Climate Resilience: Why we should care

Climate Resilience has been the buzzword in the market for some time, but what does it mean and why should you care?

Climate Resilience is ‘the capacity of companies and funds to survive and thrive in the face of social and environmental shocks and stressors’ [GRESB]. By shocks, we mean short term acute events like fires and floods. Stressors are the longer-term chronic vulnerabilities such as increasing heat days and precipitation levels.

Why should we care?

The need to disclose climate resilience is not going to go away. Momentum is building globally for companies to identify, manage and disclose their climate risks and opportunities.

Investor demand

You only need to open a paper, watch the news or even look on the streets to see that climate action is gaining momentum. The public and society as a whole are becoming more literate and conscientious about the issue and this, in turn, is influencing the investment community.

As the effects of climate change on economic activity become more significant, there is increasing demand from investors, trustees and other fiduciaries for consistent, comparable, actionable information in company reports. Investors increasingly expect Boards and Executives to actively assess and respond to climate risks.

In May 2017, a shareholder resolution at Exxon Mobil called on management to produce a report detailing the implications of a 2 degree scenario and received 62% support[1]. This, along with similar results at other oil and gas companies’ AGMs, signals that the majority of investors in the world’s biggest fossil fuel producers see value in having this information. This is likely to extend to the real estate sector as the climate change agenda continues to gather momentum.

Physical risk

35% of REIT properties globally are geographically exposed to climate hazards, including inland flooding (17%), typhoons or hurricanes (12%), and coastal flooding and sea-level rise (6%)[2]. Investment managers and investors for directly held assets currently use insurance as their primary means of protection against extreme weather and climate events. However, insurance will cover damages from catastrophic events; it will not cover higher capital expenditure and operational costs and loss in value from a reduction in the asset’s liquidity.

Litigation risk

A pattern is emerging of activist shareholders filing resolutions against corporations, particularly major energy companies, demanding increased transparency surround climate change risks and company policy [Norton Rose]. For example, in Australia in 2018, 23 year old Mark McVeigh filed legal action against Retail Employees Superannuation Pty Ltd (REST), seeking information regarding what the trustees know about the impact climate change will have on its investments and what they are doing in response to this knowledge.

Fiduciary responsibility

A fiduciary duty is a requirement that informs investment and management practice in a similar manner to aspects such as costs and investment returns. A failure to take account of ESG issues could be seen as a breach of their fiduciary duties. Fiduciaries, therefore, need to show they have identified and assessed the risks to companies and to their portfolios.

Increasing disclosure on climate resilience

The driving force behind more effective disclosure in climate resilience is the TCFD – the Taskforce on Climate-related Financial Disclosure. TCFD is a global voluntary disclosure framework launched in mid-June 2017 to allow organizations to identify the climate risks and opportunities they expect to face, and ultimately to disclose the financial impact of these in their annual reports. As of May 2019, 648 organizations have shown formal support for the TCFD, including 118 asset management organizations.

TCFD is a global voluntary disclosure framework launched in mid-June 2017 to allow organizations to identify the climate risks and opportunities they expect to face, and ultimately to disclose the financial impact of these in their annual reports

Stockland an Australian Securities Exchange (ASX) 50 organization and Australia’s largest diversified property group, has been an early adopter of disclosure in alignment with the TCFD framework. Stockland has been identifying risks and opportunities relating to the impact of climate change for over a decade. The business response to these is guided by a Climate Change Adaptation Plan which is regularly reviewed, and a detailed Climate Adaptation Strategy, as well as business unit sustainability strategies. Whilst Stockland did not disclose the actual or potential financial impact of their identified climate risk and opportunities (which is of specific interest to investors), in February 2018, the organization lodged “Stockland’s Climate-related Financial Disclosures” on the ASX as part of their half-year reporting suite. This made Stockland the first Australian property company to disclose its climate risks and opportunities to the ASX in accordance with the Task Force recommendations.

In 2018 GRESB launched the Resilience Module within which the Climate Resilience Indicators are aligned to the four pillars of the TCFD framework, namely Governance, Risk Management, Strategy and Performance Metrics and Targets. The Resilience Module was unscored in 2019 but is expected to be integrated into the wider GRESB framework in 2020.

What next?

It is now widely considered industry best practice that organizations should consider climate change in the context of their strategic and operational risk management. As a first step, organizations should conduct a gap analysis against the TCFD reporting framework with a view to identifying and addressing the gaps across the Governance, Risk Management, Strategy and Performance Metrics and Targets pillars.

If you’d like to learn more, please do contact one of our experts.

This article was originally published on GRESB Insights

[1] 2 degrees of separation: Transition risk for oil & gas in a low carbon world – Carbon Tracker; UN PRI [page 11]


Trends and expectations for sustainable real assets in 2019: Taking Climate Resilience Mainstream

Climate resilience has emerged as a key field of practice; however, a concern is that thinking and knowledge of this topic, and most importantly actions are not progressing quickly or purposefully enough for real estate managers to adequately prepare their assets for the potentially perilous shocks and stresses caused by climate change.

Resilience is becoming a major consideration for businesses, with impacts on insurance, valuation and rents already starting to show in many countries.

The impact of climate change has vast implications across societal, economic and environmental realms. Building managers and owners have unique responsibilities as stewards of essential economic and social assets. The well-being of communities and economies significantly depends on access to reliable working assets. Consequently, we believe that planning for and adapting to climate change is not only prudent but essential.

Below, we identify five key reasons for integrating climate resilience into asset management and investment planning decision-making.

  1. Increasing performance reliability – Assets capable of operating during climate crises will exhibit greater long-term return predictability.
  2. Sustaining and increasing asset value – Value will be protected for assets that are not significantly affected operationally by climate-related events, or that do not need significant capital expenditure after such events (when other assets may be experiencing downtime). There may also be opportunities for operational cost reductions through efficiency and resiliency gains.
  3. Identification of future opportunities – Demand for resilient assets is likely to increase. Investors are exhibiting increasing interest and understanding in climate resilient assets, particularly in sensitive areas. Investors are mindful of the economic consequences of disruptions and emphasising reliability and resilience is central to their requirements.
  4. Growing trust – Assets are designed to provide effective services throughout times of peak demand/need. Assets that operate most effectively during times of climate disruption are therefore likely to generate increased trust from tenants and other key stakeholders and thus retain financial, economic and societal value over the long term.
  5. Increasing influence – Investors who lead the evaluation and adaptation of assets and demonstrate the thoughtful performance of fiduciary duties are likely to have a more respected voice within policy discussions.


As mentioned above, resilience has emerged as an important topic. Whilst there is a long way to go, progress has been made. Some communities and assets around the world are embracing plans to be resilient to what the future will bring — and what the present is already delivering.

We identify five key marks of progress in the practice of resilience:

  1. The knowledge base on resilience is expanding
  2. Tools supporting resilience are increasingly available, yet remain difficult to select and use
  3. Science and practice are increasingly working together, but more collaboration is needed
  4. Resilience mandates are emerging in some countries and cities
  5. Funding from philanthropy and government has been crucial in field growth.

So, what should real estate companies do?

Consistent with our belief that investors need to deal with the risks of climate change as a practical issue now, rather than put it off into the distant future, we encourage a systematic assessment of the vulnerability of assets to climate risk, ideally by utilising an analytical modelling framework. This will enable the identification of risks, assessment of materiality and provide guidance to investing, considering the need for climate resilience in assets, new investment opportunities and the broader business plan.

Given the relatively short timeframes during which an investor might own a particular asset, a common attitude is that climate risk is of low priority for evaluation. However, by evaluating whether assets are vulnerable to business disruption due to the impacts of climate change, investors may be able to implement resilience measures that positively increase an asset’s valuation.

Modelling future climate and risk scenarios can assist climate due diligence by enabling consideration of how the asset may fair against risks posed by tomorrow’s climate and not just todays.

We advise a process for evaluating climate risks:

  1. At portfolio level to:
    – Identify relevant geographic climate risks
    – Score and map assets in the portfolio based on criticality and vulnerability
    – Prioritise climate risk mitigations in accordance with ratings
  2. At asset level to:
    – Evaluate key climate risks and their relative impacts on a physical assets condition, operational capacity, and for regulatory implications (fines, penalties)
    – This can then support development of a mitigation strategy which develops action plans based on highest value risk mitigation options per vulnerability reductions

Our conclusions

The cost difference between being pro-active now compared to being reactive in the future will be significant. Early actions have the potential to reduce losses in the short term as well as create significant value by enhancing the resilience of assets in the long term. Forward thinking investors alert to the implications of climate change can integrate adaptive strategies. This will avoid being caught off guard by climate shocks and incurring large remedial costs that could severely disrupt investment returns.

The real estate industry will adapt further as the resilience discipline itself evolves. Best practice is not universal across the sector, and the science and our ability to devise innovative solutions is constantly evolving. As we move through 2019, we recommend that all real estate firms consider resilience by asking the following questions; What does resilience mean? What risks are faced and how can they be mitigated? Progress towards development of a Resilience Strategy is a true win/win – good for business and good for the planet.

This post was originally posted on GRESB Insights

Paris climate talks – our most significant task for 2015



This year’s almost mythic, defining task is to roll the boulder of a new climate agreement uphill to Paris