Climate risk regulations can benefit real estate investors, report says

Increasing regulation of climate risk reporting will aid real estate investors decision-making, claims a report from The Urban Land Institute and Heitman.

Entitled Change is Coming: Climate-Risk Disclosures and Their Implications for Property Owners, the report shows how investors can use data resulting from government regulations requiring real estate companies to disclose climate-related risks.

Investors and other market participants interviewed for the report say more accurate risk information could help them avoid investing in stranded assets, whose value will depreciate due to damage from adverse weather events or an inability to comply with new climate regulations. 

“Governments and investors alike recognize that climate risk is financial risk," said Lindsay Brugger, head of urban resilience at ULI. "New regulations are proliferating across the globe and offer new data sets for enhanced investment decision-making. Investment managers will need to stay ahead of these rules for success in a rapidly evolving global market."

"Climate risk disclosures provide a crucial lens through which investors can evaluate the long-term viability and value of their real estate portfolios,” said Laura Craft, global head of portfolio sustainability strategies at Heitman. 

“By leveraging this data, investors can proactively navigate regulatory changes, identify potential stranded assets, and allocate capital towards sustainable, climate-resilient investments. It's not just about mitigating risk; it's about identifying the investments positioned for the future."

More regulation of climate risk disclosure will produce a number of benefits, the report argues, such as standardising reporting and allowing investors to allocate their capital toward the best strategies for addressing climate change.

The report also details measures investment managers can take to make their portfolios attractive to potential investors, such as tracking asset-level carbon emissions, providing a comprehensive review of a fund's aggregate climate risk, and staying informed about regulatory changes.