At the risk of boring blog readers with the theme of decarbonisation yet again, I do think its worth pulling up comments from the recently issued 2020 Emerging Real Estate Trends report by index business, from MSCI.
Top of the list is …you guessed it, climate risk and the bottom line. Here’s what they say….
“Climate risk is a risk that we now see materializing over the typical holding periods of real estate investments. As a result, mitigating and managing these risks are likely to be today’s problems, not tomorrow’s. While real estate investors need to be aware of more tangible physical risks, increasingly, transition risk will be an important consideration when making investment decisions. Historically, better financial metrics have often provided for best risk management. We suspect this will also be the case for assessing climate risks for real estate investors.”
I think this is a really profound point. If one buys into the argument that we need to decarbonize, and do most of the hard work over the next 15 years, then investors need to think long and hard about any asset with a long life span. This applies to long-duration bonds AND it also applies to real estate assets (and energy sector capex).
Anything with a discount/amortization window of more than a decade will need to think through the consequences.
One major example. If you read the wonderful Drawdown, a magisterial examination of the practical steps needed to decarbonize and then take carbon OUT of the atmosphere, care to guess what tops the list? Air conditioning. If we could find a much better way to cut down on AC in buildings, the long-term impact on emissions could be absolutely colossal. You can read more about this particular area here – https://www.drawdown.org/solutions/materials/refrigerant-management
And guess who’s in prime position to do that investment in new technology? Real estate businesses.
Anyway, this, and other subjects, will be front and center at my event on decarbonisation in the afternoon of Tuesday February 11th in Kings Cross. Remember to book your tickets, for free, here :