Climate risk has risen to the top of investors’ agendas
Climate risk has risen to the top of investors’ agendas, driven by compliance and real world events, delegates heard at Real Asset Media’s Impact & ESG briefing, which was hosted by CMS at their offices in Amsterdam.
“If you need to report on it, then you need to have a plan for it,” said Anouk Donkervoort, head of ESG and sustainability, EMEA lead climate risk, Cushman & Wakefield. “There is more awareness of the risks linked to climate change, from floods to fires, but compliance also plays a part.”
Many cities and local authorities already have plans in place and are acting on them, while for some investors and developers it is a relatively new discovery.
“Investors need to decide whether to invest their budget to decarbonise or to mitigate climate risks,” said Donkervoort. “They should do both, of course, but when there is no budget for both then they are faced with a difficult choice.”
More and more investors want to review the risks that climate risk poses to their portfolio and commission reports that look at all possible scenarios so that they can make informed decisions. But finding the right data and getting a clear picture is not straightforward.
“In the Netherlands we are lucky that we have high quality data sets available, as it is not always the case elsewhere,” she said. “One forward-looking risk is the higher intensity of precipitation in the next 50 years, but the fact is, there will be more rainfall in the next couple of years, not 50, so we need to prepare.”
Rainfall is just one example of issues linked to climate change, which include intense heatwaves, storms, drought, wildfires and rising sea levels.
As more is known about the risks even in an urban environment, there is a growing realisation that dealing with them has to be a team effort.
“We work out how real estate investors can contribute to increasing resilience in cities,” said Donkervoort. “We can do a lot to increase resilience and reduce heat stress at an asset level, but that is not enough. A building is always part of the urban context, so you need to take the area into account.”
The collaboration must include local authorities and landlords but also tenants and communities. Well-informed tenants behave more sustainably, while communities that are engaged in a shared project are more cohesive.
“If you build a net zero asset the tenants are happy because they live or work in a high-quality building, and they are willing to pay more rent because they get it back in lower energy costs,” said Joost Leendertse, founder and CEO, VerusSol. “It is better to avoid third-party interventions and talk directly to the tenants.”
The cost, efficiency and security of power are set to become more of an issue as people realise how critical the situation is. “Only 5.3% of vehicles are electric now, yet we are already having problems with the electricity supply,” he said. “We need to think differently”.
Quality is key, because a tailor-made solution like PV panels provides energy resilience as well as longevity.
“In the past few years we’ve seen a lot of less reputable firms, real cowboys, wanting to make money on the subsidies available for solar panels,” he said. “The result is that 95% of PV panels currently on roofs are low quality, which is actually dangerous given climate change, as more rain, storms and winds are likely.”