CDL raises expected cost of climate inaction by half to S$120m in 2030
Potential loss of green rental premium revenue among three new risks identified
PROPERTY giant City Developments Ltd (CDL) has raised its expected cost of climate inaction to S$120 million in 2030, 1.5 times its previous estimate of S$82 million from two years ago.
The new estimate represents about 6.4 per cent of CDL’s 2022 operating profit of S$1.9 billion. It reflects the expected cost that the group would face if it waited until 2030 to start addressing the physical and transition risks of climate change, assuming global warming is limited to 1.5 deg C above pre-industrial levels.
CDL has been conducting the scenario analysis since 2018, and the latest assessment – conducted over 2021 and 2022 – comes after the group took in climate-related impacts of Covid-19, key outcomes from the 2021 United Nations Climate Change Conference in Glasgow (COP26), and its New Zealand business.
CDL chief sustainability officer Esther An told The Business Times that the group identified three new risks: the potential loss of green rental premium revenue, labour cost increase due to heat stress, and climate-related insurance premium increase.
Highlighting that they are now among the top three transition and top three physical risks to CDL under both the 1.5 deg C and 2 deg C scenarios studied, An said the group will need to tackle the newly uncovered risks to future-proof the business.
Cost breakdown
CDL noted that the expected rise in labour cost will have to be managed by improving construction productivity and footprint in Singapore and China, as well as reducing outdoor work risk.
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With insurance premiums potentially rising, the group will have to improve existing developments’ resiliency to extreme events in Singapore, the United Kingdom, and United States.
While these two were seen as placing a moderate risk to CDL’s business, the risk tied to potential green rental premium revenue loss is assessed to be “high”, defined as likely imposing a financial impact of at least S$20 million.
This comes with a need for it to meet increased customer preferences and demand in this area, particularly in Singapore and the UK.
Three other factors received the “high risk” label. They are green features construction cost premium, business damage and loss due to extreme events, as well as maintenance, waste and water costs for investment properties and hotels.
The first is tied to the company’s need to design and construct new net-zero buildings more cost-effectively, specifically in Singapore, China, UK and the US.
The second and third relates to moves to avoid exposure to extreme events risks for new developments, and encourage waste recycling and reduction respectively.
Knowing that these would contribute to the bottom line, An said green finance will be a key enabler moving forward, noting that CDL has tapped more than S$3 billion of sustainable finance since issuing its first green bond in 2017.
Other findings
In any case, its expected physical financial impact under the “orderly” 1.5 deg C scenario, where global warming is controlled through stringent climate policies and innovation, is almost triple that under the 2 deg C scenario, which implies a disorderly, delayed transition, its report noted.
The study also found that among the five geographies covered in the study, the group’s operations in Singapore comes with the highest estimated annual incremental financial risk under either scenario.
The study, meanwhile, revealed that year-round physical risks arising from climate change are costlier than one-off extreme weather events in relation to climate-related insurance increase, increased labour costs due to heat stress, and energy cooling costs.
River and flash floods continue to be the extreme weather event that pose the largest acute physical risk to CDL, it also found.
Another insight is that hotels are the most exposed to physical risks, while development properties are most exposed to transition risks – business-related risks that follow societal and economic shifts towards a low-carbon and more climate-friendly future.
It also nailed down Singapore as the “most exposed” country for CDL since it has by far the largest share of development and investment properties, which are each affected by two out of the top three risks by estimated annual incremental financial impacts.
Updates
CDL said it hit all of its environmental interim targets for 2022.
In terms of the progress on its pledge to achieve operational net zero by 2030, CDL said its carbon emissions intensity has fallen by 24 per cent between January and December 2022, from its 2016 baseline.
This is ahead of its 2022 target of a 19 per cent reduction.
Total operational carbon emissions across its business operations in Singapore fell by 10 per cent compared to 2021, while embodied carbon emissions dropped 22 per cent compared to the conventional equivalents.
The energy savings it has achieved from energy-efficient retrofitting and initiatives across all its commercial buildings since 2012 have exceeded S$38 million.
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