Navigating climate risk: Insights from commercial real estate institutional investors

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Our team went to the IMN ESG & Decarbonizing Real Estate Forum in Nashville, TN last week to gain insight on the pressing ESG concerns in commercial real estate (CRE) and the actions being taken by the industry to tackle them.

The panel presentation “ESG Management of Risk in Operations & Financial Performance” was particularly impactful as it dove into the pressing matter of understanding and mitigating climate change risks. From unraveling the impact of weather-related events on insurance to climate-resilient assets, and the need for decarbonization audits, this panel left no stone unturned in exploring how to address climate risk in the real estate sector.

Three important takeaways from this session are:

Takeaway 1: Institutional investors are focusing on climate-resilient assets

Institutional investors are now recognizing the need to move from merely understanding and assessing climate risks to actively addressing these issues. From the discussion, it emerged that these risks, which include both physical and operational risks, as well as transitional risks, are a key focus of their investment strategies. 

“Climate risk is investment risk. And so, one of our core pillars on our sustainability vision is we focus on climate, people, and influence, and climate properly sits at the core of that,” said Helen Gurfel, Head of Sustainability and Innovation, CBRE Investment Management.

If a property does not address critical climate risks, the costs of capital and operations to mitigate those risks will be considered in the underwriting process and financial performance projections. It also factors into decision-making. Do investors want to invest in a property with a foreseeable long-term potential impairment?

Megan Saunders, Senior Managing Director of ESG, Kayne Anderson Real Estate, added to the discussion, “We’re really trying to project out to the next hold, because at the end of the day, this is about, do we have the ability to sell this asset? And is someone else going to perceive the risk the same way that we are?” 

Takeaway 2: Insurance alone is no longer the answer to managing climate risk

The panelists agreed that until recently insurance was the owners and investors answer to managing climate risk. However, the increasing frequency and intensity of weather-related events mean that this isn’t a strategy that’s going to hold true for the coming decades. The panelists highlighted the need to factor in increases in insurance premiums and the lack of coverage and availability in certain regions.

“I think penciling in these factors and adjusting adaption into our costs and financial analysis is going to be really critical,” said Deb Cloutier, President and Founder of RE Tech Advisors.

The panelists also identified that the different planning horizons for insurance versus real estate investment introduces another layer of risk.

“There is this kind of mismatch. We invest in something for three to 5,10 years versus that you get insurance on an annual basis,” said Helen Gurfel.

Takeaway 3: Decarbonization audits and measures are becoming crucial

The panelists also highlighted the importance of decarbonization audits and measures in ensuring climate resilience and meeting sustainability goals. They shared that such measures were increasingly being integrated into underwriting and asset-level planning.

“We have strategies with net zero commitments. And for those we are doing deep decarbonization studies,” Megan Saunders explained. “So, when we’re either acquiring or building an asset, we’re doing energy models and audits and then actually putting them in the underwriting to say will this building – based on what we’ve seen – achieve net zero? If not, we model out the different energy efficiency measures till we get there and the underwriting matches.” 


Building owners must move from understanding and assessing climate risk, to acting on it to create assets that are well positioned for refinancing and sale. Cortex pairs machine learning with a team of energy experts, to help building owners achieve their goals of reducing energy use and costs, while also contributing to lower emissions and creating more valuable assets.

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