Climate Intel An Expanding Factor in CRE Decisions
JULY 27, 2022 3:00 CHAVA GOURARIE The Commercial Observer
Throw a dart at a globe, and you will hit a recent, or current, climate-related disaster. In July, 100 million Americans were under an extreme heat warning, Western Europe was on fire, London broke 104 degrees Fahrenheit, and Delhi, which broke 120 degrees for the first time in May, was again experiencing a deadly heat wave.
Each one of these events is an outlier, but taken together, it’s a pattern that suggests that it’s prudent, if not crucial, for commercial real estate investors, owners and lenders to evaluate their exposure to a changing climate.
Some lenders and real estate investors have already begun incorporating climate intelligence into their decision-making, while a crop of startups and consultancies are building real estate-specific platforms to provide actionable climate intelligence to guide them. “It’s in the name,” said Karan Chopra, the COO of Cervest, one such climate analytics startup. “Given that it’s real estate and real assets that they care about, [real estate] is actually one of the sectors that is most interested in thinking about how to use climate intelligence. Because, at the end of the day, that affects both growth decisions that they’re making as well as asset protection and value protection decisions on their portfolios.”
Until recently, sustainability in a corporate context referred almost exclusively to a company’s carbon footprint, which in real estate meant a move towards cleaner energy, electrified buildings, and more sustainable building materials.
Now, as the effects of climate change become more pronounced, corporations have begun to focus not only on their carbon contribution, but on their climate risk as well. To understand their exposure, big banks are snapping up climate data startups, rating agencies are beginning to integrate climate risk into some rating assessments, and early adopters in real estate are beginning to assess what their exposure to further climate change might mean for their portfolios. “There’s an increased recognition that resilience is a part of ESG,” said Mark Nelson, head of advanced technology and research at Arup, an engineering and design firm which has its own climate intelligence platform. “People are paying attention to the value and cost of retrofit and repairs.”
In essence, companies like Arup are trying to put a price on the impacts of climate change.
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