Carbon Risk Integration in Corporate Strategies within the Real Estate Sector. CRREM Report No. 2

M Haran, W. Stanley McGreal, PT Davis, Jim Berry, Michael McCord, Daniel Lo, P Griffiths, Jens Hirsch, Maximilian Spanner, Juan José Lafuente, Peter Geiger, Rik Recourt, Paloma Taltavull, Raul Perez, Francisco Juárez, Ana Maria Martinez, Dirk Brounen

Research output: Book/ReportCommissioned report

Abstract

The document commences with a brief section listing the key outcomes of the research. This section is not intended as a summary of the whole report, but as a structured selection of the most important areas of discussion that the authors would like to highlight to CRREM stakeholders. The executive summary dedicates one page to each of this report’s eight main sections.

MAIN SECTIONS SECTION A FROM ‘CARBON RISK’ TO ‘CARBON STRATEGY’
This section provides the introduction to the report and outlines the context and rationale pertaining to the nexus between of carbon risk and corporate strategies. It places carbon risk and the CRREM project in the context of sustainability, CSR and the different other types of risk evident for companies and investors. This section also provides empirical research undertaken by the CRREM consortium to highlight the ongoing challenges.

SECTION B STRATEGIC MANAGEMENT OF CARBON RISK AT CORPORATE LEVEL Section B investigates the role of strategic management of carbon risk from a corporate perspective. It provides an overview of the relationships present between CSR and carbon risk, and further presents the challenges and dynamics relating to defining carbon risk for corporate risk management and decision-making and its integration into business planning through various best practice frameworks and guidance tools and methodologies. The section introduces the potential role of the CRREM Tool as a means of carbon risk due diligence. The role of organisational and cultural behaviour pertaining to corporate cultural practices is discussed with key learning outcomes offered.

SECTION C CARBON RISK INTEGRATION IN REAL ESTATE PORTFOLIOS
This section moves on from the company to the portfolio level. It investigates the ways in which carbon risk is currently integrated into real estate portfolios and how this could be improved in the future. It discusses how carbon risk exposure could be analysed and managed. It demonstrates in detail how such risks can be identified, assessed, aggregated, communicated and eventually eliminated. Besides that, the authors stress how CRREM contributes to all of these aspects of corporate carbon risk management on a portfolio level. This section links the somewhat technical aspects of structural assessment and operational management with the rather more intangible elements of risk perception and reward seeking. It is important to link these elements as without a wellestablished investment business case and financial infrastructure, the private sector is unlikely to position itself relative to the challenges presented by climate change.

SECTION D EVIDENCE BASED DECISION-MAKING TO INFORM CORPORATE REAL ESTATE DECARBONISATION STRATEGIES
This section deals with the challenges of data identification across the real estate value chain and the integration of the different types of carbon consumption that need to be considered when evaluating emission thresholds within a real estate portfolio. It delineates the responsibilities for capturing and reporting carbon emissions highlighting the issues and difficulties associated with this given the dis-jointed nature of the commercial real estate value chain. The key distinction between operational and embodied carbon is clearly explained and discussed with specific emphasis centred on the real estate sector. The section addresses key pitfalls and barriers that the industry is facing at present. It identifies the issues associated with determining and monitoring carbon factors and introduces the key role for CRREM in addressing these challenges. This chapter reveals the ongoing operational complexity real estate companies are facing when seeking to derive the true extent of their carbon footprint. The section maps out the pressure points and potential shortcomings in respect of data capture affording insights on why firms struggle to assemble the requisite data to inform and support strategic intervention and robust cost-benefit analysis. Finally, this section demonstrates what real estate owners and investors can and should be doing and presents the respective learning outcomes and instruments to support informed evidence-based asset and portfolio level decisions.

SECTION E ANALYSING THE IMPACT OF REGULATION ON CORPORATE CARBON STRATEGIES This section investigates the ways in which national and international policy interface with and impact upon organisational behaviour and corporate decision-making to result in outcomes which are not always optimal. The main constituent of the section is the introduction of the CRREM Policy Analysis Matrix, which is designed to facilitate an analysis of how policies with different attributes will be responded to by organisations in a dynamic context depending on their views and ideologies pertaining to carbon risk and associated mitigation strategies. The chapter explains the rationale for the Matrix and describes the mechanics of its operation. Pertinent policies from a number of EU member states have been populated into the Matrix in order to demonstrate its application.

SECTION F SUSTAINABLE FINANCE AND THE EU TAXONOMY TECHNICAL REPORT
Based on the results regarding the general impact of policy and regulation emanating from Section E this chapter puts a special focus on EU initiatives. The authors undertake a detailed analysis of the EU Action Plan on Sustainable Finance and the EU Taxonomy on Sustainable Finance detailing its consequences for the real estate sector. This key initiative has the potential to both undermine current business activity and also to foster a much more cohesive and transparent investment and finance ecosystem for sustainable investment in the future. Mainstreaming a sustainable finance system requires less ‘novelty’ and more ‘normalcy’. This section contextualises CRREM with regards to this dynamic regulatory environment and describes how the CRREM Tool and pathways can act as a ‘climate benchmark’ and ‘climate projector’ for real estate assets’ supporting the identification and disclosure of carbon risk as required by the EU.

SECTION G CORPORATE REAL ESTATE DECARBONISATION STRATEGIES CASE STUDIES AND EXEMPLARS OF BEST PRACTICE
This section presents the results and findings of in-depth interview-based case studies with leading real estate companies who have been amongst the first-movers in responding to the challenges posed by climate change. These examples are important in understanding the nature and scale of the challenges faced and also in seeing the approaches on operational levels that have been and can be applied to accomplish both internal and external decarbonisation targets. The authors also look at lessons which can be learned from other sectors which are arguably more progressive in their journey towards decarbonisation. The problems facing real estate are varied, nuanced and severe, but are not unique. Solving them will require innovation and learning from best practice from both within and beyond the sector. Indeed, the capacity for cross-sectoral analysis and collaborative approaches has the propensity to garner significant impact. This section provides valuable insights and evidence in this regard.

SECTION H CONCLUSIONS
This chapter presents the conclusions to the report illustrating the key findings emerging from the policy overview and eminent research in the area in conjunction with the current CRREM findings. It is intended to consolidate the findings of the report and the CRREM Project to date.
Original languageEnglish
Number of pages153
Publication statusPublished - 11 Dec 2019

Keywords

  • Real estate
  • Carbon emissions
  • Corporate strategy
  • Sustainability
  • Carbon risk integration
  • Commercial real estate

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