Due to the
increased severity and frequency of climate disasters, real estate investors
are showing urgent concern for the risks that climate change is posing to their
assets, turning their attention to resilience planning for their real estate
portfolios as a top priority. Rapid strides are being made within the resilience
landscape, with increasing adoption of the Task Force
on Climate-related Financial Disclosures (TCFD) standards for financial
disclosure in corporate climate reporting, along with the Global Real Estate Sustainability Benchmark (GRESB)
Resilience Module, recently updated in 2019 to align with TCFD’s
recommendations. Both standards empower real estate and infrastructure organizations to create strategies to
prepare for disruptive events and conditions, assess long-term trends and
become more resilient over time.
Global Resilience Landscape
The GRESB Resilience Module defines resilience as “the capacity of
companies and funds to survive and thrive in the face of social and
environmental shocks and stressors.” Indeed, the stressors facing the world are
escalating exponentially as climate change is shifting weather patterns in
unpredictable ways. As of April
2019, the U.S. had experienced over 246 natural disasters since 1980 with
losses totaling $1.69 Trillion. Climate change is already influencing real
estate markets, with properties exposed to sea level rise in the United States
selling at a seven percent discount to those with less exposure. Specifically,
within U.S. markets, the cities facing the largest resilience challenges due to
sea level rise include New York, Miami Beach, Honolulu, Boston, Ft. Lauderdale,
Miami, and Newport Beach, San Mateo, Hilton Head Island, and Huntington Beach.[i] Aggressive resilience
plans must be made for the upcoming challenges we face.
Global Resilience Timeline
2013: 100 Resilient Cities was
founded by The Rockefeller Foundation
2014: TheInstitute for Market Transformation to
Sustainability (MTS) adopted the RELi
resilience rating system
2015: Verdani Partners started
performing risk assessments for its real estate client
2017: TCFD released
recommendations on climate risk and resilience reporting
2018: GRESB released
its Resilience Module
2019: Four Twenty-Seven developed
a framework for assessing local adaptive capacity
2019: RELi 2.0 – USGBC
and MTS launched RELi 2
Resilience Reporting Trends
In June of 2017, the TCFD released a report that
outlined a clear and consistent framework for corporate climate reporting,
providing an opportunity for companies to assess how climate change will
affect their business. As of March 2019, more than 600 organizations from around the world had expressed support for the
TCFD recommendations. In 2018, GRESB
released its first Resilience Module and, in 2019, updated this module to align
with TCFD’s framework, further establishing TCFDs as one of the leading tools
to help lenders, insurers, and investors better understand and plan for
climate-related risks.
What TCFD Recommendations Mean for
Resilience
As stakeholders across the spectrum consider resilience, having access
to the right information to determine risks becomes ever more essential. The
TCFD initiative is critical because it responds directly to the need for
adequate information to manage risk that threatens global financial stability.
Dr. Nigel Sleigh-Johnson, Head of Financial Reporting for ICAEW stated, “We
believe that support of G20 governments and the distinctive approach adopted by
the TCFD – focusing on communication of the financial impact of climate change
on the reporting organization – mean that the recommendations could act as a
catalyst for significant improvement in the quality and consistency of
disclosures and governance in this area.[ii]”
Resilience Strategies for Real Estate
In order to protect their physical, social and economic
investments, real estate portfolios are taking the necessary steps to
understand and mitigate risks and adapt to a changing climate. Key steps
include (1) conducting a detailed TCFD-aligned portfolio risk assessment for
building and regional-level risks categorized into transition, social and
physical risks, (2) adopting resilience policies and strategies, (3) creating
disaster preparedness plans to mitigate material risks, and (4) benchmarking
their resilience capacity
(GRESB) and prepare climate-related financial disclosures (TCFDs).
Sustainability consultant, Verdani Partners, implements resilience programs for
real estate portfolios, integrating a TCFD framework into their process (see
diagram below). Verdani’s assessment of over 50 different risk indictors
includes sea level rise scenarios and impacts according to the IPCC emission
pathways to help their clients understand and prepare for different sea level
rise events. Their programs helped two of their clients, Jamestown and Parkway,
achieve a perfect score of 100 on GRESB’s 2018 Resilience Module.
Conclusion
Having better access to risk management
information, such as TCFD aligned reporting data, opens new possibilities for
resilience planning at even larger scales. Cities like New York, for example,
are creating public/private partnerships to better address sea level rise and
flooding in coastal areas. Other cities are introducing programs to protect
open spaces, creating resilience officer positions, integrating local food
production, and investing in technology to reduce dependence on fossil fuels.
These efforts not only increase resilience to climate risks, but also allow
cities to slow down climate change. According
to Marshall Burke of Stanford University, “The estimated cost of meeting the
toughest 1.5C climate target is about $0.5 [trillion] over the next 30 years
but will save the world $30 [trillion] in damage.” Proactively implementing
resilience measures will not only protect from future disasters, but will also
help reduce their severity as well, all of which are essential to moving us towards a livable future.
About Verdani Partners
Verdani Partners is a leading full-service
sustainability consulting firm with over 20 years of experience in sustainable
real estate. Managing sustainability programs for over 550 million square feet
of real estate across 4,250 properties in 11 diversified portfolios
representing $275 Billion AUM, Verdani’s mission is to empower organizations
with cost-effective strategies to create sustainable and resilient buildings
and communities. Their leading Building Resilience program focuses on key
strategies for identifying and mitigating building and regional-level risks for
real estate portfolios.
This article is written by Daniele Horton, Andrea Paul, and Chika Acholonu; and edited by Lindsay Clark and Paulynn Cue
[i] Based
on new analysis (Nov. 2018) and maps that pair Zillow’s housing data with
Climate Central’s climate-science expertise, these are the U.S. cities with the
most property, by dollar amount, at risk from sea level rise if we continue on
the current path of greenhouse gas emissions. Retrieved from https://www.zillow.com/research/ocean-at-the-door-21931/
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