Collaboration between real assets owners and the cities in which they operate is key to advancing on climate action
As the world gears up for COP26, attention is turning to the built environment’s responsibility to reduce GHG emissions and urgent need to adapt to the physical impacts of climate change such as flooding and heat stress. While buildings have unfortunately contributed to the problem of climate change over time through their use of fossil fuel-based energy, those of us who work in the sector now have a tremendous opportunity to help redirect capital to drive positive change.
The IPCC Sixth Assessment Report (AR6) confirms that human activity is undeniably causing changes to our climate systems and that the world must transition to Net Zero Carbon by 2050 to prevent the worst outcomes. Transforming the urban built environment is key to fighting the climate crisis.
Cities are responsible for 60% to 70% of global carbon emissions, although per capita energy consumption of urban residents tends to be lower than that of rural residents. Real estate is often the main culprit. In New York City, for example, buildings generate nearly 70% of the city’s carbon emissions. Urban infrastructure and services are also increasingly vulnerable to extreme weather events and chronic climate changes. The IPCC AR6 report notes that cities actually intensify human-induced warming locally (i.e. the Urban Heat Island effect) and can increase local precipitation, worsening stormwater runoff intensity.
Cities are also grappling with other major shifts, including urbanization and population growth. By the year 2050, over two-thirds (68%) of the global population are projected to be living in urban environments.1 While greater density is usually a positive thing for reducing carbon emissions, growth can also put stress on land availability and natural resources. Urban centers are also currently battling housing crises and inequality in many parts of the world and working to recover from the COVID-19 pandemic. These all involve crucial planning and policy decisions that require funding.
The COP26 Presidency Programme is made up of a series of key themes, the last of which is “Cities, Regions and The Built Environment” on November 11th. An initiative related to this theme is the #BuildingToCOP26 Coalition, a group of business and government organisations that are focused on achieving zero emissions and resilience in the built environment and cities. The Coalition is working to support an interim target of halving the built environment’s emissions by 2030 and an ultimate target of net zero emissions by 2050.
The Coalition is urging both cities and businesses to join the “Race to Zero,” which focuses on achieving zero emissions buildings and infrastructure. The Cities Race to Zero program is in partnership with the C40 Cities initiative, a group of 97 cities around the world pursuing climate action and sustainable urban environments.
EVORA Global are attending COP26 and will be hosting an expert panel discussion on the 11th of November titled “Real Estate Investment and Finance: Climate Risk and Opportunities.” We hope you will join us if you are attending the conference!
What are cities doing to reduce emissions and adapt to the effects of climate change, and how will owners and managers of real assets play a role?
At EVORA Global, we help managers of real assets – including real estate and infrastructure – understand their climate risks, reduce their greenhouse gas emissions, and make their portfolios more resilient. Real assets managers can play a crucial role in the cities and communities in which they operate by mitigating climate change and providing safer, healthier, and more resilient buildings for occupiers.
Of course, buildings don’t exist in a vacuum. Urban properties interact with and rely on the services and infrastructure of the city around them. A highly resilient office building in a coastal city might be back up and running the day after a hurricane, but it will still face risks to rental demand and asset value if residents in the area are dealing with frequent evacuations and homes are losing insurance coverage.
It’s becoming increasingly important for real estate investors to scrutinize cities’ adaptive capacity, just as they have traditionally examined economic and demographic data in their target investment markets. Credit rating agencies have begun incorporating climate-related factors into their government bond rating systems, which may provide insightful metrics and research. A city’s political will and financial backing may determine whether it will remain habitable over the course of the century. Tokyo, for example, faced significant physical risks long before human-induced climate change. Although it’s well-adapted today (check out the incredible underground tunnel system that protects the city from flooding), massive investments will need to be made to improve those protections as climate risks worsen over time.
Cities are also establishing their own regulations and incentives to drive the built environment toward Net Zero Carbon, particularly in the United States where there is still a lack of strong national climate policy. New York City’s Local Law 97 sets energy efficiency and greenhouse gas emission limits for buildings starting in 2024 and intensifying in 2030. Just this month, the City of Boston signed into law the Building Emissions Reduction and Disclosure Ordinance (BERDO), which sets gradually decreasing carbon targets for existing buildings. Other local policies target specific technologies, such as energy efficient lighting, sub-metering, and electric heat pumps. Real estate managers, particularly those with geographically diverse portfolios, face a big challenge in staying on top of these emerging regulations and ensuring their assets comply.
There are many elements of urban planning and management that are critical to reducing emissions, including the provision of electricity and heating, urban water systems, urban waste management, transportation systems, and protection of green spaces and biodiversity. Each element may also be vulnerable to the physical impacts of climate change, so adaptation must be a part of all urban planning decisions. Climate mitigation and adaptation are therefore two sides of the same coin.
The urban built environment can either help or hinder the journey toward climate resilience, depending on the choices we make. COP26 serves as (yet another) urgent call to action for both governments and the private sector to work together to transition to a net zero carbon world. How will you respond?
 Rosenzweig, C., Solecki, W., Romero-Lankao, P., Mehrotra, S., Dhakal, S., & Ali Ibrahim, S. (Eds.). (2018). Climate Change and Cities: Second Assessment Report of the Urban Climate Change Research Network. Cambridge University Press.