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There is an increasing need for real estate investors to be able to identify and understand financial risks from climate change and take necessary action for risk management, portfolio performance optimization and regulatory reporting purposes.

Corporations are impacted by climate change in a multitude of ways. The introduction of new climate change policies could require operational changes or extreme weather could damage assets owned by an investor. At MSCI we calculate these financial risks per scenario to provide a framework that helps investors both identify and understand their exposures. MSCI Real Estate Climate Value-at-Risk (Climate VaR) is a new solution that provides forward-looking and return-based valuation assessments to measure climate related risks for real estate assets in an investment portfolio. By calculating both transition risk from changing legislation due to climate action and physical risk from extreme weather impacts, Climate VaR offers a framework for investors to improve portfolio performance, risk management, regulatory reporting and progress towards broader sustainability goals.

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How can Real Estate Climate VaR be used in your investment process?

Real Estate Climate Value-at-Risk Reporting gives you a complete view of your portfolio’s exposure to climate risks, including physical and transition risks as well as property level analytics. This allows you to identify the main drivers of Climate VaR and adjust your portfolio accordingly.

Real Estate Climate Value-at-Risk can help identify high value concentrations exposed to various physical risk hazards. Asset level analysis helps identify main drivers of risk, allowing you to find the most efficient mitigation strategy by risk type. Utilizing Portfolio Builder in Enterprise Analytics allow you to evaluate the impact of decisions such as selling various combinations of assets on your portfolio.

Real Estate Climate Value-at-Risk enables you to address a variety of climate objectives, like setting a target to achieve Net Zero emissions by 2050 or aligning closely with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), by producing standardized reports and data extracts as well as consistent metrics produced on all assets and portfolios.

Real Estate Climate VaR investment process

Buildings play a crucial role in the decarbonization of countries in line with the Paris Agreement climate target of 2 degrees Celsius above pre-industrial levels. On one hand, commitments from countries on making the building sector more sustainable and resilient have been made to mitigate climate change while real estate assets will also be directly affected by climate change, for instance, through damages caused by coastal flooding events. Our scenario analysis modelling for commercial and residential real estate enables investors and managers to evaluate both transition and physical climate-related impacts in their portfolios.

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Alvise Munari video

Climate Change Insights

Alvise Munari, Global Head of Client Coverage discusses MSCI’s mission to reduce the impact of climate change by providing tools to help the investment community assess this risk.

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In addition this framework is closely aligned with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations as it assesses transition as well as physical risks and opportunities.


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Regulatory transition scenario analysis for real estate

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Physical risk analysis for real estate

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Over the last five years climate and policy experts have developed robust and sophisticated transition assessments and incorporated model development enhancements from large global institutional investors. You can find more specific detail on how the framework was built at msci.com/scenario-analysis

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