Real Estate Opportunities in the Energy Transition
By Zach Swartz, Maggie Peloso, and Caitlin Snelson
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Much has been said about the need for countries and companies to build a low-carbon global economy.1 Multiple estimates of the amount of capital that will be needed to fund the energy transition over the next several decades are stunning, putting the number at or above $100 trillion.2 Cognizant of the enormous task — and opportunity — before them, the private and public sectors have already begun the work of building a greener economy. Much of this work has been focused on investments in renewable energy, electric vehicle production and battery technology.
Until relatively recently, real estate has been somewhat on the periphery of the energy transition. However, a new report out from McKinsey & Company3 highlights the critical role that the real estate industry must play in any true effort to mitigate global climate change. Decarbonizing the real estate industry will likely require trillions of dollars of capital. While this need for capital will challenge the real estate markets, it also presents significant opportunities for investors and business builders to facilitate the real estate energy transition in a profitable way.
Table Of Contents:
- The Impact of Real Estate on Climate Change – and the Effort to Fight It
- The Impact of Climate Change on Real Estate
- The Role of Government
- Decarbonizing the Real Estate Industry
- The Opportunity – The “Green Premium”
- Looking Ahead
1 See, e.g., What’s Driving Transition Energy IPOs and SPAC Combinations? Available at: https://www.velaw.com/insights/whats-driving-transition-energy-ipos-and-spac-combinations/.
2 See, e.g.: Comments made by Axel Weber, chairman of UBS, in November 2021: “We need to understand the urgency of the situation. We need to raise, between now and 2050 … 120 to 160 trillion [dollars] of capital just to make sure that we get the energy transition and the carbon transition that has so far been committed to.” https://www.cnbc.com/2021/11/02/americans-are-back-at-the-table-says-ubs-chairman-axel-weber.html.
- International Renewable Energy Agency, Global Renewables Outlook (2020) (“The Deeper Decarbonisation Perspective would require … a total investment need of USD 130 trillion to reach zero emissions.”). https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Apr/IRENA_Global_Renewables_Outlook_2020.pdf.
- Kevin Adler, Financing the Global Energy Transition (March 16, 2021) (“Looking out to 2050, Samir Assaf, chairman of corporate and institutional banking for HSBC, floated the global investment need at $100 trillion.”). https://cleanenergynews.ihsmarkit.com/research-analysis/financing-the-global-energy-transition.html.
3 Brodie Boland, Cindy Levy, Rob Palter, and Daniel Stephens, Climate Risk and the Opportunity for Real Estate (February 2022) (the “McKinsey Report”). Available at: https://www.mckinsey.com/industries/real-estate/our-insights/climate-risk-and-the-opportunity-for-real-estate.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.