Cambridge University Land Society Event – Risk, value and sustainable finance in real estate

On 23 June, during London Climate Action Week, CFP Green Buildings sponsored a breakfast session focused on the growing impact of physical climate risk on real estate and the financial sector. Hosted by Arcadis, the session brought together a packed room of attendees from across the real estate industry, with a keynote from King’s Business School professor Dr Marc Lepere, followed by a panel discussion and Q&A. The discussion captures perspectives from across the sector and forms the basis of the key insights shared below.

Climate risk and market pressures

As the UK faced red warnings due to extreme heat, the external context outside of the Cambridge University Land Society (CULS) event during London Climate Action Week couldn’t have been more aligned to the topic of increasing physical risk and what that means for financing real assets.

Keynote: physical risk and systemic impact

CULS convened a packed room of attendees from across the real estate industry to hear the keynote speech from King’s Business School professor, Dr Marc Lepere, followed by a panel discussion and a Q&A session.

The keynote “Real Estate: How 4 parts of an emergent system could shock your business” presented by Dr Marc Lepere built a powerful, evidence-based case for how increasing physical risk will challenge the insurance mechanism, how market failure is preventing climate resilience infrastructure being delivered at scale and how growing global buildings regulation provides a further externality which could impact real estate cash flows. Drawing on actuarial evidence in the US to highlight the level of uninsured losses from the Californian wildfires to geological research showing the potential for 1 in 4 London properties to be at heightened risk of subsidence, the keynote painted a stark need for urgent and collaborative action for climate mitigation but specifically climate resilience financing and delivery models.

Panel reflections: risk, value and finance

The panel chaired by CULS Sustainability Committee member and CFP Senior Advisor, David Willock, gave the expert panel the opportunity to respond to the keynote and add their own reflections on the topic of risk, value and financing real estate. The evidence base laid out in the keynote on the insurance market is not yet feeding through into the real estate lending market, which perhaps points to information asymmetry within the financial system. Chi Oranefo (Lloyds Bank) outlined the ecosystem role that Lloyds seeks to play, recognising the interconnected nature of topics and actors in the built environment and how banks can use their scale to enable climate action with a specific call for collective action and common language which resonated with the audience, particularly as climatic events do not respect the red lines of property ownership. Sanne van der Meer shared insights on how ING is embedding physical risk into their lending decisions in both a Netherlands and UK context and how sustainable finance continues to play a central role in ING’s client engagements.

Zoe Lamb (Barclays) added further depth to the conversation, highlighting the need to consider the human aspects of the topic, including the motivations of homeowners and investors and how these can be supported and catalysed. Barclays, through their Climate Tech strategy, have sought to catalyse those technologies which have been identified as key to both mitigation and adaptation which plays into a theme on climate resilience and place-based strategies which emerged as investors needing scale opportunities rather than piecemeal transactions.

Looking ahead: aligning real estate and finance

Scanning the coverage of a busy and heat-affected London Climate Action Week, it is clear that climate resilience and the insurance market were key topics at other events. The financial implications of climate for the financial sector featured in a recent publication by Cambridge Institute of Sustainability Leadership’s Banking Environment Initiative (BEI) focussed on Resilience-Adjusted Credit Risk, underlining the growing importance of integrating physical climate risk into financial decision-making. This reinforces the urgency for closer alignment between the real estate and financial sectors.