Harnessing TCFD Recommendations required now to mobilise capital for listed real estate to fight climate change

In recent years we have seen investors keen to channel their capital into companies actively managing climate risks increasingly scrutinise the real estate industry over its commitment to reducing carbon emissions. Environmental, Social and Governance (ESG) data disclosure has since become critical to the property industry’s investor relations conversations.
For this reason, we created the EPRA Sustainability Best Practice Recommendations (sBPR) reporting framework in 2011 to give the listed real estate (LRE) sector a set of standards by which property companies could be compared fairly against one another on their ESG performance. The standards have been well received by the industry and investors, and we have seen consistent uptake from our members, who are keen to show their good work in this space.
But, when it comes to reporting climate risk, in particular, and its implication on financial performance, we are seeing an increasing demand for climate-related information from the investment community. As proof of this, the investment community came together to develop Task Force on Climate-related Disclosures (TCFD) Recommendations in 2017. This is critical for anyone advising on or executing information disclosure in the sector.
The growing importance of these metrics cannot be ignored – more than 350 investors with nearly USD 34 trillion in assets under management (AUM) have backed the recommendations, alongside 800 private and public sector companies and 36 central banks and supervisors. Soon, property companies that do not report against these could begin to fall behind.
Yet, the burden of TCFD reporting has been difficult to accommodate for many businesses as climate-related disclosure also requires integration into formal risk management, governance processes and business financial planning. Therefore, EPRA has developed Enhancing Transparency with the TCFD guidance.
this well before and their approach to integrating climate assessment, monitoring and management into business activities. These practices vary to some degree based on an organisation’s specific characteristics, including its size, structure and operating context. Furthermore, this guide, which is primarily focused on disclosure, aims to help companies remodel their existing sBPR reporting to make it fit for purpose for TCFD reporting.
Ultimately, we are trying to enable more our membership, and the wider real estate sector, to comply with the TCFD recommendations in the most efficient way possible. A more transparent sector is a more attractive sector to investors, and a more comparable landscape can only lead to increasingly impactful ESG and climate action in listed real estate. A more common implementation of TCFD reporting can be a key driver in this, and so uptake is extremely important.
The very fact that TCFD recommendations were developed demonstrates that the investment community was abundantly aware of the risks posed by climate change a long time ago. Investors have shown they want to be able to assess companies’ climate-related governance, strategy, risk and metrics since this is what allows them to better understand the risk associated with their investments.
Implementing the recommendations, therefore, allows real estate players to show they are in a position to respond and manage climate risks in the short, medium and long term. It is a critical step in making the sector more attractive to long-term investors and more competitive as an asset class.
The current COVID-19 crisis has only served to elevate the importance of sustainability commitments. On the one hand, it’s clear that both this pandemic and climate change have their roots in the world’s current economic model; on the other, this crisis demonstrates that quick and sweeping actions are possible. Governments, international institutions and businesses have to urgently play their part in the fight against climate change.
And for the listed real estate sector, large-scale mobilisation of capital is necessary in order to transition to a low-carbon future. Yet only the disclosure of transparent and consistent information on climate-related risks and opportunities will drive this capital into the sector. This is not a compliance issue but a critical operational imperative.
Considering the ongoing economic uncertainty as a result of COVID-19, the need for new capital may be greater than ever as the industry considers if and how it must adapt to a society undergoing great change. Much of the continent is currently experiencing a significant economic downturn, so the commercial property industry’s role in promoting growth is vital. We cannot, therefore, see improving the transparency of reporting and the sector’s recovery and growth as independent of one another. The former will be essential to the latter.
It is important, however, that companies take a long-term view when it comes to adopting the TCFD recommendations. Companies must look to integrate climate risks and opportunities into their business strategy, and the reporting process can be foundational in this. This means investing in the appropriate resource to ensure that reporting is prioritised and done properly.
Climate change and related risks will be at the forefront of investors thinking for many years to come. Through this guidance, we can help build a common way for the sector to report on climate-related issues that can demonstrate the true value of the listed real estate industry during times of change.