CRE Investors Warming Up To ESG Considerations

Commercial real estate players across the U.S. are increasingly adopting climate risk measures and climate-related intelligence in investment decision-making, and a growing number of climate analytics-focused startups and consulting agencies are targeting CRE companies, according to Commercial Observer.

CRE has long lamented the cost hurdles associated with more eco-friendly buildings, but as climate change threatens bottom lines, investors are assessing the risks associated and adapting accordingly.

The trend of investing in line with certain environmental, social and governance priorities is increasingly common in the business world, with organizations like Business Roundtable releasing statements in favor of climate considerations in investment.

“The most sophisticated lenders, as well as the [government-sponsored enterprises] are now evaluating their entire mortgage portfolio for all the risks that they used to evaluate on an ongoing basis from a risk management perspective, plus climate risk that matches the duration of the loan,” Rich Sorkin, CEO of climate intelligence platform Jupiter, told Commercial Observer.

Sorkin added that lenders aren't typically accounting for climate risks and the related economic environment when it comes to pricing loans or refinancing, but that will likely change a decade from now.

Some developers such as Presidio Bay are opting out of more vulnerable climate environments altogether, such as Florida.

“I’m not particularly interested in developing Florida,” Presidio Bay Managing Director K. Cyrus Sanandaji told Commercial Observer. “Because if we’re talking about 6 to 9 feet of sea level rise, almost that whole state is gone.”

Meanwhile, Florida Gov. Ron DeSantis doubled down on his efforts to combat ESG initiatives in the Sunshine State, proposing legislation that would ban the Florida State Board of Administration from using managers that consider ESG when investing state funds, according to Seeking Alpha.

Increasingly, however, mandates related to emissions reductions in commercial buildings are leading to a growing cottage industry of sustainability consultants for CRE.

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