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How the SEC’s Mandatory Climate Disclosure Will Impact Real Estate

Measurabl customers are well-positioned to meet the proposed requirements

A significant and long-anticipated announcement from the Securities and Exchange Commission (SEC) landed on Monday March 21st: ambitious, far-reaching climate disclosure rules have been proposed. The new rules, or whatever portion of them that survives public comment, will have significant impacts for publicly traded REITs and knock-on effects for private real estate funds.

Briefly, the SEC has proposed that public companies disclose climate-related information in their registration statements and periodic reports (10-K). The most important requirements relate to carbon emissions and physical climate risk exposure. In addition to simply reporting these details, the SEC also expects companies to describe how they’re actively managing the associated risks. 

“Investors increasingly want to understand the climate risks of the companies whose stock they own or might buy,” Gary Gensler, chairman of the SEC, said in a July 2021 speech. “Investors are looking for consistent, comparable, and decision-useful disclosures so they can put their money in companies that fit their needs,” he continued.

Implications for Real Estate

The most important thing about the SEC rules is that, taken with existing European regulation like SFDR (Sustainable Finance Disclosure Regulation) and the EU Taxonomy, they yank the world’s two largest real estate markets (US and Europe) into a regulated ESG reality. The era of voluntary disclosures based on arbitrary standards and self-defined approaches will quickly fade away. Market participants will now look to a smaller, legally binding set of prescriptions about what to disclose, when and how.

Sitting behind the sea change of a regulated ESG Era are multiple knock-on effects. One is that the credibility and veracity of data underlying ESG disclosures becomes paramount. This means the broader proptech trend sweeping real estate will be called upon to provide sophisticated, scalable, compliance-grade technologies for ESG accounting. 

Another knock-on effect is that the ESG data surfaced while seeking to become compliant with regulation will be used as a competitive set of information at every level of the real estate business from leasing to buy/sell and capital formation. In other words, the lease will become the “green” lease, the building the “green” building, the loan the “green” loan, and the bond the “green” bond. 

Most critically, “green” will become objective—every building on the planet can and should be placed on a spectrum in terms of its sustainability performance based on measurable, transparent data. This reduces the need to rely on static proxies, like green building certifications. Instead, the industry can underwrite deals based on specific metrics tracked in near real time like Energy Use Intensity (EUI) and Carbon Intensity.

How to Prepare

This latest move by the SEC is no surprise to most real estate stakeholders. The pursuit of more and more granular ESG data is a well-documented trend going back nearly 20 years. 

Europe has led the charge with emerging regulatory frameworks like TCFD (Task Force on Climate-Related Financial Disclosures), SDFR, and ECORE (ESG Circle of Real Estate). In the US, increased ESG disclosure has been demanded mainly by investors, although local ordinances like New York City’s Local Law 97 are starting to affect assets located in major metropolitan areas. 

Though the SEC legislation is great news for environmental advocates, businesses don’t typically welcome stricter regulations with open arms. Commercial real estate owners, investors, and lenders may be particularly apprehensive about having to report granular climate data from disparate sources across multiple assets in their CRE portfolios. 

Those who have already digitized their ESG tracking, accounting, and disclosure processes are in good shape relative to companies still using bespoke or manual processes. If you are not already automating ESG, here are the most important pieces to focus on immediately:

Measurabl’s PCRX solution
  • Monitor and mitigate climate risk. In 2020, Measurabl introduced PCRX, integrating global physical climate risk data into our ESG platform to help our customers understand their risks. Starting this month, thanks to an additional integration with S&P Global, PCRX customers can view physical climate risks affecting their assets across three climate scenarios, three time frames, and seven risk categories. 
  • Act on climate risk data. In November, Measurabl added Climate Resilience Services, giving customers the option to connect with climate risk experts to help them leverage data from PCRX, determine the costs of those risks, and provide personalized recommendations and estimated costs of risk mitigation projects, such as flood barriers and green roofs. 
  • Track progress toward targets. Improving ESG performance is a never-ending process for real estate owners—there is always progress to be made, and it’s crucial to understand how your efforts and investments are helping you reach incremental goals. Measurabl has enabled users to set and track carbon emissions, energy, water, and waste diversion targets since 2019, allowing customers to easily report progress to investors and regulators. 
  • Report investment grade data on demand. Automating utility data and removing the human error associated with manual processes was just the beginning. Along the way we instituted automated data checks, data completeness, data assurance, and other features that give customers access to information that is truly investment grade. Customers can export this data on demand in multiple formats, giving them the flexibility to report to multiple frameworks. 

Throughout this year, Measurabl will continue to introduce new features focused on helping customers act on ESG data and decarbonize their portfolios, completing our vision of a truly meter to market product. 

Measurabl was founded on the idea that readily accessible ESG data on material indicators like carbon emissions and physical climate risk can create a more sustainable built environment. However, without proper regulation and standards for climate-related disclosure, ESG would stumble and ultimately stall out like its predecessor, the Green movement. 

If passed, the SEC legislation on climate risk disclosures will be a bold step toward regulating an area that has largely remained unregulated for too long. Measurabl customers are well positioned to meet the proposed rules, and we look forward to finding even more ways to help the real estate industry report and act on building- and portfolio-level data.

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