Climate change could dramatically alter the value of real estate investments.
And that goes for real estate investment trusts, companies that own income-producing real estate, if they do not shift their investment strategies to address growing risks, industry experts say.
A 2018 report found that 35% of REIT properties have geographic exposure to climate hazards, including inland flooding, typhoons or hurricanes, and coastal flooding and elevated sea levels. The research evaluated 73,500 properties owned by 321 REITs.
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The report, which was published by climate analytics firm Four Twenty Seven and real estate technology company GeoPhy, did not take into account what the properties were doing to address those threats.
“I see elevated risk when it comes to REITs that might be overexposed in areas that are close to sea level and coastal,” said Andre Shepley, product manager and research team leader at Truvalue Labs, a provider of sustainability data analytics.
But for individuals who want to invest in REITs with climate risks in mind, there’s good news: Environmental, social and governance, or ESG, investment strategies in this sector are growing.
The number of property funds and REITs that use ESG strategies climbed to 108 in 2018, with $272.4 billion in assets, according to US SIF: The Forum for Sustainable and Responsible Investment, an advocacy organization. That is up from 30 strategies and $24.4 billion in assets in 2010.
“We’re seeing fast growth in that specific segment over eight years,” said Meg Voorhes, director of research at US SIF.