Sustainable real estate investment: Implementing the Paris Climate agreement - an action framework

On 12th December 2015 history was made in Paris when 195 countries agreed to work together to substantially curb global warming. As investment buildings consume around 40% of the world’s energy and contribute up to 30% of its annual GHG emissions, the people who manage global real estate assets – valued at around US$50 trillion – are therefore one of the most important decision making groups on earth to hear this clarion call.

Fiduciary duty

As part of wider efforts to implement the Paris Agreement, every real estate asset owner, investor and stakeholder must now recognise they have a clear fiduciary duty to understand and actively manage environmental, social, governance (ESG) and climate-related risks as a routine component of their business thinking, practices and management processes.

Long-term performance

Failure to actively address these risks will not only hinder global efforts to address the climate challenge, but will also hurt long-term returns, undermine economic sustainability and reduce the calibre of the infrastructure passed to future generations.

Time to act

The importance that investors, regulators, other stakeholders and occupiers place on strategies to curb energy consumption and carbon pollution can only increase from here. So no matter where each organisation is on the journey to address these risks, now is the time to review investment programmes and benchmark current practices.

Why use this guide?

Explains how informed and active asset management around these issues represents a clear business opportunity to improve returns and future-proof the value of real estate investments

• Evidence shows that more efficient “greener” properties incur lower operating expenses, support efforts to achieve top of market rents, have fewer vacancy and void periods, are at lower risk of mortgage default and meet the increasing needs of occupiers to provide living and working space that helps to improve employee engagement, health, and productivity.

Offers a Framework for all enabling alignment and interaction along often complex supply chains as there is no size barrier for organisations to addressing ESG and climate risk

• Because it drives enhanced risk adjusted returns at both the asset and portfolio level. Moreover, rather like low carbon technologies, the cost of integrating ESG and climate change risks, is falling all the time. This framework addresses what can be done within each component of the often complex supply chains that support property development and management in order to set clear expectations and incentives which will align the actions of consultants, managers and service providers.

Distils material from many sources into one guide that is easy to use and helps every type of real estate investor make sense of available resources

• Dozens of detailed publications and potential practices have been reviewed so this guide highlights a common set of requests likely to have greatest impact. Different sections are directed at specific audiences and of all levels of experience including: asset owners and trustees and their investment advisors; direct real estate investment managers and property companies and their real estate consultants; real estate equity and REITS, bond and debt investors and their financial advisors.

Emphasises the physical impacts of climate change and highlights the potential socio-economic benefits of integrating climate and ESG

• By the year 2070, 150 million people will live in large coastal cities at risk of coastal flooding which have $35 trillion worth of property – likely to be worth around 9 percent of the global GDP. Moreover, as more people migrate toward these densely populated and predominantly low-lying areas, city governments will be working with the property industry to make good on their own COP21 pledges to mitigate climate risk and reduce the impact that buildings have on the environment. How investors choose to manage the built environment can also deliver socio-economic benefits given its materiality in terms of share of global wealth, energy use, green house gas emissions, and its climate, health or productivity impacts.

Provides investors and their advisors/consultants with guidance on how to move from inquiry and requests for disclosure, to prescriptive requests focused on results

• This includes giving investment managers and consultants more direct and prescriptive guidance, providing direct feedback on both programmes and performance and engaging directly with real estate investment managers and consultants.

Framework for action: A step-by-step guide for property investors

This framework sets out the measures and actions needed to support the integration of ESG and climate risks into the business of real estate investment and management. The approach taken is designed to transform aspirational measures into default practices for all stakeholders in the property sector. It provides a summary of the key steps in the investment process, must-do actions and recommended resources to guide real estate investors and their advisers throughout the entire lifecycle of a real estate investment portfolio.