In recent years, climate due diligence has taken center stage in navigating the complex landscape of climate regulations, which can be daunting for real estate investors who need to understand the various rules and how they affect their investments.
But people often overlook the fact that the key aspect of successful climate due diligence—or any type of due diligence—lies in data, both its quality and quantity. Whether it’s local regulations, physical climate risk exposure, or carbon footprint, if the data is inadequate or of poor quality, it sets off a domino effect: you lack the necessary information to make informed decisions and struggle to meet regulatory requirements, until ultimately, your bottom line takes a fall.
“Accurate, timely environmental performance data at scale is essential for markets to price ESG risk into real estate transactions and ultimately build a more effective, efficient market,” says Gregory Michaud, head of real estate finance at Voya Investment Management.
Climate due diligence involves assessing the risks before making a decision. When expanding your portfolio, conducting due diligence for new investments allows you to understand the venture upfront—this empowers you to be proactive with compliance. Thankfully, ESG software like Measurabl can help real estate leaders make better decisions about their investments within a rapidly changing regulatory environment.
Measurabl’s Climate Due Diligence Scan (CDDS) is a cutting-edge product that enables investors to assess a property’s climate risk with granular, on-demand data. By providing just four property attributes—address, type, floor area, and year built—stakeholders can identify environmental regulations, among other factors, that might impact their investments, enabling them to mitigate risks and make sound financial decisions.
This blog article is the first of a series on climate due diligence, explaining why real estate stakeholders should prepare for climate risks that significantly impact their investments, and how CDDS can help mitigate them.
Why Proactive Compliance Matters
Regulatory risk is a type of financial risk that emerges when governments impose fines for non-compliance with ordinances. Several cities have already enacted regulations that limit greenhouse gas emissions from real estate properties.
For example, Local Law 97 in NYC and Boston’s Building Emissions Reduction and Disclosure Ordinance (BERDO) set greenhouse gas emissions limits for large buildings. These regulations apply to buildings larger than 25,000 and 20,000 square feet, respectively. Failing to meet the emissions limits will result in significant financial penalties, creating a strong incentive for building owners and managers to improve energy efficiency and reduce emissions.
Other cities, such as Denver, Los Angeles, and San Francisco, are also considering similar regulations to promote sustainability and resilience in the face of climate change.
Climate change regulations are becoming increasingly stringent. By proactively complying with climate change regulations, real estate companies can reduce their exposure to financial risk, avoid potential penalties, and protect the value of their investments to ensure long-term profitability.
Measurabl’s CDDS, for example, provides visibility into local regulations, allowing investors, insurers, and asset managers to better understand the laws and regulations that apply to specific properties. This deeper level of insight will enable them to ensure compliance and avoid potential legal issues or penalties.
Moreover, real estate stakeholders who prioritize proactive compliance may attract environmentally conscious investors and tenants who value sustainability, enhancing the property’s value while helping them stay ahead of evolving regulations.
This is where Measurabl’s Climate Due Diligence Scan brings additional value.
Beyond Financial Penalties: Seizing Opportunities with Due Diligence
Regulatory compliance is often grouped with the absence of immediate financial penalties, and that’s a fair point. However, the benefits of doing your due diligence goes beyond avoiding a mere fine.
In Europe, negotiations are already underway on the Corporate Sustainability Due Diligence Directive, a new legislation to ensure companies consider the impact of climate change in their business decisions.
Due diligence is key to managing a firm’s financial performance and reputation. By evaluating an asset’s carbon emissions and resource consumption, you’ll reveal opportunities for innovation, product development, and market positioning.
For instance, real estate due diligence could help you reuse or repurpose existing properties for urban revitalization, or explore smart technologies to enhance efficiency, optimize resource usage, and improve tenant experiences.
To empower real estate players to make more profitable investments, CDDS leverages Measurabl’s best-in-class, machine-learning model, powered by a database of over 15 billion square feet (1.4 billion square meters) of real estate worldwide. Additionally, CDDS incorporates trusted physical climate risk data from S&P Global Sustainable1 to provide a comprehensive view of the risks and opportunities associated with a property’s environmental performance.
CDDS can be used in various ways, such as evaluating a property’s climate risk before deciding on loan and mortgage terms, assessing property insurance premiums and policies with climate risk and regulations in mind, or getting visibility into a property’s climate risk before adding it to a portfolio during acquisition due diligence—all aiding an organization’s corporate governance efforts.
As the world evolves to proactively address climate change, real estate leaders should do the same to remain competitive. With the right platform, you can view any asset’s environmental performance and gain visibility into your investment opportunities, ultimately deciding which ones are worth pursuing.
This is the first blog in our series about Measurabl’s Climate Due Diligence Scan. For more about CDDS, check out the rest of the series: