Climate change could dramatically alter the value of real estate investments.
And that goes for real estate investment trusts, companies that own income-producing real estate, if they do not shift their investment strategies to address growing risks, industry experts say.
A 2018 report found that 35% of REIT properties have geographic exposure to climate hazards, including inland flooding, typhoons or hurricanes, and coastal flooding and elevated sea levels. The research evaluated 73,500 properties owned by 321 REITs.
The report, which was published by climate analytics firm Four Twenty Seven and real estate technology company GeoPhy, did not take into account what the properties were doing to address those threats.
“I see elevated risk when it comes to REITs that might be overexposed in areas that are close to sea level and coastal,” said Andre Shepley, product manager and research team leader at Truvalue Labs, a provider of sustainability data analytics.
But for individuals who want to invest in REITs with climate risks in mind, there’s good news: Environmental, social and governance, or ESG, investment strategies in this sector are growing.
The number of property funds and REITs that use ESG strategies climbed to 108 in 2018, with $272.4 billion in assets, according to US SIF: The Forum for Sustainable and Responsible Investment, an advocacy organization. That is up from 30 strategies and $24.4 billion in assets in 2010.
“We’re seeing fast growth in that specific segment over eight years,” said Meg Voorhes, director of research at US SIF.
Still, that asset growth is not as strong as private equity and venture capital sectors have seen in that time, Voorhes said.
The top ESG criteria that those strategies were looking for in 2018 included governance; climate change and carbon; community relations and philanthropy; pollution and toxics; and green building and smart growth, according to US SIF.
“Getting more investors investing on a sustainable basis will encourage more companies to adopt more responsible behaviors,” said Sam Adams, CEO and co-founder of Vert Asset Management, an ESG asset manager.
“That’s the mission: Make sustainable investing easier so that more money moves into sustainability and public companies are encouraged to adopt ESG practices,” Adams said.
For investors who are looking to incorporate sustainable REITs into their portfolios, there are new developments popping up to help make that easier.
In December, global index, data and analytics provider FTSE Russell launched indexes aimed at helping investors assess climate risk in their real estate portfolios.
The FTSE EPRA Nareit Green Indexes were created to provide a sustainable extension to the FTSE EPRA Nareit Real Estate Index Series.
So far, one index has launched, but there are plans to expand to a number of strategies, according to Tony Campos, head of ESG, Americas at FTSE Russell
Source: By Lorie Konish, CNBC