The climate crisis could encourage a “substantial reallocation” of real estate investment in the coming years, says MSCI’s industry research head.

With many investors and fund managers having made commitments to net-zero carbon strategies, businesses “now need to honour them by transitioning their portfolios toward net-zero emissions”, said Will Robson, head of real estate solutions research at MSCI, in a new paper.

“This transition requires detailed knowledge of each of their investments’ current emissions, as well as a view of how they will change over time,” he added. “For public assets, this requires a standardised assessment of the issuing company’s own targets and plans with respect to comprehensiveness, ambition and feasibility. For private assets, simply assessing current actual emissions is often a challenge, even though investors and asset managers may have more direct control or stronger influence on carbon-reduction initiatives.”

Transparency and standardisation of data will be necessary to help investors rethink their portfolios in the face of climate change, Covid-19 and other risks. “Huge strides will need to be made in terms of climate-data disclosure to facilitate the flow of capital to where it’s needed to transition portfolios to net-zero,” Robson said.

He added that disruptive factors such as climate change will also increase the likelihood of stranded assets or, at the vey least, significant price changes.

“Unlike in public markets, it takes time for sentiment to feed through to transaction pricing, and then on to the valuations, of private assets,” he said. “Investors seeking to understand how such impacts can affect their portfolio values may employ a sophisticated triangulation of insights from private valuation, transactions and public-market data.”