Member Profile: Christopher Wright
IQ recently caught up with Christopher Wright of NBIM, Chair of the INREV ESG Committee, a role he has fulfilled for the last three years. In that time, the committee has been involved with many aspects of a field that is unquestionably of growing importance for real estate investors and managers alike.
Among the committee’s many notable achievements over this period, they have been developing a clear set of principles for impact investing, revising INREV’s guidelines for corporate governance and setting a strategy for addressing the challenging area of diversity and inclusion. The last year has also seen INREV run two editions of the over-subscribed ESG course due to high demand, as well as expansion of the global ESG library with additional case studies and best practice information.
Having a clear view of what Net Zero encompasses is clearly crucial in setting out a strategy of how to get there and then implementing it
However, given the evident acceleration of global climate change, Christopher is particularly proud of the work INREV has being doing to help the real estate industry move toward net zero carbon emissions. ‘Investors, tenants, and governments are increasingly asking real estate managers and funds to take responsibility’ he explains, ‘which implies the need to set a path for buildings to be carbon neutral by 2050 in line with the goals of the Paris Agreement. This may sound like a simple idea, but how you define net zero is actually a complex question for real estate, particularly in terms of which types of emissions the building owner is responsible for.’
‘INREV has recently taken an important step in this direction by publishing a paper on Net Zero Carbon. The paper sets the context for real estate vehicles in terms of what should be included in a net zero strategy, why it matters, and how to go about it. ‘Having a clear view of what Net Zero encompasses is clearly crucial in setting out a strategy of how to get there and then implementing it ,’ Christopher continues. ‘This paper on the business case for net zero is just a starting point, and will be followed by a more detailed technical paper on setting the scope and timeline for a strategy through to implementation and monitoring.’
[ad:content] ‘There are strong arguments for taking a ‘whole building’ approach that not only includes the emissions from energy use over which the landlord has full control, but also emissions associated with occupiers,’ he continues. Governments increasingly expect landlords to manage all energy use and emissions associated with building operations, and major occupiers with their own corporate targets will start to favour buildings with low emissions. This is an opportunity for landlords to make buildings more efficient, and more attractive to occupiers, while mitigating risk associated with building regulations.
A critical aspect of a net zero strategy is to establish a pathway for assets and portfolios. This entails measuring energy use and associated emissions at a baseline year, and then charting annual reductions required over a defined time period to achieve net zero. Christopher is helping the market set net zero targets via his involvement with the Carbon Risk Real Estate Monitor (CRREM).
‘CRREM has developed decarbonization pathways for real estate markets and sectors and has the advantages of a strong scientific and academic basis,’ he explains, ‘and it is designed as a public good by being a not-for-profit project with open access to the pathways and the underlying methodology. INREV, and the Dutch pension funds APG, PGGM, were critical early supporters, and my organisation Norges Bank Investment Management (NBIM), joined later and helped fund the expansion of the tool to non-EU markets.
A critical aspect of a net zero strategy is to establish a pathway for assets and portfolios
CRREM has estimated pathways for more than 200 property-type/market combinations, such as UK offices, French residential, and German warehouses, to name a few. Fund managers can pick the pathways relevant for their assets and portfolios, and use them to set and assess progress toward energy and carbon targets, or as risk scenarios for stress-testing. The assumption is that all things equal, an asset overshooting the pathway carries more risk than an asset undershooting the pathway.’
‘An important objective of INREV’s ESG Committee is to contribute to the harmonization of ESG standards across markets’, says Christopher. INREV has worked with CRREM to ensure that the data used matches what is commonly measured by the industry. There is also alignment between input data to CRREM and asset information being built into INREV’s Asset Level Index.
The current CRREM pathways are designed to cover operational energy and carbon in buildings, reflecting the risk posed by government and market responses to climate change. Energy use in buildings is responsible for close to 40% of global energy-related carbon emissions, and in selected cities, it is the largest single source of emissions. Setting realistic and effective strategies to achieve net zero carbon can help prepare real estate portfolios for a market setting where energy use and carbon emissions are increasingly scrutinised.’
Energy use in buildings is responsible for close to 40% of global energy-related carbon emissions, and in selected cities, it is the largest single source of emissions
Christopher points out that we should not lose sight of two other aspects of climate risk. ‘The built environment is a huge consumer of steel, cement, and other building materials that are associated with greenhouse gas emissions. The ‘embodied carbon’ in building materials can have a significant impact on a building’s carbon emissions from a life cycle assessment perspective. ’ Of equal importance to real estate owners is the risk of physical climate change. Christopher points to the rising frequency of climate events in Europe. ‘This summer’s floods in Germany and forest fires in Greece and Italy have brought home a realisation that such events are posing more and more of a threat to European real estate. Assessing the potential valuation impact of future scenarios for flooding, heat waves, storms, and sea-level rise will become more common in transactions.’
Christopher Wright is Head of ESG Risk Monitoring at Norges Bank Investment Management (NBIM) and current Chair of the INREV ESG Committee