MFC108 Real Estate, TCFD, and Net Zero- How Asset Managers Can Get Started Blog Image V1

Real Estate, TCFD, and Net Zero: How Asset Managers Can Get Started

April 6, 2022

Climate disruption is already affecting businesses in a myriad of ways, causing many companies to pledge net-zero goals. As climate awareness grows, investor demand has also increased for net-zero commitments from asset managers, specifically when it comes to real estate portfolios.

For real estate asset managers, there are a number of climate risks and opportunities to be cognizant of. Real estate is vulnerable to climate change’s physical and transitional risks. Extreme weather events, like hurricanes and floods, as well as changing climate patterns, like sea-level rise and temperature fluctuations, affect the viability of real estate assets. Moreover, the valuation of real estate assets is influenced by the impacts of transitioning to a low-carbon economy, such as new building code regulations, the adoption of energy-efficient technology, as well as market demands for low-carbon buildings.

How should real estate investors identify, assess, and manage climate risks and opportunities? How do they know what actions are necessary to reduce their greenhouse gas (GHG) emissions and future-proof their portfolios?

To learn more about how real estate investors are navigating climate change, Manifest Climate hosted a conversation with BentallGreenOak (BGO), a global real estate investment management firm. We discussed the company’s climate journey, how it developed a net-zero target, and how it’s using the Task Force on Climate-related Financial Disclosures (TCFD), a globally-recognized framework, to inform investors and drive climate impact across the organization.

Here are four of our takeaways from the discussion:

1. Ensure climate education is spread across the company and not siloed

Climate education must be present throughout an entire organization in order for companies to ensure they’re on the right path toward a low-carbon future. Businesses’ delivery of net-zero commitments can’t be relegated to individual sustainable investing or environment, social, and governance (ESG) teams. 

Different areas of a company must understand and take ownership of their roles in their organization’s climate journey. They need to be empowered with the necessary tools and expertise to support their company in achieving its climate commitments.

To make sure it’s progressing on its climate commitments, BGO works closely with its teams and internal champions to help scale its climate efforts across portfolios, geographic regions, and asset classes. BGO’s teams already had foundational knowledge of ESG principles, making it a “natural fit” for the organization to set a bold climate goal and commit to net zero.

2. Make sure your company’s climate disclosures are transparent

Transparency is vital as companies begin or continue on their climate journeys. Reaching net–zero emissions is a difficult task, but climate commitments will be more credible if the company is open and transparent about the process. While there may be criticisms of how certain companies move towards a low-carbon future, it’s important to consider constructive feedback that helps to improve climate disclosures and action.

The real estate asset management sector is at the start of its net-zero journey, meaning there will be bumps along the way. To reach net-zero targets, it’s important for businesses to disclose their climate impacts, risks, and opportunities. By aligning climate reporting to the TCFD, real estate asset managers can transparently relay their climate story to investors and ensure they are communicating decision-useful information. One key takeaway is that companies should ensure they’re shifting from general, sustainability-based narratives to using language that specifically names climate.

3. Familiarize yourself with the TCFD recommendations

Momentum continues to grow for using the TCFD as the standard for climate disclosure. New Zealand, Switzerland, the UK, and China have already announced moves to mandate TCFD-aligned reporting. Moreover, the US announced a proposed climate disclosure rule in March 2022. Canada is expected to follow suit soon. 

Demand for the TCFD is not just from regulators. There’s been an increase in investor interest in asset portfolios’ alignment with the TCFD, making it prudent for organizations to learn about and adopt the framework. The Net Zero Asset Managers Initiative, which BGO has signed on to, requires signatories to publish a TCFD-aligned report annually.

The TCFD provides recommendations to guide companies along their climate disclosure journey. One of the benefits of the TCFD is that it’s applicable in a number of different contexts. For BGO, the TCFD is useful because it helps enhance investor-facing climate disclosures, while ensuring public-facing reporting covers all relevant aspects of climate risks and opportunities.

4. For meaningful climate action to occur, efforts must be scaled

In order for real estate investors to pursue meaningful climate action, there needs to be a scaling of efforts. One challenge we learned from BGO is around how to scale strategic efforts beyond pilot projects and into global, portfolio-wide climate action.

BGO found success in developing proprietary tools to help the company scale its approach. One example of BGO’s scalability is the development of its climate resiliency tool, which addresses what climate risk means for its assets in practice and helps deliver tailor-made adaptation plans.

As part of their climate journeys, real estate asset managers must look at the data management systems and processes they have in place in order to help them scale their climate initiatives. If a company is looking at an entity-wide commitment to net zero, it should ensure the proper systems have been implemented for capturing and accessing data on a timely basis, in addition to tracking progress. The important thing is to learn as you go — not everything is going to be figured out at the start.

Thank you to BentallGreenOak for participating in our webinar. If you’d like to watch the conversation, click here.