climate change procrastinators

Climate change procrastinators urged to act

Gauging risks to real estate portfolios is a complicated but high-priority task
Thursday, October 3, 2019
By Barbara Carss

Debunking deniers is so last decade. Proponents of sustainable, resilient real estate now place more urgency on prodding climate change procrastinators to action. And even conventional push-pull forces are realigning to support the effort.

“Managers are being pulled in the same direction by owners and tenants,” observed Benjamin Shinewald, president and chief executive officer of the Building Owners and Managers Association (BOMA) of Canada, as he led a recent panel discussion in Toronto. “I think there has been a shift in interest in the last five years or so, from mitigation to adaptation.”

The occasion for the gathering — release of the 2019 GRESB results, the global benchmark for the environmental, social and governance (ESG) performance of commercial real estate portfolios — backs that hypothesis. In its 10th year, the GRESB database now provides a picture of 1,005 real estate entities that collectively hold more than 100,000 assets in 64 countries valued at USD $4.1 trillion, including 26 major Canadian players.

They’ve taken on the recognized arduous task of reporting under the assessment’s seven ESG aspects to guide their own decision-making and to meet the expectations of the growing pool of GRESB investor members that subscribe to full access to the data. That group now numbers more than 100 and represents USD $22 trillion in institutional capital.

“Don’t lose sight of the fact that they also have pressures on them,” Dan Winters, GRESB Head for the Americas, reminded the attendees.

When it comes to climate change, those pressures are more commonly called risks. Accordingly, GRESB administrators tweaked the pilot resilience module — a three-year exercise to identify and refine metrics that will be integrated into the core assessment — this year to line up with the Task Force on Climate-related Financial Disclosures (TCFD) framework for gauging physical, social and transition risks to business stability and asset value. Perhaps tellingly, 316 GRESB participants opted into the voluntary module, a 96 per cent increase from 2018.

Non-portable assets more vulnerable to non-controllable events

Derek Billsman, director of real estate management and sustainability for the Healthcare of Ontario Pension Plan (HOOPP), noted that TCFD criteria also underpin the deep risk profile HOOPP undertook to assess both potential threats and preparedness to deal with them. That informs an asset-by-asset plotting of controllable and non-controllable risks the non-portable investments face.

“The very, very acute risk is obviously physical,” he said. “The question is: what’s the risk of being at that address?”

The mounting consequences of being stuck fast in the wrong place for an extended wrong time begin with soaring insurance premiums and end with stranded assets. “There is the potential for delinquencies as tenants simply walk away from chronically impacted areas,” warned Natalia Moudrak, director, climate resilience, with University of Waterloo’s Intact Centre on Climate Adaptation.

In contrast, she cited examples of relatively low-tech and cost-effective adaptation measures. The Intact Centre has produced a soon-to-be-released guide for the commercial real estate sector outlining what she terms “highly actionable best practices” such as sensors to detect and redirect elevators away from below-grade water accumulation. In tandem with regular staff and tenant training, that could prevent a repeat of the nightmarish scenario during Toronto’s August 2018 extreme storm when two men were trapped in an elevator filling with water.

“A $5,000-per-elevator retrofit eliminates a situation that is potentially a life threat,” Moudrak maintained.

Still, identifying where and how to intervene (or press managers to make interventions) is no simple task in portfolios with dozens or hundreds of properties with multiple functions, scattered around the world. While panellists agreed that data is getting easier to obtain, gaining access to some key resources, such as flood risk mapping, remains a challenge.

“I’m not going to say it’s easy and I’m also not going to say it’s cheap. But the work that we did helped our insurance renewal this year,” Billsman offered. ” If you’re not ready, yes, you may get the insurance payout this time, but you may not get it next time.”

Deniers and procrastinators figure in other misperceptions Moudrak seeks to quash: 1) that climate change will desist; and 2) that there is plenty of time to respond and adapt. Nor, she stressed, should locations outside designated flood plains automatically be perceived as low-risk.

Holistic approach leaves space for mitigation

Regan Smith, director of sustainability with Manulife Investment Management shared her personal mantra — “Done is better than perfect” — in making the case for proactively tackling climate change challenges and, if necessary, figuring out some of the details along the way. She traced the commercial sector’s evolution from a building-level focus on retrofits and certification to a more holistic portfolio-wide approach that integrates sustainability into all business functions.

“It’s becoming a core element; it’s not a siloed element,” Smith said.

That evolution has occurred in step with advancements in data collection and interpretation. “It comes down to the capacity to assess data and make decisions,” submitted Darryl Neate, director of sustainability for Oxford Properties.

Regardless of the urgency that directs attention and resources to climate change adaptation, a room full of sustainability practitioners is unlikely to overlook prospects for mitigation. Neate predicted zero-carbon operational footprints will become more common in the coming years.

“It’s such an appealing and simply elegant concept that people can get their heads around it,” he said.

Hugh Molyneux, president of the professional services firm, Refined Data Solutions, suggested emerging or still unforeseen innovations could also play a role, including what might seem like fantastical hopes to take carbon out of the atmosphere. “Human beings always seem to come in just under the wire, but it’s looking a little dicey right now,” he mused.

Arguably, too, Michael Brooks, chief executive officer of REALPAC and a member of the GRESB board of directors, set the tone for those big-picture aspirations in his introductory remarks.

“We’re all pushing for the same thing in this room: a healthier and more equitable, more inclusive and sustainable planet,” he asserted.

Barbara Carss is editor-in-chief of Canadian Property Management.

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