As IPE Real Assets magazine went to press, the London office was sweltering in a heatwave that broke the UK’s all-time temperature record for June. The forces of climate change seemed to have a sense of irony, as elsewhere in the city, an event titled ‘Extreme Heat: Improving governance and strengthening action around the world’ was cancelled due to extreme heat. It had been planned as part of a series of events taking place across the city as part of London Climate Action Week.
Meanwhile, reports that an El Niño – a weather pattern in the Pacific that can amplify the effects of global warming – has started to form and could develop into an extremely strong one, could mean that worse is yet to come. The prospect of a ‘super’ El Niño is sharpening investor attention on physical climate risk at a time when global temperatures are already amplifying the intensity of extreme weather.
But rather than introducing a new category of risk, a super El Niño intensifies existing vulnerabilities and the impacts could be highly localised. “A severe El Niño event illustrates these shortcomings clearly,” says Rémy Estran-Fraioli, CEO of Scientific Climate Ratings. “While El Niño is a global climate phenomenon, its financial impacts are transmitted through highly localised physical hazards, including coastal flooding in Peru and Ecuador, drought and wildfire risk in Indonesia and Australia, and associated disruption to critical systems.”
The building where the extreme heat event in London was due to be held was reportedly not set up to deal with the level of heat that arose during Climate Action Week. The need to refurbish and decarbonise real estate across London, the UK and indeed globally has been on the agenda for institutional investors for years, but the reality of climate change is now starting to provide tangible reminders. Real estate investors and fund managers are increasingly being judged not on the ambition of their net-zero targets but on their ability to deliver measurable results. Where they once competed to publish decarbonisation roadmaps, they are increasingly being asked to demonstrate how those plans translate into lower emissions, more energy-efficient buildings and stronger financial performance.
But real estate investors are not only under pressure to deliver on decarbonisation and energy efficiency; biodiversity and nature impacts are also under the spotlight. And they are arguably more challenging. “There are simple, clear measures for carbon emissions and they are easy to understand. Biodiversity is only really at the beginning of that journey,” says Sylvain Montcouquiol, chief resources and sustainability officer at Unibail-Rodamco-Westfield.
His views form part of our special report which looks at the various ways in which the risks of climate and nature are becoming intertwined. “There is growing consensus that climate change and nature loss are interconnected systemic risks,” says Sanne van Gorp, strategic policy advisor at Dutch pension fund investment manager PGGM.
Interconnectedness of nature and climate is particularly stark in the area of renewables, where the construction of clean energy infrastructure can lead to negative impacts on wildlife and the environment, creating difficult tension for sustainability-minded investors. We ask: how nature-friendly is clean energy?
Richard Lowe, Editor-in-chief
