by Brianna Crandall — October 10, 2016 — In conjunction with the recent gathering of world leaders at the United Nations to ratify the Paris Agreement on climate change, a new paper from the Urban Land Institute (ULI) argues that many real estate organizations are not adequately prepared for the implications of the agreement, which was made at last year’s 21st annual Conference of the Parties in Paris (COP-21).
Entitled L’Accord de Paris: A Potential Game Changer for the Global Real Estate Industry, the paper provides an overview of the key issues that arose from the COP-21 agreement and outlines steps that the real estate industry can take in response. Since buildings account for nearly one-third of global climate-changing carbon emissions, the agreement could trigger significant changes in requirements for building design, development, operations and management. In order to remain competitive, the industry must proactively limit and respond to the effects of climate change, the paper says.
The report notes that from a business perspective, taking action to address climate change can help real estate organizations manage risks and capitalize on new opportunities. Investors and developers who proactively respond to impacts of the Paris agreement can ensure that their buildings remain competitive within changing policy, market, and climate conditions. They are also likely to see bottom-line benefits, as improving energy efficiency to reduce the carbon impact of buildings is one of the most cost-effective solutions to mitigating climate change.
ULI leader Jon Lovell, cofounder of Hillbreak and principal author of the report, stated:
The Paris Agreement was undoubtedly a landmark diplomatic success, but was only possible because of the groundswell of demand, action and support from business leaders, investors, mayors and industry bodies from across the world. Given the value at stake and the weight of evidence collated by this paper, it would be naive to think that investors, tenants and regulators won’t all begin to turn the screws on real estate companies and asset owners. The message is clear — act now to address the implications of the Paris Agreement or face irrelevance in the market.
According to the paper, the Paris Agreement has catalyzed a change in attitudes and expectations surrounding the real estate market. Organizations are under increasing pressure to divest from carbon-intensive companies and assets, and to engage with policymakers and stakeholders on sustainability issues. Furthermore, they are expected to demonstrate a heightened disclosure of carbon performance and the risk posed by climate change to their assets, and to retrofit development standards through new technologies and financing models. Assets that do not conform to these new standards risk low demand and suppressed value.
The first priority for real estate organizations, says the report, should be to audit their resilience against post-COP-21 impacts. The audit should include a review of the risk exposure of their assets and the capabilities and expectations of their stakeholders. The paper suggests a list of specific questions on the topics of climate risk, client and stakeholder expectations, competitor approaches, policy change, asset performance, value chain, people and processes.
L’Accord de Paris: A Potential Game Changer for the Global Real Estate Industry is a precursor for a more detailed report, including case studies, scheduled for release in October.
