Translating Climate Goals Into Action In Real Estate Portfolios

The MSCI Real Estate Climate Value-at-Risk (‘VaR’) measure is a means of identifying a path towards net-zero carbon emissions across a variety of properties and portfolios. The measure estimates the potential valuation impact on real estate portfolios attributable to future expected costs of carbon-emission reduction.

The Climate VaR tool plots Portfolio Climate VaR, Property/Project-Level Climate VaR, Carbon-Reduction Requirements (t CO2 /yr) against Floor Space per-square-meter (‘psm’), Capital-Value (weight), Capital-Value (psm), Energy Intensity, Emissions Intensity and Carbon Emissions to establish a transition pathway towards net-zero carbon emissions.

MSCI finds that most energy-intensive assets are not necessarily the most emission-intensive depending on the mix of renewable energy and economic significance of mitigation costs varies by current carbon-emission intensities.

A simulated portfolio has an aggregate Climate VaR of -6.4% in a scenario where global temperature increase remains under 1.5°C by the year 2100. Property-level contribution to aggregate portfolio risk is reflected in sample properties where mitigating actions, e.g. cleaner mix of energy, can be explored for each.