There is no longer any dispute that the unfolding climate emergency poses a significant risk to every type of global asset. In the last year alone volatility on physical impacts from climate risk has increased globally, with the Australian government reporting that severe flooding has cost $3.3 billion in damages so far in 2022; while the White House, USA, has estimated that it will cost the federal budget almost $2 trillion annually to combat physical climate risk towards the end of the century. No wonder business leaders and investors are demanding better climate risk analysis.
Within the real estate industry, conducting forward looking portfolio analyses in order to assess potential climate risk for Real Estate Investment Trusts (REITs) has become a top priority. The key areas analyses need to address include:
– Risk exposure today and how it will change in the future
– Risk management around key areas of exposure
– Portfolio trends
– Screening investments during due diligence processes
The seriousness of the efforts within real estate to manage climate risk is reflected in the fact that the world’s largest REITs represent 8% of supporters adhering to the TCFD (Task Force on Climate-related Financial Disclosures) framework. While some institutions use the GRESB real estate assessment framework to manage their climate-related risks and opportunities, TCFD has broader buy-in from regulators, policymakers, governments, asset owners and investors. It is widely considered the most effective framework to enable stakeholder assessment of businesses’ readiness for climate change and is quickly becoming best practice globally, with countries such as New Zealand, Switzerland, UK and China having announced mandated TCFD reporting, with the US and Canada expected to follow suit.
For REITs to effectively identify, assess and manage climate change without TCFD becoming another tick box exercise, firms first need to conduct best in class physical risk analysis. At Sust Global we provide the tools to enable this – by supplying dependable, satellite validated, climate science data in an easy-to-use platform called Climate Explorer.
Built on top of the latest CMIP6 climate models, created by top scientists, climatologists and economists, by simply uploading your geolocation assets into Climate Explorer our clients are able to quickly identify key areas within the portfolio that are at risk to climate hazards, such as wildfire, heatwaves, sea level rise, floods, cyclones and water stress up to 2100, and under different climate scenarios.
Due to the change in emission levels, it’s imperative to conduct analyses under different climate scenarios to understand what the hazard impact could look like in a 1.5 degree rise average in temperature, to a 4.5 average degree rise. Our clients are effectively managing their climate risks and operations using insights provided by the Sust platform.
Our REIT customers are therefore able to use the TCFD framework to conduct best practice reporting, in turn strengthening their awareness, readiness and actions towards climate change within their portfolio or due diligence processes, thus satisfying the needs of investors.
If you’d like to learn more on how Sust Global can best support your climate risk analysis, find more information on our website, or get in touch at [email protected].
September 9, 2022