Organisation details:
Name: Savills Investment Management
Signatory type: Investment manager
HQ country: UK
AUM:€26.2 billion (as at 31 December 2024)
Covered in this case study:
Asset class(es): Real estate
Geography: UK, Europe and Asia-Pacific
Savills Investment Management is a specialist real estate investment manager investing in equity and debt real estate strategies on behalf of a global institutional investor base. Our purpose is to build prosperity by investing in resilient real estate, going beyond ‘net zero’: not just doing no harm, but also helping to restore nature, becoming climate positive and supporting a greener economy.
Why we assess climate resilience
The World Economic Forum’s latest Global Risks Report highlights extreme weather events as one of the most severe risks to a material crisis on a global scale over both the short and long term.
From physical damage causing operational disruption to impacts on crop yields and increased risks to the health and safety of occupiers and local communities, examples of how climate change is affecting real assets are becoming widespread.
Our mission is to progress a restorative agenda for the environment, the communities surrounding the assets we manage, and the investors we serve. We believe that is critical to maintain asset value and that the real estate industry must play a leading role in creating a resilient future.
Our approach to climate resilience1
We released our Approach to Climate Resilience in 2024, outlining our methods of adapting the assets we manage to become climate resilient and our aspirations for the future. Whilst we have taken initial steps to identify the impact of climate change on the assets we manage, there is still work to do. From improved supply chain engagement to standardising climate resilience metrics, we are setting targets on how to improve our approach.
Each stage of our investment cycle requires unique climate resilience considerations. Here we provide an overview.
1. Strategy and capital raising
Our product management committee oversees the development of new products. At this early stage, the committee is typically focused on sectors and geographies of interest. Sectoral considerations can involve identifying climate and ESG-related themes that provide the basis of a real estate investment strategy; for example, targeting the affordable housing sector or regenerative agriculture. Considering the physical climate and natural hazard risks relevant to a certain geography, where relevant, is a key part of product development decision-making.
2. Asset acquisitions
As part of our due diligence, we assess climate-related factors relating to the asset’s location, sector and building characteristics. Considering the climate resilience of an asset using scenario analysis over multiple time horizons, alongside an insurance coverage review, ensures a comprehensive evaluation of both present and future climate risks.
Our investment committee papers record asset-level ESG information and confirm that physical climate and natural hazard risk screening has been completed. Upon successful transaction allocation, an asset progresses to acquisition with a two-stage underwriting process.
3. Portfolio management
Oversight and reporting: Our investment committee oversees portfolio management. The committee requires annual reports from fund teams on topics including physical climate and natural hazard issues. These matters are reviewed by the IC to assess opportunities, issues, and progress on adaptation and mitigation. Fund management teams must also report quarterly on ESG matters through a risk scorecard process.
Lettings, renewals, expiries: To manage climate risk at the asset level, we analyse occupier activities to ensure alignment with product and corporate requirements. Occupier activities are assessed against our Occupier Exclusions Policy. Collaboration with occupiers remains a key component to achieving transition and adaptation objectives. Lettings and renewals represent an opportunity to incorporate green lease clauses in tenancy agreements. These clauses are designed to ensure the sharing of energy data, as well as to safeguard planned climate adaptation measures that have been incorporated into asset business plans.
Property management: Our latest property management agreements integrate ESG expectations. These expectations can include data collection requirements relating to energy, biodiversity and temperature, as well as occupier engagement on ESG-related initiatives.
4. Redevelopment and renovation
When conducting a renovation or refurbishment project, our development partners are required to use our mandatory sustainable development checklist. The checklist details obligations for our developers relating to risk assessments, EPC targets, heating methods, biodiversity, certifications and CRREM-alignment. If the risk assessments – relating to flooding, thermal comfort as well as other climate hazards – determine potential climate-related risk, the expectation is that the renovation or refurbishment works mitigate or adapt to the inherent physical climate risk.
5. Asset disposal
The asset lifecycle ends at exit. However, we believe that the disposal process will likely reflect an investment manager’s action – and indeed inaction – taken to mitigate and/or adapt to physical climate risk during the holding period. Relevant adaptation interventions that were not addressed before the sale of an asset can represent an anticipated risk, potentially resulting in a form of so-called ‘brown discount’ (lower selling price because of the asset’s exposure to and failure to manage climate risks).
Example: Identifying climate risk at Sky Homes in Valencia
During the acquisition process for a residential asset – Sky Homes – our investment team collaborated closely with physical risk consultants, ecologists and sustainable development consultants to conduct a comprehensive ecological assessment.
Our physical risk assessment tool used European weather forecast data about heat waves, annual maximum temperature and tropical nights to determine that the asset’s location faces moderate-high heat stress risk over the medium to long term. To combat this potential risk, the assessment identified the opportunity to implement a range of nature-based solutions.
Sky Homes is set to integrate green infrastructure to combat heat stress and enhance climate resilience. A green roof will act as a natural insulator, reducing indoor temperature fluctuations and providing additional thermal comfort to residents. The future installation of a natural vertical garden, in collaboration with experts in ecological restoration, will contribute to the property’s cooling capacity and will provide shade as well as facilitate cooling through transpiration. These innovative installations will not only shield the building from direct solar radiation but also absorb and dissipate excess heat, thus mitigating the urban heat island effect prevalent in many cities like Valencia.
References
1 ‘Climate resilience’ is defined as ‘the ability to anticipate, prepare for, and respond to hazardous events, trends, or disturbances related to climate’
