In the absence of government intervention, the private sector spearheads advancements in eco-friendly property development.
In the rapidly changing climate landscape, data has become a crucial tool for shaping investment strategies in the commercial real estate (CRE) sector. As investors seek to navigate the challenges posed by climate change and extreme weather events, data-driven decision making has emerged as essential.
The value of voluntary action and transparent, data-driven strategies has become increasingly clear, especially in the absence of uniform regulation. Asset managers and investors are prioritizing climate reporting initiatives, recognising that true progress will be made by those who prioritize data-driven strategies.
Detailed site-level and supply-chain climate risk data is being used to evaluate physical risks from extreme weather events such as floods, wildfires, and storms, as well as transition risks from climate policy and economic shifts. This information enables better risk assessment and strategic capital allocation, identifying vulnerabilities and opportunities under different climate scenarios.
CRE leaders are leveraging granular and proprietary climate data rather than relying solely on open-source data, due to the need for transparency, flexibility, and specificity. Metrics such as the frequency of extreme heat days and heat stress levels are used to understand impacts on building operations and occupant health, informing targeted adaptation strategies.
Sustainability considerations, including energy efficiency and ESG (environmental, social, governance) initiatives, are now critical drivers influencing investment decisions. CRE brokers and investors increasingly demand data that supports green building certifications and sustainable design to meet tenant, regulatory, and market expectations.
The integration of climate data helps investors and managers anticipate potential financial risks related to asset damage or operational disruptions caused by severe weather events, allowing more resilient portfolio construction through diversification and climate risk mitigation measures.
Industry-led frameworks and non-governmental standards, such as the US Green Building Council's LEED v5, are maintaining momentum on climate action and risk management. Local initiatives like New York City's Local Law 97, Boston's Building Emissions Reduction and Disclosure Ordinance (BERDO), and Denver's "Energize Denver" are also driving climate reporting efforts.
Dr. Chris Pyke, an environmental scientist and Chief Innovation Officer for GRESB, has a background in research for the U.S. Environmental Protection Agency, Aclima, and Arc Skoru (part of the USGBC family of organizations). His work underscores the importance of data in shaping CRE investment strategies, as it provides the granular insights needed to evaluate and manage both physical and transition risks, optimise asset performance, and align with growing sustainability demands.
In 2024, there were 27 individual weather and climate disasters with at least $1bn in damages. River floods and flash floods were the most frequently reported acute hazards globally in the 2024 GRESB Real Estate Benchmark. The percentage of companies experiencing increased operating costs due to these hazards increased from 50% to 54% between 2023 and 2024, highlighting the financial impact of climate change on the CRE sector.
Incorrect or missing data can negatively impact investment strategies by reducing property value or miscalculating risk. With quality data, transparency in performance can unlock benefits such as access to capital, reduced risk of stranded assets, and enhanced operational efficiency.
In conclusion, climate-related data is transforming CRE investment strategies by providing the granular insights needed to evaluate and manage both physical and transition risks, optimise asset performance, and align with growing sustainability demands. This shift enables smarter, forward-looking decisions that enhance resilience and capitalise on emerging opportunities in a changing climate landscape.
- To effectively navigate climate change's challenges within the commercial real estate sector, investors increasingly focus on environmental-science data to inform their investment strategies.
- Recognizing the importance of data in environmental-science, asset managers prioritize climate reporting initiatives, understanding that progress relies on data-driven strategies.
- Asset valuations and risk assessment can be improved with detailed climate-change data, which is crucial in making informed decisions for real-estate investing and sustainability, due to factors such as extreme weather events and energy efficiency.
