Climate-induced financial risk

For the larger investors within real estate, the impact of climate change has become more based around the resilience of the location of assets, as a result of the physical risk of environmental incidents, in addition to the buildings themselves.

When we look at the change in building performance in relationship to a typical net zero plan, we can see the huge positive impact in terms of cost and risk reduction. At today's prices, carbon reduction can be bought at virtually no cost by switching to ‘green electricity’ via REGO backed supply contracts. Even offsetting all remaining emissions can look like a simple, low cost option with cost ranging 0.5%-4% of utility spend for a typical office building but the demand for such solutions is predicted to increase dramatically in the mid to later stages of the decade as Net Zero commitments start having to be realised.

In addition, to compound the situation yet further the true situation regarding the low cost REGO contracts will become too big to hide. Currently all suppliers have to do is buy surplus REGOs from suppliers who have already used this power to supply their customers. It’s not much more than an accounting trick and hides the reality that some customers aren’t getting what they think they’re paying for. It’s a loophole, and an incredibly cheap one at that (the current price for a REGO is ~£0.35/MWh) a market correction will leave a big hole in Net Zero budgets for those CRE stakeholders who haven’t maximised energy performance and locked in long term transparent REGO’s or PPA’s.