Supercharging the Low-Carbon Market
Date Posted: June 23, 2022
Posted In: Discussion, Environment/Sustainability,
by Diane Hoskins, Gensler
In recent decades, the struggle to decarbonize cities has primarily focused on building codes, local laws, and taxes to incentivize the real estate industry to create green building stock. But these efforts have not yielded the rate and scale of change needed to keep global temperature rise to 1.5 degrees Celsius.
It has become clear that investors, driven by tenant demand and regulations, will be the force pushing the decarbonization of commercial real estate.
In March, news of the U.S. Securities and Exchange Commission’s (SEC) proposed regulation of climate-related risk disclosure received a lot of attention and speculation about its implications for public companies. Should the proposed rule take effect, companies seeking capital from U.S. investors would be required to disclose climate-related metrics impacting business operations and financial standing.
The SEC’s proposal was far from being the first of its kind; instead, it emulated what had taken place in other countries. With Europe seeking to become the world’s first climate-neutral continent, the EU’s Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) came into force in 2021 as a response to pressure from investors to regulate corporate reporting for ESG progress. Additionally, we are seeing more regulator mandates for ESG disclosure across Asia. In December, a plan was announced by the Securities and Futures Commission (SFC), and the Hong Kong Monetary Authority (HKMA) to require companies to share ESG standards to inform investors about the environmental friendliness of companies.
There are implications for the larger business community and real estate, one of the most significant contributors to greenhouse gas emissions. Contrary to what can be viewed as a hodgepodge of well-intentioned green policies, financial disclosure regulations span industries and geographies. With growing competitiveness for capital investors and foreign exchanges, this kind of regulation could harmonize the transparency rules for companies by creating reporting and disclosure standards.
The movement of countries adopting financial disclosure mandates could be the green market accelerant that sustainability advocates have always dreamed of. There is a mixture of studies looking at the impact of financial regulation disclosure since the 1933 and 1934 securities acts that led to the eventual formation of the SEC. Some have found external financing growth in countries with more demanding disclosure requirements. The mandatory disclosure of more firm-specific information has also improved capital allocation across various industries.
The real estate sector must quickly adopt new practices to create the impact at scale to fast-track decarbonization efforts by 2030.