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Rethinking Risks

September 9, 2020

How the real estate sector can lead the charge against climate change

Climate change and how to approach its real-world implications has long been viewed through an ethical and environmental lens. One thing’s for sure: Those days are over. The call for tighter regulations, newly-introduced policies and an increased interest in tackling the obstacles of climate change have widened that lens to include political and financial interests, making it clear that if businesses want to thrive in this new reality, they have to adapt. The real estate sector is no exception.

At first glance, the immense risks that climate change pose to the real estate sector may not be all that obvious. After all, property is often viewed as a seemingly stable, long-term investment. Climate change, however, is a game changer. Bound by location, real estate investments are literally sitting ducks when it comes to the effects of climate change. They’re highly susceptible to climate disasters, such as flooding, severe storms and increased temperatures. Not only do such damages increase costs, but increased frequency in severe-weather episodes may eventually make such locations uninsurable. A report from Four Twenty Seven, Inc.—a leader in climate data and risk analysis—for example, found that 19% of retail spaces and 16% of offices are exposed to the risks of flooding or sea level rise. Combine such risks with the shift in interest towards “greener” building, a shift away from those with low energy efficiency, changes in consumer behaviour and the mounting pressure of local and global regulations and taxation, and properties can quickly become stranded assets—making them a liability instead of a flourishing investment.

Where Does the Real Estate Sector Stand?

According to the European Commission, “buildings are responsible for approximately 40% of EU energy consumption and 36% of the greenhouse gas emissions,” making them the “single largest energy consumer in Europe.” They go on to say that in the EU alone, 75% of building stock is energy inefficient.

With the commitment set forth by the Paris Climate Agreement of “holding the increase in the global average temperature to well below 2°C above pre-industrial level” and the 2030 Climate & Energy Framework’s goal of improving energy efficiency by 32.5% and cutting GHG emissions by 40%, the real estate sector is a very real target for energy regulations. These may sound like dire statistics, but they don’t have to be a death sentence for once-thriving properties. On the contrary. They show the enormous potential the real estate sector has to adapt, provide effective solutions and truly lead the way in the industry’s fight against climate change.

Finding Sustainable Solutions

So, how can those in the real estate sector even begin to make such global initiatives attainable? By investing in building technologies that greatly reduce CO₂ emissions and increase energy efficiency as quickly as possible and in a sustainable way. With the proper strategy, a conscious choice to opt for green solutions and the possibilities to retrofit older systems with more energy-efficient technologies, buildings can immediately become more cost-effective, more efficient and more profitable.

Regardless of who you’re dealing with in the real estate sector—from developers and buyers, to building managers and tenants—a transition to more sustainable and efficient solutions is a win-win for everyone involved. Whether you’re addressing the social implications, extreme-weather impacts or stranded-asset risks posed by climate change, one thing is clear. The real estate sector needs scalable, cost-efficient solutions to adapt to these realities, and it needs them now.

The only question left is: Is it ready to lead the charge?

To learn more about how the real estate sector is changing and the challenges it faces, click here.