Building resilience: managing climate risk
The challenge may seem insurmountable, but climate action momentum is building
As the impacts of climate change become increasingly evident, the notion that it is simply an issue of the future is becoming difficult to justify. We are already seeing physical climate impacts manifest, increasing in frequency and severity at rates in line with climate scientists’ worst-case scenarios. In response to these far-reaching impacts, there has been a groundswell in global activism and, in 2019, the UK became the first country to declare a climate emergency, following nationwide climate crisis protests. Consequently, we are now posed with a dual set of risks associated with climate change: the physical impacts of climate change and, somewhat conversely, transition risks associated with a ramp-up in action to decarbonize and build resilience, accelerated in the UK by the government’s commitment to net-zero carbon by 2050.
These transition risks will be experienced in the shorter term via new compliance obligations, stringent building standards and electric vehicle uptake.
It is clear that organisations, stakeholders, investors and the public are demanding proactive action and climate risk management. The real estate sector has a pivotal role to play – it contributes nearly 40% of annual global greenhouse gas emissions, so is key to supporting global decarbonisation.
Growth in disclosure requirements
In 2017, the Task Force on Climate related Financial Disclosures, chaired by Michael Bloomberg, published best practice recommendations on disclosing the financial impact of climate change on organisations. More than simply disclosure guidance, it sets out a framework for effective climate risk management and encourages organisations to review climate-related risks and opportunities. In the past few years, clients, investors and stakeholders have increasingly demanded that organisations consider climate change impacts to their businesses, with more than 1,800 organisations now supporting TCFD. We expect a seismic shift in organisations considering TCFD after the chancellor announced in November 2020 the UK’s intention to mandate climate disclosures for large companies and financial institutions across the economy by 2025.
Companies leading the way
Transparency and disclosure are just one step on the journey to effectively addressing climate-related risks – what an organisation does to mitigate and manage these risks is critical and is increasingly considered a fiduciary duty. Around 80% of the buildings that will exist in 2050 have already been built, so it is vital that the real estate sector future-proofs the buildings that we inhabit and build now. Organisations are developing holistic solutions, guided by TCFD, with governance structures and risk identification processes embedded into the core of overall risk management. These procedures, as well as rapidly evolving climate modelling capabilities, enable businesses to identify risks and opportunities for targeted investment in mitigation, and to factor climate risk considerations into business strategy and financial planning.
For real estate, examples include physical defence measures, such as flood barriers, permeable paving, passive cooling mechanisms, on-site renewable energy generation, sustainable urban drainage systems (SUDS), and nature-based solutions such as habitat restoration and wetlands. One notable demonstration of climate resilience is Barratt Developments’ extensive SUDS programme, which aims to mitigate heavy rainfall and flooding by capturing and slowly releasing excess water via landscaping, sunken gardens, natural drainage and large-scale water systems. Barratt has also developed evacuation routes for people and vehicles, while the natural landscaping provides benefits for local biodiversity and occupant wellbeing.
The Wild West End initiative partners several London property owners to support local biodiversity by establishing a “green corridor” across central London. The initiative provides socio-economic benefits of green spaces and enhanced urban drainage, and proactively complies with incoming UK legislation for biodiversity net gain. Lendlease achieved one of the UK’s highest ever BREEAM scores (94%) for International Quarter London, which addresses areas of climate risk, including combatting heat stress without increasing carbon emissions with efficient cooling systems; enhancing biodiversity through the capital’s largest living wall; harvesting rainwater to save more than 18.6m litres of water annually; and using sustainable construction materials and timber.
What we expect to see next
The recent UK government announcement has jolted the real estate sector into action. With growing scrutiny placed on businesses’ handling of climate-related risks and their ability to leverage opportunities, we expect an unprecedented demonstration of climate action, through rapid decarbonisation and the enhancement of climate risk management – including the development of resilience measures. There are already some clear leaders in this space, but there is now an imperative for all businesses to begin identifying their climate risks and opportunities and take steps to manage these.
As the sector advances, we hope to see the use of innovative and nature based solutions, sector collaboration and market movements that drive low-carbon technologies to become more accessible, scalable and affordable. As we transition to a low-carbon economy in the UK, we expect that real estate of the future will be characterised by low-carbon transport provision, lowcarbon heating, cooling and electricity, and an abundance of green infrastructure – and with climate resilience measures built into its core. We also expect there to be significant occupier demand for net-zero-carbon spaces, paid for at a premium, as organisations seek to meet their own ambitious commitments.
The scale of the climate challenge perhaps seems insurmountable, but there is hope in the momentum in climate action and in the ambition demonstrated by real estate businesses. It is becoming clear that there is a fiduciary duty, as well as a moral imperative, to meet the climate crisis head-on, and those who do so proactively will be rewarded in a world that is rapidly changing.
First published in EG on 27 March 2021