The headlines painted a grim picture: “UN climate change report puts blame on humans,” “IPCC report should be a wake-up call” and “IPCC report  makes U.S. meteorologist cry – and give up flying.” The Intergovernmental Panel Climate Change (IPCC) report, released in September 2013, states that warming of the climate is unequivocal and that human influence on the climate system is evident in most regions of the globe. The believers heralded this reaffirmation, the deniers lit up the internet, and corporations began to reassess the social, financial, and environmental business risks associated with climate change.

Do Investors Care About Climate Change?

Some Securities and Exchange Commission (SEC) executives, past and current, have publicly stated that they believe climate change risk disclosure may be unnecessary because investors are ambivalent; however, these are the same people who didn’t feel it necessary to disclose the risks associated with sub-prime mortgages prior to 2008 since investors weren’t demanding the information. Meanwhile, 77% S&P 500 companies reported climate change exposures to CDP in 2013, and collectively saved over $4 billion from emission reduction investments. Clearly, corporations have determined that investors do, or should, care.

For real estate developers and owners, the biggest climate change risks are related to energy price volatility, future policy and regulation, and potential from asset damage or other business interruption due to extreme weather events. Risk mitigation is one investor-facing approach, but at Paladino, we prefer to apply an abundance perspective that focuses on opportunities to develop value from sustainability.

If you work for a real estate development or investment company, you have likely implemented the most obvious sustainability tactics, such as constructing and operating green buildings. But, when thinking more broadly about the impact of climate change, what are some key business strategies you can implement to both mitigate climate change risk and create business value?

Move Beyond Compliance

You report your emissions to the Carbon Disclosure Project and note climate change risks in your 10-K, but don’t stop there. Use the data to prioritize initiatives for performance improvement by identifying areas that need attention and matter to your stakeholders: identify property ‘outliers’ that have higher consumption or emissions than the portfolio average, and perform business analyses including materiality assessments to determine which upgrades to include in the next year’s list of capital projects.

Revamp Your Green Team

If your sustainability committee is an ad-hoc, part-time group, it might be time for some organizational redesign. Cross-office and cross-team coordination and communication is a common problem, which will be more easily addressed if there is consistent, dedicated management. Provide sustainability team members with training in change management and influence skills to promote successful implementation of messaging and initiatives.

Implement Materiality Principles

Revise your sustainability policies by focusing on climate change issues that matter to your investors, employees, tenants, and other stakeholders who add top and bottom line value to the company. Align strategies to your desired end results in these material impact areas. For example, in the Seattle region the protection of one of our treasured natural features, the Puget Sound, is a key environmental marker. Businesses might consider sustainable real estate strategies that protect the Sound, such as stormwater management. Develop a common language to communicate carbon and energy goals internally using values that apply across the organization, but allow for local adaptations.

Manage Your Data

You need to not only measure, but also to synthesize and understand your building performance data, in order to manage the carbon and energy impacts of your portfolio. Do you need better software? Can you identify properties that require improvements now, or will require them soon, in impact areas that are materially relevant? Is ISO certification a good business decision? Do you have baseline and benchmark data? If you’re not reporting data to GRESB, consider the potential value for both your company and the industry.

Increase Transparency

Once you’ve implemented the strategies discussed above, it’s time to package them up. Investors want to see accountability. Use CSR reports to indicate your current status in climate change and other material sustainability-related impact areas, set tangible goals, and report progress. Demonstrate a leadership position by using the GRI framework, which is becoming widespread, and which clearly provides information to investors in a format they understand and are beginning to request more frequently from public companies.

Seek Opportunity to Add Value

“Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions,” Thomas Stocker, co-chair of the IPCC Working Group I, stated in a press release on the IPCC report. Since nearly 40% of greenhouse gas emissions are attributed to buildings, real estate companies are well-positioned to take advantage of the potential value in the business of climate change, but it will require looking beyond risk mitigation, toward opportunity.

For more information on creating business value by addressing climate change, we recommend viewing Verdantix’s webinar:  Climate Change 2.0: A Profit-Centric Paradigm for Businesses.







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