part of the program, we use a stepwise process to ensure property teams put into place essential measures to strengthen portfolio resilience. We supplement it with training, guidance, and tools to support action while incorporating new initiatives to help teams progress and improve. 

Resilience is more than just property operations. We also focus on embedding resilience into other aspects of our real estate businesses. Within our portfolios, we conduct physical climate risk evaluations during our standard due diligence process. We’ve also started to incorporate climate risk and resilience into our real estate development process, are looking to incorporate physical climate assessments when evaluating site selection, and are in the process of identifying standard resilience measures to include in the design process. 

Climate change risk management is constantly evolving 

Resilience is an ongoing initiative that continues to evolve rapidly. We believe that developing a comprehensive approach to addressing physical climate risk across the organization is key to resilience management. Our focus on awareness, evaluation, and integration supports us to further future proof our assets as we all look to transition toward a low carbon economy and help the fight against climate change. 

This case study was written by Regan Smith, Managing Director, Real Estate Sustainability, Manulife Investment Management

This material was prepared solely for informational purposes and represents the view of the author.

Manulife Investment Management’s property management services are engaged in real estate property management and are not authorized to provide, and do not provide, investment advice or investment advisory services. Additionally, the content of this article is not intended nor should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in an investment strategy.

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