ULI: Investors Can Leverage Climate Risk Disclosure Data

(Cover image courtesy ULI)

The Urban Land Institute, Washington, D.C., said investors can leverage the data resulting from government regulations that require real estate companies to disclose climate-related risks related to their properties and overall business models.

In a new report produced in partnership with Heitman, Chicago, ULI said real estate investors can use these climate disclosures to optimize their portfolios and best position themselves in the market.

Change is Coming: Climate-Risk Disclosures and Their Implications for Property Owners draws on interviews with real estate investors, asset managers and analysts. Interviewees reported that 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. Conversely, such information can help them direct their capital toward more sustainable and resilient investment funds with assets that are sufficiently hedged against climate risk.

“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.”

Laura Craft, global head of portfolio sustainability strategies with Heitman, noted climate risk disclosures provide a lens through which investors can evaluate the long-term viability and value of their real estate portfolios. “By leveraging this data, investors can proactively navigate regulatory changes, identify potential stranded assets and allocate capital toward sustainable, climate-resilient investments,” she said. “It’s not just about mitigating risk; it’s about identifying the investments positioned for the future.”

In detailing the potential for climate disclosure data to benefit investors, the report offers several key observations, including:

-Regulatory oversight. Until recently, real estate companies only disclosed climate risk voluntarily. In some cases, outside analysts offered their assessment of a business’s climate risk, despite having limited knowledge of its true risk profile. Mandatory reporting will provide investors with far more transparent, verifiable, and standardized data across the entire real estate sector.

-Enhancing comparability. Standardized data disclosure will allow investors to compare risk data more easily from different companies in order to optimize their investment decisions, rather than having to rely on the inconsistent reporting mechanisms that have long been the norm.

-Maximizing impact. Required disclosure means that companies will have to detail how they can mitigate the physical risks facing vulnerable properties and the business risks associated with transitioning to a low-carbon economy, such as carbon taxes and rising insurance costs. Consequently, investors will have the opportunity to allocate their capital toward businesses with the best strategies for helping the real estate industry address climate change.

The report also details specific measures investment managers can take to make their portfolios attractive to potential investors. Key strategies include closely tracking asset-level carbon emissions, providing a comprehensive review of a fund’s aggregate climate risk, and staying proactively informed about changes to the regulatory landscape.