Guest Post by Matthew Fitzgerald, Director Cross Border Tenant Advisory – EMEA, Savills

In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed new rules to enhance and standardise climate related risk disclosure, requiring registrants to include certain climate-related disclosures in their financial statements.

The ruling compels almost 4,000 U.S. public companies and – crucially – also foreign companies which trade securities in the U.S. (i.e., if they are cross-listed on any US stock exchange), and foreign private individuals who file 20-F forms, to report climate related risks, emissions and Net Zero transition plans. The finalised standards are expected to be confirmed in early this year.

Given many of these entities occupy and own substantial real estate portfolios, the implications for the property industry could be significant. The SEC ruling aims to build on years of voluntary reporting from firms; however, with this important step towards formal reporting the pressure on the industry is mounting. The proposal is built on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) using the four pillars of the TCFD framework.

The proposal requires companies to disclose information about their Scope 1, 2 and 3 Greenhouse Gas (GHG) Emissions. Scope 1 and 2 are emissions generated by a company’s own operations and through the energy it purchases. Scope 3 is all emissions throughout the entire value chain: these emissions often are the largest source of emissions for companies, typically accounting for more than 70% of a business’s carbon footprint. 

The increasing legislation and the need to comply with reporting standards, such as the SEC, is forcing landlords, developers, asset managers and their tenants to evaluate their carbon emissions and gather the data needed to report on it. Deloitte’s 2023 commercial real estate outlook study of the views of 450 CFOs shows that only 12 per cent of companies have planned for, and are ready to meet, these major regulatory changes, which shows the scale of the challenge and opportunity for new revenue sources related to the climate transition.   

Given occupiers will be looking to obtain GHG emissions figures, risk disclosure, and emissions reduction plans for any current or new building, real estate companies that have this information available early will have a competitive advantage.

As ever, the effective use of data will be key. Again, according to Deloitte’s study, only 7 per cent of companies use ESG data and analytics in decision making. Opportunities will arise for real estate players that understand how climate factors affect their portfolios and asset values and can respond in ways valued by tenants, lenders and investors.

We are only at the beginning and many companies have only just started the transition from paper-based reporting and aggregating data sets, but the SEC ruling has set a clear pathway that many US companies will have to follow. Crucial to reaching the requirements will be how landlords and tenants come together to jointly tackle the need for data and put the processes in place to make this possible. Technology will be central to streamlining reporting and then to help change how we use buildings, reducing emissions and helping the journey to net zero.

Matthew Fitzgerald is Director Cross Border Tenant Advisory – EMEA at Savills