As ESG regulations tighten worldwide, CREtech Climate shed light on some of the acronyms real estate must understand – and act on.
In a presentation at the Copenhagen conference, Roxana Isaiu, chief product officer at GRESB, defined three crucial initiatives and regulatory frameworks that could determine the financial and operational risks real estate faces in its path to net zero.
Meaning | Sustainable Finance Disclosure Regulation
Why it exists | “The main point of the SFDR rules and guidelines is to fight greenwashing.”
Does it affect me? | SFDR applies to financial market participants in the EU. “Chances are that if you invest in Europe or operate in Europe, you’re likely falling under the regulations.”
Requirements | “It will require disclosure related to the integration of sustainability risks in investments and will also require financial market participants to have some degree of interpretation of what they consider to be their environmental impacts.”
“[Organisations] will have to classify themselves against Article 8 [funds that actively promote positive environmental or social impacts] or Article 9 [funds that strive for sustainable investment]. They’ll have to digest volumes, volumes, volumes of pages and guidelines coming from the European Commission.”
When will it come into effect? | The deadline for reporting is June 2023 with reference to the 2022 financial year.
Meaning | Task Force on Climate-related Financial Disclosures
Why it exists | To standardise climate related disclosures. Regulatory bodies are increasingly using it as a basis for climate reporting.
Does it affect me? | Though initially a voluntary set of recommendations, TCFD has been adopted by 93 countries and jurisdictions as a formal framework for climate-related disclosures, while some have made it mandatory.
Requirements | TCFD recommends 11 types of disclosures grouped into categories
- Risk management
- Metrics and targets
When will it come into effect? | Depends on your jurisdiction. The UK, for example, made it mandatory as of this year for companies with more than 500 employees.
Meaning | Carbon Risk Real Estate Monitor
Why it exists | A research project funded by the European Commission, the CRREM was a result of a consortium of organisations coming together to work out what the Paris Agreement means for real estate.
The central question CRREM asks, according to Isaiu, is: “What are the decarbonisation pathways that have to be applied by each asset class in order to stay abreast of the Paris Climate Change Agreement?”
Does it affect me? | CRREM seeks to help real estate meet its emissions targets, ensuring that assets don’t become “stranded” by failing to meet future energy efficiency standards. Anyone with exposure to real estate assets will have an interest in this.
Real estate is at risk of falling short on climate commitments and as regulations become stricter, buildings are in danger of being uninvestable in the future.
Based on data from “thousands of assets” in GRESB’s database, some 25% of floor area is “already stranded”, Isaiu said. Only 7% of assets reported to GRESB are aligned to the Paris Agreement.
“Mind you, we’re talking about a self-selected group of organisations that choose to come to GRESB and report their ESG performance,” she added.
“Compared to the overall universe, these are portfolios and organisations that have access to more information than maybe others, that are in a situation that can actually report on some metrics.”
The concern, she added, is: “Your assets can be very well operated right now. They could be fully occupied and everything, but in a few years – three, four, five years – you will have trouble leasing them out or their value will be discounted.”