Real estate needs to embrace sustainability, World Economic Forum

By: Damian Wood
Damian Wood
As an experienced trader, I work for myself managing my own small portfolio and also contributing on several investment news sites.… read more.
on Jan 20, 2020
  • Real estate activities materially impact the climate. A study by Global Alliance for Building and Construction shows that building and construction activities account for about 40% of energy-related carbon dioxide emissions, and are also responsible for more than a third of energy use globally.
  • Europe has seen property prices fluctuate due to climate factors: Residential, commercial and office units that are prone to floods, strong winds and winter storms such as the one experienced in 2015-2016 in the UK have lower market prices.
  • Today investors are keen on understanding the mission, strategy and management quality of real estate firms towards ethical investing. Thanks to this, real estate professionals are being pushed in the direction of impactful investing.

Whichever way you choose to look at it, real estate activities materially impact the climate. A study by Global Alliance for Building and Construction shows that building and construction activities account for about 40% of energy-related carbon dioxide emissions, and are also responsible for more than a third of energy use globally.

Frequent changes in climatic conditions are resulting in extreme weather patterns that ultimately impact real estate prices. For example, in the US, properties that are exposed to sea levels of about 7% attract lower market rates than those that are less susceptible.

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Similarly, Europe has also seen property prices fluctuate due to climate factors: Residential, commercial and office units that are prone to floods, strong winds and winter storms such as the one experienced in 2015-2016 in the UK have lower market prices.

It is, therefore, crucial for global stakeholders to find solutions to the ongoing impact of real estate to the climate.

In 2016, the United Nations Environment Programme Finance Initiative (UNEP FI) and its partners established policies that would assist in implementing the Paris Agreement. This is how the first framework for supporting the real estate sector’s Sustainable Real Estate Investment – Implementing the Paris Climate Agreement, was born to help achieve low CO2 emission plan.

Details of the agreement swept through the industry with a clear path for various stakeholders, including real estate investors and assets owners’ role in attaining a sustainable real estate sector. The document outlined stakeholders’ fiduciary and active duties in managing environmental, social, governance (ESG) and climate-based risks as a routine part of their investment practices.

The United Nations has so far made substantial milestones in the right direction as far as ethical investment in the real estate is concerned. Investors are today keen on understanding the mission, strategy and management quality of real estate firms, forcing companies to be drawn towards impactful projects.

As opposed to only minimising the adverse effects of real estate activities to the climate, the sector is now moving towards responsible investing and realigning such with their profit goals.

Firms have indeed realised the real impact of ESG in the real estate sector; and while it may not be primarily focused on financial gains, ESG possesses material economic relevance in the wake of responsible investing.

The ESG investment scheme improves the real estate financial sector using three key elements, including risk management through resilience, transparency, and financial performance and market allocation forecasting.

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