This case study was published in the 2022 REIT Industry ESG Report, which details the REIT and publicly traded real estate industry's environmental, social, and governance (ESG) performance and features 32 case studies showcasing REIT leadership and ESG innovation from a variety of sectors. The report serves as a practical tool for shareholders and stakeholders to assess the scale and impact of the REIT industry's ESG commitments and initiatives. Applicable footnotes and/or citations for this case study are available in the full report.
Conducting Portfolio-Wide Climate-Related Risk Assessments to Drive Long-Term Resiliency
Paramount Group, Inc. is embedding ESG into company resiliency plans by employing five and 10-year capital planning cycles, conducting climate scenario analyses for existing assets, and employing a price on carbon to guide sustainable investment decisions.
Paramount prioritizes the consideration of climate change impacts on its long-term business prospects by incorporating climate risks into the company’s overall risk management framework. As the effects of climate change intensify, the company recognizes the multitude of ways its assets can be impacted. In response, Paramount has identified areas where it can drive innovation and create new opportunities for the business.
To assess the acute and chronic physical risks resulting from climate change on Paramount’s portfolio, the company initiated a climate change scenario analysis. This analysis was informed by the Representative Concentration Pathway (RCP) greenhouse gas concentration trajectory adopted by the Intergovernmental Panel on Climate Change (IPCC). The team applied three scenarios to assess the future risk to Paramount’s portfolio–the IPCC RCP 2.6, RCP 4.5, and RCP 8.5. These pathways describe different climate futures, all of which vary depending on the volume of greenhouse gases emitted in the years to come. The RCP 2.6 is aligned with a 2°C global emission scenario, and the 4.5 and 8.5 trajectories represent an intermediate and a worst-case scenario.
“We recognize climate change as a long-term risk to our business that demands effective management. Developing proactive strategies to mitigate the potential impacts of climate change on Paramount’s assets has become increasingly important to our stakeholders and is essential to the future sustainability of our operations.”
-Evin Epstein, SVP, Energy and Sustainability, Paramount Group, Inc.
This analysis equips Paramount’s team with the information needed to proactively assess climate risk, identify resilience measures, and guide decision-making processes. The company is committed to refreshing this analysis annually to protect both the value and the condition of its assets from potential hazards including sea level rise, extreme weather, flooding, and changes in precipitation and temperature.
To further assess climate risk and ensure resilience, the company piloted an internal carbon shadow price. The shadow price is a theoretical dollar cost per ton of carbon emissions included in the investment analysis of projects. Incorporating carbon pricing helps Paramount’s team prioritize low- carbon investments and consider the impact of these investments beyond the company’s bottom line to also include society and the planet.
As the company continues its focus on resiliency efforts, Paramount is confident that these strategies will help to manage risk and ensure business continuity.
Headquartered in New York City, Paramount is a fully integrated REIT that owns, operates, manages, acquires, and redevelops high-quality, Class A office properties located in select central business district submarkets of New York City and San Francisco. Paramount is focused on maximizing the value of its portfolio by leveraging the sought-after locations of its assets and its proven property management capabilities to attract and retain high-quality tenants.