Recent Research Demonstrates Investors’ Growing Focus on the Climate Transition
October 1, 2024
Recent reports highlight investment managers’ growing focus on the climate transition.
According to a recent report from the sovereign wealth fund of Singapore and S&P Global, properties represented in the S&P Global REIT Index could suffer climate change-related losses of more than $500 billion by 2050 via the following channels:
- Loss of revenue due to business interruption;
- Rising operating expenses such as higher cooling costs and productivity impacts; and
- Higher capital expenditures related to cleanup and repair, accelerated asset degradation, and asset replacement.
The report notes that certain perils, including extreme heat, will be more widespread, while others, such as tropical cyclones and floods, are more acute in certain regions.
- Just this weekend, Hurricane Helene led to the deaths of at least 100 people with over two million homes and businesses still in the dark across the Southeast on Monday. Hundreds of water rescues have taken place across Florida, Georgia, the Carolinas, Tennessee and Virginia since Helene's brutal landfall in Florida's Big Bend area late Thursday.
By the numbers:
- On a macro basis, 89% of S&P REIT Index constituent assets are estimated to be materially exposed to extreme heat by the 2050s.
- 1%, 9%, and 13% of assets are expected to be exposed to coastal flood, pluvial flood, and fluvial flood, respectively.
However, the authors stress that climate change also creates opportunities for asset owners to invest in adaptation, including green or cool roofs and wet or dry floodproofing.
- Cumulative net benefits of these specific adaptation measures are projected to total $45 billion by 2050 (8% of the total projected cumulative costs of climate hazard exposure) under a medium-high climate change scenario.
- The annual demand for these solutions is estimated to reach $29 billion globally through 2050.
Morningstar released a report this past week, noting that 67% of asset owners globally say that “ESG has become more material in the last five years.”
- Every asset owner surveyed is allocating at least a portion of their assets to strategies that take ESG factors into account; and
- The percentage of asset owners with more than half of their total assets reflecting ESG considerations has increased each year, from 29% in 2022 to 34% in 2023 and 35% in 2024.
According to Morningstar, climate transition readiness remains the “most material environmental factor, with labor practices and business ethics headlining material concerns for social and governance, respectively.”
Additionally, asset owners “increasingly recognize data as the most critical component” for their investing strategies.
CREFC continues to focus on the identification of climate-related data most relevant for the CRE finance sector and is developing a climate due diligence resource for investors and lenders.
Please contact Sairah Burki (sburki@crefc.org) with questions.