“We regard climate change as an inseparable part of investing in real estate,” says Timothy Prescott. “We look, from our data-driven approach, at facts and physics.” Shifting climate patterns and their economic consequences are, in his view, sufficiently substantiated by science, and will sooner or later be reflected in real estate valuations. Rising temperatures, changing precipitation, subsidence, heat stress and flood risk affect maintenance costs, rental value, insurability and residual value, with transition risks layered on top.

The argument rests on a physical fact: real estate cannot move. “It is a ‘fixed’ good: you cannot relocate it to a place with less physical climate risk,” Prescott notes. An investor willing and able to look beyond the current set of transactions can therefore add value: less risk, more return. “ESG is not something that happens in a separate staff department. It is an integral part of our portfolio management, in which we try to look ahead with predictive models.”

That forward view is anchored in the Carbon Risk Real Estate Monitor (CRREM) pathways, which indicate the carbon reduction needed to keep assets economically viable within future emission targets. But it remains a balancing act. Move too quickly and an investor risks over-investing, spending before the market rewards it; move too slowly and the risk shifts to write-downs, higher operating costs and weaker lettability.

Read the full ‘Thought Leadership’ article at the link below