Winter Issue 2022 - 60

Real Estate Economics in Austria and a director of the
Carbon Risk Real Estate Monitor (CRREM).
Eventually, however, analysts and executives seem
The benchmarks are
still missing things,
too. Leakage of
refrigerants -gases
10,000 times worse
for the environment
than carbon dioxide -
are often not yet
included.
-Julia Wein, Carbon Risk Real
Estate Monitor
confident that more detailed, granular, and consistent
information will become available. Hines's Epping
predicts that in five years, much more ESG data will
be available and it all will be better organized. " I'm
pretty sure that we'll have something that is a lot
more transparent, and a lot more data will be stored
and benchmarked, " he
says.
The benchmarks
are still missing things,
too. Leakage of refrigerants-gases
10,000
times worse for the
atmosphere than carbon
dioxide-are often not
yet included. Wein estimates
that this could
reduce the scores of
some buildings dramatically,
particularly
in retail, an already lagging
sector, by 20 to 30
percent.
Embodied carbon is
also often not yet incorporated
into benchmarks, although it is an important
element: the amount of carbon that goes into the
construction of a building typically is equal to the first
25 to 50 years of carbon emissions for a building,
Wein says.
" The next frontier in ESG with regards to climate
change is embodied carbon, " says Adams. " It's a
big deal for the developers, the homebuilders, those
guys; less so for the REITs because they tend to be
more landlords rather than developers. But it's an
issue for everyone in terms of renovations and retrofits
and things like that. "
In the end, Vrensen argues, concerns about
embodied carbon will lead people to place more
value on retrofitting buildings. As he heard the chief
executive officer of one German office company say,
the best green building is the building you do not
build. " If you think about the logic of that, it makes
58
URBAN LAND
WINTER 2022
sense because we already have a lot of buildings.
Why do we need new buildings? "
Net (Zero) Present Value
Investors support may also falter if returns fall,
as some analysts now forecast. Analysts at Green
Street Advisors, for example, argue that achieving
net zero carbon emissions will reduce the long-term
value of eight of 17 main property sectors by at least
2 percent, and the value of lodging, data centers,
and cold storage facilities by more than 5 percent.
But Adams argues that it is too early to tell. " Other
types of factors-like small cap and value and those
types of things-we have 100 years of data on, so
academics and asset-pricing scientists can say, here's
the significance of that and what we can expect going
forward, " he says. " With ESG, we have 15 years' data
total, and not very much of that is very good, so it's
hard to come up with definitive answers on how it's
going to improve returns or lower risk, or both, or
what it's going to do.
" But from a theoretical perspective, it's pretty
clear a company that's using less inputs and creating
more outputs, a company that has less risk in its
supply chain, a company that has better risk management
in its governance is going to be a better-run
company. "
But profitable or not, at present, green fund managers
argue that it is best to begin making changes
now. " You're clearly exposing yourself to the risk of
capital market repricing or of future significant capex
if you don't approach it early on, " says Epping. " But
equally, if you manage to move early and build up a
reputation and strong branding for having assets that
perform very strongly in this field, then clearly it's an
opportunity to be seen as a leader and someone who
understands these types of assets really well. "
Either way, time is not on the industry's side. " Our
analyses indicate that climate-change transition is a
manageable problem for real estate, but we do need
to get started and scale up on the available solutions, "
Vrensen says. UL
BENNETT VOYLES is a Berlin-based business writer.
Winter Issue 2022

Table of Contents for the Digital Edition of Winter Issue 2022
