Investors are stepping up efforts to understand and better manage the impact of climate change on their physical investments in real assets, including private equity, from farmlands to urban office buildings.
“Physical climate-risk scenario analysis is particularly important for real asset investors as portfolios are more likely to be materially affected by increased risk of physical impacts and damage as a result of flooding, coastal inundation, sea level risk and extreme heat,” said Shuen Chan, head of ESG for LGIM Real Assets in London.
“Where a company operates key facilities is a major factor in its exposure to physical risks,” said New York State Comptroller Thomas P.
The International Energy Agency projects that to reach interim goals by 2030, all new buildings would need to be on track to be net-zero carbon ready by 2040, and 50% of existing buildings would need to be retrofitted.
Real estate investors will also benefit from advances in data monitoring and collection, but the challenges are not insignificant, the authors said.
“Action needs to be taken immediately to prevent these assets from becoming stranded” if improving real estate becomes financially unviable, the authors warn.
Physical climate risk has been a KKR priority for more than a decade, said Ken Mehlman, partner, global affairs head and co-head of KKR Global Impact, a fund investing in climate action and other sustainable themes.
When it comes to addressing physical climate risk, “we do see more movement on the private side,” said the Rev.
Initiatives like the ESG Data Convergence Project, led by the $493 billion California Public Employees’ Retirement System, Sacramento, and The Carlyle Group, to create a standardized set of ESG metrics and a system for comparative private equity reporting, will be critical to managing physical climate risk, Ms. Spalding said.
Last March, sustainable investing officials with the $319.9 billion California State Teachers’ Retirement System, West Sacramento, announced that over the next few years, they anticipate investing up to $2 billion into private markets, initially focusing on affordable housing opportunities and then low-carbon solutions relating to energy, technology-enabled resource efficiency, water and waste management, land and agriculture management and food security.