New Solution Allows CRE Investors to Gauge Climate Risk
From wildfires to hurricanes and rising sea levels, real estate—both residential and commercial—has seen the potential for climate-related risk globally in recent years. MSCI Inc. has launched a new solution to help real estate investors quantify that risk as far as their own portfolios are concerned.
MSCI Real Estate Climate Value-at-Risk (Climate VaR), which follows the launch of MSCI Climate Value-At-Risk in February this year, provides what the company says is a forward-looking and return-based valuation assessment to measure climate-related risks for real estate assets in an investment portfolio.
“By calculating the financial risks from both changing legislation due to climate action (Transition Risk) and the extreme weather impacts caused by climate change (Physical Risk), per real estate asset and per scenario, MSCI Real Estate Climate Value-at-Risk provides a framework for investors—including investment managers, asset owners, banks and insurers—to improve portfolio performance, risk management, regulatory reporting and progress towards broader sustainability goals,” MSCI says.
The framework is closely aligned to the G20’s Financial Stability Board’s Taskforce on Climate-Related Disclosures, according to MSCI.
“Private real estate, as a long-term asset class, is particularly vulnerable to climate-related events,” said Jay McNamara, head of real estate at MSCI. “Our research has shown that the potential impact for real estate investors from climate events is far reaching and spans assets and geographies. Investors could face increased operational costs including property repairs, higher insurance costs, property devaluation and even the complete loss of property.
“As more global investors are increasing allocations to real estate and other private assets, there is a growing need to identify and understand financial risks from climate change and take necessary action for risk management, portfolio performance optimization and regulatory reporting purposes,” he continued.
With the new tool, said Remy Briand, head of ESG at MSCI, “Investors can today gain a fully representative picture of climate risks and opportunities across assets through a methodologically consistent model, with the aim of improving their own investments and empowering them to invest in a way that meaningfully tackles climate change.”
The MSCI Climate VaR was developed from MSCI’s Climate Risk Center in Zurich. The aim of the center is to serve as a focal point for the development of climate change risk analytics and tools, and to forge partnerships with leading academic and research institutions around the world to advance the use of climate science for financial risk analysis.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
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