Real Estate Investing for Climate Change
March 16, 2023
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Rajeev Ranade, Partner, Climate Core Capital, a New York-based real estate investment manager that seeks to minimize climate risk. Rajeev shares his outlook for investing via climate risk, including the greatest opportunities and challenges, how the firm is embracing ESG and more.
Transcript
EMS:
Absolutely. So to kick off the conversation, tell us a little about Climate Core and how you got to where you are today.
RR:Yeah, so Climate Core Capital is a real estate investment management firm and we're focused on providing investors with an allocation to real estate that, as we say, will thrive alongside recurring climate risk. We founded the firm in 2021, so it's still relatively new, and really built it around a data and analytical model that originated in some of my business partners research at Harvard where he was really investigating the question of climate risk and readiness, particularly in urban settings. Fundamentally, our strategy is to leverage our data insight to invest in high quality, multi-family housing, and markets of low climate risk and high climate readiness.
EMS:That's a great introduction to the firm. So given this, love to hear your high level outlook for the space.
RR:So the climate risk space is growing for investors, but it's certainly not at the forefront of most groups investment methodologies. What we think we'll see in our outlook is that other financial market participants are going to be taking climate risk into account more seriously. So that includes groups like insurers, lenders, regulators, tax authorities, and in real estate, of course, tenants. And it's really these players that have the ability to shift repricing for us. So if you're a real estate owner, it's these inputs that really impact the repricing and we'd expect that to accelerate here in the coming cycle.
EMS:Very interesting, Rajeev. So based on that, what are some of the greatest opportunities specifically you see in this space and why?
RR:Yeah, so I think I'd break down the opportunities that we see in two categories, overlooked markets and overlooked assets. To us, an overlooked market would be one that is growing for secular reasons but also exhibits a tremendous amount of climate readiness. The readiness story means it has certain economic infrastructure, community features that allow it to compound on itself positively in a changing climate. Whereas overlooked assets are those with design standards, specifically something like a passive house certified building which deliver orders of magnitude improvement in terms of a building's efficiency, resilience, and overall capital durability. So where we think there's a huge opportunity is this combination of the two overlooked assets and overlooked markets and we think that's going to be an important part of this early stage of climate-oriented investing.
EMS:Great. And Rajeev on the other hand, what are some of the biggest hurdles you face investing in this space and why?
RR:Yeah, I think a challenge for us as a young firm is really maintaining focus when in a space that's rapidly evolving and growing. Climate focused financial landscape or the financial industry really shifts dramatically every three to six months. And fundamentally, we view that as a really good thing. It brings a lot more participants in and a lot more learning, but also requires us to maintain focus on a secular thesis within a pretty dynamic space where a lot of new, very material information is constantly arising. We're always needing to be processing new data and determining what correlates to our flagship strategy and what might not be relevant. So I think that that's a core challenge in this space is really evolving with it and making sure you stay focused.
EMS:Great. Rajeev, I'd be remiss if we failed to discuss how your investment strategy ties to ESG, which is obviously top of mind for investors globally and managers that they think about every day. So I'd love to hear more of your thoughts on what aspects of ESG this strategy focuses on and your outlook.
RR:You're right, ESG is a really important part of our business and our strategy in the context of how investors are taking it very seriously and making it a priority. But I think first and foremost, the thing I would share is that we view ESG as a data framework. It's not really a philosophy. We're trying not to pander or signal anything. It's really much more boring than that. It's an awkward and, sometimes honestly, a lazy categorization of new data that more and more stakeholders are seeing as relevant to financial outcomes.
So for us, we obviously focus on the E in ESG and it's our belief that the sophisticated collection analysis and reporting on data could range from physical climate risk and readiness on one hand to things like interior air quality or carbon intensity of an energy grid on the other. We think these data points are very important to generating alpha. So I think a much simpler answer to your question on ESG is really we integrate ESG so long as we have the conviction that this quote-unquote ESG data will help us make money for our clients.
EMS:Great. Rajeev, we've covered a lot of ground today and I wanted to see if you have any final thoughts, future plans you'd like to share with our listeners?
RR:Yeah, sure. So we're in the market with our flagship fund and strategy at the moment. We're going to continue growing and deploying that in what is hopefully a beneficial vintage year and always looking to grow our data and insight capabilities, that remains our key advantage and differentiator. And a number of new interesting perspectives are emerging that we think are going to apply to real estate and perhaps to other asset classes and lay the groundwork for strategies we might launch on muni bond or more hedge strategy side. But look, our core focus is really on real estate, the climate risk readiness data, and making sure we're finding the advantages in both, which of course keeps us plenty busy.
EMS:Great. Well, Rajeev I want to thank you so much for sharing your perspective with our listeners.
RR:Thank you for having me.
EMS:And thank you for listening to the EisnerAmper Podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper Podcast when we get down to business.
Transcripted by Rev.com
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