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Many of the issues we are tackling ultimately come back to carbon. Loss of biodiversity, for example, is an increasingly important topic for real estate investors to consider. But if we didn’t have the massive carbon emission problem we have and the resulting global warming, we probably wouldn’t be seeing this scale of habitat and biodiversity loss. Another important factor to consider in the near term is physical risk.

This is not a new issue, but it is becoming more important not just to measure, which most people are doing now, but also to act to mitigate that physical risk where it can be mitigated, and to reconsider exposure, where it cannot be mitigated. Climate resilience and adaptation will also be an important issue, which the industry is not really talking about at the moment.

As the Migration Policy Institute highlights, millions of people are already being forced to relocate due to natural disasters and climate change. But from an institutional real estate perspective, we don’t seem to be talking about that adaptation. The climate is clearly changing, and we’re not going to manage to stop that despite the massive mitigation efforts now starting ₋ and the consequence of that is relocation, the need for resilience and the need to adapt.

We must continue to focus on emissions without question, but we also need to prepare for a warming world. Crucially, that hasn’t really started playing out in economics in some markets, but it will play out sooner or later, which adds a social angle.

There has been progress, and there are more companies and teams within existing environmental or sustainability consultants that are focused on the social aspect. But, still, the metrics are difficult to define and measure. So, while there has been progress, the social aspects are still a long way behind the environmental factors because of that challenge around measurement and verification, in particular.

There are niche subsectors that are focused on sustainability, but they are swiftly becoming less niche. Life sciences is one example. It has been a subsector in the US for years, but in Europe, it is a relatively new asset class. That will change quite quickly, as the sector becomes better known and understood, and the fact that it is quite established in the US will translate over to Europe quickly. Another strategy focused on sustainability that might be considered niche right now in real estate involves a brown to green transition, and we are seeing lots of funds coming to market now with this green-renovation focus.

Additionally, social impact plays, including residential or even retail, are coming to the market. The assets aren’t necessarily niche, but the focus on a sustainability or social problem is. They’re taking that problem ₋ whether it be high-emission office in need of a brown-to-green transition, or an empty high street in the heart of UK towns ₋ and they are looking to build a financially profitable and environmentally or socially additional solution to that problem.

That’s not niche; that’s just business. Investors might need some time and education to understand that strategy versus a core balanced fund, but these strategies are here to stay. With so much of the office stock in such urgent need of upgrade during the next few decades, for example, I don’t think that can be considered niche for any time at all. But that is how they are often being categorized at the moment.