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Investor groups launch action plan for climate-proofing property

Emma Herd

A strategic action plan for protecting the long-term value and returns of property assets and transitioning to lower carbon portfolios is being launched in Sydney tomorrow.

Sustainable Real Estate Investment: Implementing the Paris Climate Agreement: An Action Framework was published by a consortium comprising the UNEP Finance Initiative, Principles for Responsible Investment Initiative, Royal Institute of Chartered Surveyors, The Australian Investor Group on Climate Change, Europe’s Institutional Investors Group on Climate Change, and the US’s Investor Network on Climate Risk – Ceres. It was first released in London in February this year.

“Australian investors have significant exposure to the property sector,” IGCC chief executive said Emma Herd said. “Ensuring that they have the right tools to identify and manage climate change risks and opportunities will only become more important over time following the historic Paris commitment to transition to a net zero emissions economy.

“The development of this action framework provides investors with the support they need to tackle climate change impacts for real estate.”

Ms Herd said there was an appetite among investors for detailed implementation plans in terms of managing ESG factors and climate change. The framework provides both the information and the fine grain detail of how to apply it, synthesising a range of useful reports, tools and resources.

Lendlease head of sustainability – property, Rowan Griffin, a project team member of UNEP FI’s property working group and chair of IGCC’s property working group, was involved in the development of the framework.

He said the built environment in Australia held many opportunities for driving greater  energy productivity.

“The launch of this action framework means that real estate investors now have the tools they need to take concrete steps to addresses climate change and deliver greater value,” Mr Griffin said.

Co-author Tatiana Bosteels, head of responsible property investments at Hermes IM and chair of both UNEP FI’s property working group and IGCC’s property work program, said that because buildings consume around 40 per cent of the world’s energy and contribute up to 30 per cent of its annual greenhouse gas emissions, the managers of the world’s approximately US$50 trillion of property assets have “a vital role to play if humanity is to curb emissions in line with the goals set out in the Paris Agreement”.

“With this framework now available, real estate investors have no reason to delay taking concrete steps to transform their routine business practice so that it addresses the climate challenge,” Ms Bosteels said.

The framework also highlights the fiduciary duty owners, investors and stakeholders have to actively manage environmental, social, governance and climate-related risks as a routine part of the business process.

The steps it outlines aim to ensure better risk-adjusted returns at both an asset and portfolio level. It addresses what can be done in terms of integrating ESG and climate risk management within each component of the property sector’s supply chains, linking to specific resources and tools that are available for consultants, managers, owners, investors and service providers.

“After COP, governments must now find new and cost-effective ways to curb pollution. Public private collaboration will be essential to finance a low-carbon economy, including the buildings sector. This new framework will allow real estate investors to play their role in making this transition happen,” Eric Usher, acting head of UNEP FI, said.

The authors noted that by the year 2070, 150 million people will live in large coastal cities at risk of coastal flooding. This amounts to around $35 trillion of property, likely to be worth nine per cent of 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,” the authors said.

The authors have divided the actionable elements into sections that are specific to asset owners, trustees and investment advisors; direct REI managers, property companies and real estate consultants; and real estate equity and REITS, bond and debt investors and their financial advisors.

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