Scrutinising the physical risks of climate change that real estate portfolios are exposed to can uncover new opportunities as well as reduce risk, participants at the ULI Europe conference in Amsterdam heard on Wednesday.
Maarten Jennen, senior director for private real estate at PGGM, said the Dutch pension fund manager had developed a climate risk assessment process for its global real estate investments with Munich Re, and the work had revealed investment opportunities.
“It’s natural to start [the analysis] with those positions we already have, but there are a lot of places that have lower risk,” which had not been incorporated into prices yet, he said.
“A lot of economic activity happens at the seaside, and if that’s going to change, there will be more scarcity of good property so that could be a good opportunity,” Jennen said.
Explaining how the analysis project began, he said: “There’s a lot of awareness about climate change, but having awareness doesn’t improve your portfolio, so what we’ve done is to roll up our sleeves and take action.”
PGGM decided to join forces with German insurer Munich Re as it was necessary to work with a party that had the necessary models and scientific research, and its own incentive to get them right.
“Their business can only exist by looking at climate risk,” said Jennen.
The exercise had resulted in PGGM geocoding all 4,000 of its real estate assets, providing information about the precise location of every single one.
“I think we will eventually expand our cooperation partnership with Munich Re,” Jennen said.
Dirk Brounen, professor of real estate at Tilburg University, said last month’s announcement by asset management giant BlackRock that it would make sustainability central to its investment approach, would have a significant impact on the way real estate was managed.
“Climate risk will become really material for your property manager… people like BlackRock won’t want to invest in you anymore, which will hit your value,” he said.
Brounen told the conference about the Carbon Risk Real Estate Monitor (CRREM) tool which property investors could use to assess the exposure of their assets to climate change.