Property owners stand to lose it all if the world fails to rein in temperature rises in line with the Paris Agreement on Climate Change. Being placed at greater risk of damage in the face of more severe and frequent natural disasters could result in some assets, particularly those in low-lying coastal areas or on islands, being stranded and valueless.
To help property owners plan for an increasingly uncertain future, the New Zealand Green Building Council has developed a set of three climate scenarios that can be used as a framework for climate-related disclosures, which the country’s External Reporting Board now mandates.
With advice from consultants Beca, the NZGBC developed three scenarios – the first assumes alignment with 1.5°C temperature rises as consistent with the Paris agreement, a greater than 3°C high warming scenario, and a third scenario dubbed “Hot House World”, where there is no action to reduce global CO2 emissions and temperatures rise more than 3°C over pre-industrial levels.
The construction and property sector is defined as: “Entities whose primary activity is the development, ownership, or management of buildings, including upstream supporting entities that provide building products, raw materials, management, design, and construction services.” The sector contributes 20 per cent of New Zealand’s total carbon emissions, including embodied carbon and the emissions created in the operation of buildings.
Scenario one is an “Orderly” scenario where policy shifts rapidly to rein in a 1.5°C temperature rise and global emissions reach net zero by 2050. This would require whole of life carbon emissions in buildings to reduce by 20 per cent by 2025 and 90 per cent by 2050.
Under the scenario, sea levels would rise 19 centimetres to 2050 and 39cm by 2100 and there would be a 40 per cent increase in hot days in New Zealand.
Scenario two, “Delayed Transition” where policy does not force behavioural change until after 2030, results in abrupt decarbonisation policies implemented in the 2030s to keep warming below 2°C by 2100.
This results in moderate physical risks from climate change but magnifies transition risks, such as building out the electricity grid to cope with sudden increased electrification. This translates into a 20cm sea level rise by 2050 and 60cm by 2100.
Under scenario three, the “Hot House World”, features extreme physical climate change risk, including 1.08m sea level rises and a 300 per cent increase in the number of hot days by 2100. Transition risks are low because decarbonisation policies are not enacted and the building sector will struggle to reach net zero emissions without investing in their own renewable energy generation. Heat stress, food insecurity and climate-driven immigration ensues.
New Zealand was the first country to pass legislation making climate-related disclosures mandatory for banks, insurers, asset managers and the largest New Zealand Stock Exchange-listed companies in October 2021. From this year onward, these companies are required to make annual climate-related disclosures using the Task Force on Climate-Related Disclosures (TCFD). These include reporting on the implications of any physical or transition risk that a business faces.
The External Reporting Board (XRB) published the first Aotearoa New Zealand Climate Standards in December 2022 after 18 months of industry consultation. To fully disclose climate risks, entities must describe their current climate-related impacts, the scenario analysis they have undertaken, and describe the climate-related risks and opportunities over the short, medium and long-term, along with their estimated impacts and how the entity plans to position itself amid the global transition to a low-emissions future.