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Sustainability Outlook: Top Five Issues Affecting Real Estate in 2023

The real estate industry’s momentum on climate action only continues to grow as the new year begins, as demonstrated by the newly released ULI Global Sustainability Outlook 2023 report. At the same time, macroeconomic uncertainties, properly pricing transition risk, the growing intensity of climate hazards, and being able to proactively address government regulations pose new and continued challenges for the real estate and land use sectors.

The ULI Randall Lewis Center for Sustainability in Real Estate, in concert with sponsor Ferguson Partners, convened a series of roundtables to gain member input on the publication, engaging experts and ULI members from sustainability-focused product councils in the Institute’s three regions—the Americas, the Asia Pacific, and Europe. Previous years have seen the sector strategizing on environmental, social, and governance (ESG) and articulating plans for net zero, but now comes the urgent need to turn words into tangible action. The insights from the roundtables informed this year’s publication, revealing five key priority areas that will affect the real estate decision-making.

1. Adjusting ESG strategy for macroeconomic complications: The current global economic climate is raising challenges, questions, and obstacles to ESG progress in the real estate sector. This is complicated by the threat of recession and rising inflation—forcing the industry to increasingly grapple with how to effectively prioritize sustainability in real estate investment and transactions while balancing short- and long-term views on returns on decarbonization.

2. Embedding transition risk in transactions: Investors and owners are facing material pressure to price climate risk into their investment life cycles, and this challenge will continue to grow as the appetite for achieving net zero grows. Being able to accurately account for the costs and efforts needed for net zero, while addressing climate adaptation, remains a work in progress. Nonetheless, real estate owners are planning their exit strategy at the time of acquisition, paying specific attention to the risk of disposing of a stranded asset.

3. Harnessing the power of collaboration: No one stakeholder can solve the climate crisis alone; collaboration is essential in reaching climate goals at all scales. The power of effective collaboration on climate—both at the industry level and the community level—simultaneously uplifts the voices of underserved communities and draws from a diverse set of professional perspectives and backgrounds. Real estate is acting now for results later because this requires time and trust to ensure that climate progress benefits everyone and not just a privileged few.

4. Addressing global flood challenges: Water challenges crosscut and influence the effects of many climate hazards including, among them flooding, storms, drought, and extreme heat. The industry is looking to scale up methods to better analyze and quantify physical climate risk when making decisions on the location and protection of the longevity and value of assets. At the same time comes the consideration of how to make buildings and communities better prepared to respond to extreme climate events in the future.

5. Responding to government influence: Regardless of the format or step in the overall journey toward sustainability—increasing acknowledgment of the importance of climate, federal funding, local policy incentives, and regional regulations—governments are responding. The industry is dealing with an alphabet soup of regulations and policy, but waiting for global consistency is not an option.
In the words of one Sustainability Outlook roundtable participant, “Saving the planet is not something we should compete on.” With these five issues on the rise in 2023, the real estate and land use industry is at a crossroads to meet the urgency of the moment and advance and improve upon the progress made on sustainability in the built environment.

EMILY ZHANG is a senior associate with the ULI Building Healthy Places Initiative. MARTA SCHANTZ is co–executive director of the Randall Lewis Center for Sustainability in Real Estate at ULI.

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