The Urban Land Institute (ULI) has launched its Transition Risk Assessment (TRA) Guidelines to help decarbonise the built environment across Europe.
The guidelines, which are part of its C Change programme, offer a common methodology for owners and managers to assess and disclose transition risks as part of property valuations.
They identify 12 existing and future transition risks of material impact to real estate assets, including the cost of decarbonisation, energy costs and tenant voids.
Eight of the transition risks are quantifiable in a discounted cash flow, namely the cost of decarbonisation; energy costs; embodied carbon; obsolence and depreciation; Minimum Energy Performance Standards; carbon price; tenant voids; exit yields.
Four are not quantifiable into a discounted cash flow – reputational risk; access to insurance; access to debt capital; and internal resourcing.
The guidelines also include three standard templates to disclose and report to three key stakeholders: owners or managers, valuation service providers and institutional investors.
Speaking at the ULI Europe Conference in Madrid this week, CEO, Lisette van Doorn explained: ‘These guidelines are the vital underpinning the industry needs to assess and build the business case for decarbonisation across our portfolios. This is not just about the capital expenditure but also about value preservation. We believe these guidelines will help build evidence to better understand the upside of decarbonising such as more resilient assets, lower occupational costs and new income streams.’
Van Doorn added: ‘Our guidelines put us on the path to support the transition of all buildings in urban areas. Cities are complex ecosystems and if we do not remain alert to it, stranding assets will feed into a cycle of urban decline. We owe it to our cities to make this a fair transition to ensure they remain investable and liveable.’
To support adoption, it will be necessary to identify a ‘critical mass’ of industry participants, engage and support the early adoption of these guidelines with these industry influencers and leaders.
ULI will use the guidelines as a basis for the technical specification for Preserve, a smart tool that will be offered for all industry players to help assess transition risks consistently and speed up adoption.
C Change worked with over 75 companies and industry associations to initially develop a set of consultation guidelines, before releasing the final version this week.
