Assessing climate transition risk: methodologies and roles for financial institutions - UNEP Finance Initiative
Assessing climate transition risk: methodologies and roles for financial institutions - United Nations Environment - Finance Initiative
The building sector plays a vital role in limiting global warming to 1.5°C and advancing climate objectives, as significant strides in reducing energy consumption and greenhouse gas (GHG) emissions within this sector are essential. This latest report emphasises that achieving these goals requires targeted retrofitting strategies and avoiding stranded assets, all underpinned by key performance indicators (KPIs) that track progress towards these ambitious environmental milestones. It delves into the critical nature of retrofits, evaluates existing methodologies for assessing climate risks in real estate portfolios, and explores various stakeholders’ roles in facilitating retrofitting.
The financial sector is leading the transition to a lower-carbon future, and real estate asset valuations are increasingly tied to energy efficiency, making inefficient buildings tangible financial risks. Carbon pricing and operational cost impacts further influence these valuations. For investors and insurers, retrofitting represents a strategic opportunity to capitalise on the demand for energy-efficient buildings. For banks, retrofits can enhance asset security and stabilise borrowers’ income.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”