has emerged as a key field of practice; however, a concern is that thinking and
knowledge of this topic, and most importantly actions are not progressing quickly
or purposefully enough for real estate managers to adequately prepare their
assets for the potentially perilous shocks and stresses caused by climate
Resilience is becoming a major
consideration for businesses, with impacts on insurance, valuation and rents
already starting to show in many countries.
impact of climate change has vast implications across societal, economic and
environmental realms. Building managers and owners have unique responsibilities
as stewards of essential economic and social assets. The well-being of
communities and economies significantly depends on access to reliable working assets.
Consequently, we believe that planning for and adapting to climate change is not
only prudent but essential.
Below, we identify five key reasons for integrating climate resilience into asset management and investment planning decision-making.
1.Increasing performance reliability
Assets capable of operating during climate crises will exhibit greater long-term return predictability.
2. Sustaining and increasing asset value
Value will be protected for assets that are not significantly affected operationally by climate-related events, or that do not need significant capital expenditure after such events (when other assets may be experiencing downtime). There may also be opportunities for operational cost reductions through efficiency and resiliency gains.
3. Identification of future opportunities
Demand for resilient assets is
likely to increase. Investors are exhibiting increasing interest and
understanding in climate resilient assets, particularly in sensitive areas. Investors
are mindful of the economic consequences of disruptions and emphasising
reliability and resilience is central to their requirements.
4. Growing trust
Assets are designed to provide effective services throughout times of peak demand/need. Assets that operate most effectively during times of climate disruption are therefore likely to generate increased trust from tenants and other key stakeholders and thus retain financial, economic and societal value over the long term.
5. Increasing influence
Investors who lead the evaluation
and adaptation of assets and demonstrate the thoughtful performance of
fiduciary duties are likely to have a more respected voice within policy
mentioned above, resilience has emerged as an important topic. Whilst there is a long way to go, progress
has been made. Some communities and assets around the world are embracing plans
to be resilient to what the future will bring — and what the present is already
delivering. We identify five key marks of progress in the practice of
- The knowledge base on resilience is expanding
- Tools supporting resilience are increasingly available, yet remain difficult to select and use
- Science and practice are increasingly working together, but more collaboration is needed
- Resilience mandates are emerging in some countries and cities
- Funding from philanthropy and government has been crucial in field growth.
what should real estate companies do?
Consistent with our belief that investors need
to deal with the risks of climate change as a practical issue now, rather than
put it off into the distant future, we encourage a systematic assessment of the
vulnerability of assets to climate risk, ideally by utilising an analytical modelling
framework. This will enable the identification of risks,
assessment of materiality and provide guidance to investing, considering the
need for climate resilience in assets, new investment opportunities and the
broader business plan.
Given the relatively short timeframes during which
an investor might own a particular asset, a common attitude is that climate
risk is of low priority for evaluation. However, by evaluating whether assets
are vulnerable to business disruption due to the impacts of climate change,
investors may be able to implement resilience measures that positively increase
an asset’s valuation. Modelling future climate and risk scenarios can assist
climate due diligence by enabling consideration of how the asset may fair
against risks posed by tomorrow’s climate and not just todays.
We advise a process for evaluating climate risks:
- At portfolio level to:
- Identify relevant geographic climate risks
- Score and map assets in the portfolio based on criticality and vulnerability
- Prioritize climate risk mitigations in accordance with ratings
- At asset level to:
- Evaluate key climate risks and their relative impacts on a physical assets condition, operational capacity, and for regulatory implications (fines, penalties)
This can then support development of a mitigation strategy
which develops action plans based on highest value risk mitigation options per
cost difference between being pro-active now compared to being reactive in the
future will be significant. Early actions have the potential to reduce losses
in the short term as well as create significant value by enhancing the
resilience of assets in the long term. Forward thinking investors alert to the
implications of climate change can integrate adaptive strategies. This will
avoid being caught off guard by climate shocks and incurring large remedial costs
that could severely disrupt investment returns.
The real estate industry will adapt further as the resilience discipline
itself evolves. Best practice is not universal across the sector, and the science
and our ability to devise innovative solutions is constantly evolving. As we
move through 2019, we recommend that all real estate firms consider resilience
by asking the following questions; What does resilience mean? What risks are
faced and how can they be mitigated? Progress towards development of a
Resilience Strategy is a true win/win – good for business and good for the
Written by Joanna Tomlinson, Sustainability Consultant, EVORA