A necessary first step
Broadly speaking, transition risks are business risks that arise as a result of the global transition to a low-carbon economy. One way to measure these risks in real estate is to compare an investment’s GHG emission intensity against a decarbonisation pathway, such as those created by the Carbon Risk Real Estate Monitor (CRREM).
Originally funded by the European Union, CRREM has developed science-based decarbonisation pathways for the real estate industry in more than 40 countries, translating global climate change commitments and carbon budgets into country- and property sector–specific pathways. The resulting comparison can be used as a proxy for transition risk. A portfolio intensity that stays below the relevant pathway indicates less exposure to transition risk, whereas an intensity that exceeds — or is projected to exceed — the corresponding pathway indicates increased exposure to transition risk.
Using CRREM is considered a best practice because it is on