God help me, I’m finally writing about climate change. This commentary assiduously avoids the obviously political (we take the view that complaining about and belittling our elected representatives and the permanent bureaucracy for doing boneheaded things is entirely apolitical). And while even the phrase “climate change” carries with it a certain frisson of a capital “P” political debate, this is not that. So, please, don’t ball this missive up, toss it away and cancel your subscription to Crunched Credit if you’re (A) not a fully-enrolled initiate in the Green Revolution, or indeed, even, if you are someone who thinks that the threat of climate change is somewhat… overblown (I’m not even going to think about using the term “climate denier”) or (B) someone who thinks climate change is real but simply throws your arms up in frustration over the possibility of finding a possibly affordable fix.
In either of those cases, I expect your default response to climate change talk is simply to move on to something more actionable in your professional life and I’m going to suggest here why you shouldn’t do that. We need to start paying more attention than I have paid to date.
I am writing, not because 97 out of 100 scientists are shouting at us incessantly about the need to do something, but because I am dead certain that there are real and fairly immediate risks associated with the public reaction to the perception or awareness (take your pick) of the climate change risk which will drive regulatory intrusion on both the state and federal level, will drive legislation and moreover, will inform market reaction to lenders, investors, developers and their properties because of their climate change posture or profile.
So for the moment, put aside thinking about the actual risk of drowning on 42nd Street and focus on the more immediate knock-on risks of the polity’s response to the risk. For that, we need to become sensitive to what’s being said by whom, what’s got currency amongst the chattering class (particularly the chattering class that matters), what investors are thinking and what’s on offer within the precincts of our principal political parties and our federal and state governments, and to do so quickly.
My partner, Jason Rozes, is deeply involved in the climate change conversation. In the months ahead, he will start writing commentary regularly to keep us all up to date on what’s afoot that could affect commercial real estate and commercial real estate finance. Jason is a nationally known finance lawyer with over 20 years of experience and will be speaking to us, not as an environmental lawyer arguably talking his book, but as one of us, trying to prepare our market for the exigencies of regulatory, legal and market-driven changes.
Where do we start? We are already seeing some commercial real estate owners begin to adapt to regulatory change. Look at the fantastic engineering marvel which is the Hudson Yards, built 40 feet above sea level, with its storm management system and its fortress-like power system designed to survive a mega storm. That’s expensive. It was clearly purpose driven. We should ask what made them, a bunch of smart folks, put up the money. I guarantee it wasn’t frivolous. I would suggest to you that it’s a sign of things to come. More generally, we are also seeing more solar, more green building technology and more innovations in engineering and in general more willingness to pay real money to address environmental concerns.
But frankly, for the commercial real estate market writ large, what’s happened to date is modest in scale and hardly a trend does it yet make. The real action, for the moment, is going to be in the marketplace of ideas. One place to start and perhaps the obvious one is with Alexandria Ocasio-Cortez (AOC-joining Cher, Prince, Sting, Oprah and a handful of others in the one name is all that is needed firmament of the famous; intellectuals of the highest order all…or am I now being too arch?). She has indeed articulated some, shall we say, novel and ambitious ideas. Her championing of a Green New Deal has been called everything from aspirational to inspirational to just plain loony, but no question, she has been a voice galvanizing the faithful and drawing attention to the debate over climate change. This has brought it closer to the top of the cauldron of political issues in which we marinate in every day and made change more likely.
Whatever you might think of the current political environment, one must take into account the considerable chance that climate change concerns will increasingly affect how we own, manage and finance commercial real estate. However you handicap that risk in 2019, you also need to look ahead. The horizon is cluttered with change. First and foremost, there is a considerable chance for a Democratic regime in Washington in 2020. In the “No duh” category, that would change the calculus enormously. What does the A-list of our Democratic candidates have to say right now? Here’s a sample:
Current Dem front-runners Bernie Sanders and Kamala Harris are wooing (or perhaps threatening depending on your voter registration card) American voters that climate change will be a major part of their Oval Office agenda. Sanders, the 77-year old Vermont senator said in February, 2019 that climate change is an “existential crisis” and a “human rights issue”, and pledges to move the U.S. energy system away from fossil fuel. Harris rings a similar alarm bell. The junior senator from California has a strong voting record on environmental issues and said in a recent campaign speech she is going to act to stop climate change “based on science fact, not science fiction.” And we should probably take her at her word. As state attorney general, she launched an investigation against a multi-national oil conglomerate about allegedly failing to disclose climate change risks to shareholders.
But even without that sort of a sea change in the national political environment, there’s stuff going on in the states, there’s even stuff going on inside Republican circles that suggests a change is on offer. Republican senators Marco Rubio and Lamar Alexander have flatly dismissed the Green New Deal, but are talking seriously about climate change and the need to address the issue based on realistic economic solutions. Alexander wrote recently that climate change is real and proposed a nuclear energy solution through a “new Manhattan Project for Clean Energy”. Rubio regularly stumps for legislating solutions to climate change which take the form of powerful storms, rising sea levels, and “sunny-day flooding” throughout low-lying Florida.
Net/net, it’s almost certain to me that we are going to see law, regulation and public policy swerve in a direction that will require responses from our industry. Such change is way more likely than comity returning to the Hill, Nancy and Donald taking a weekend to quail hunt together in Texas or an alien abduction from Harvard Yard (but not as likely as an alien abduction from central Arkansas). That give you a framework?
So what do we do? First and foremost, pay attention. Forewarned is at least a tad forearmed. Jason Rozes is going to help us do that.
It also may make some sense to position our institutions, our markets, our trade organizations and our PACs in a way not obviously hostile to those committed to the climate change narrative, and make sure we have a seat at the table when solutions are pursued. The old saying in Washington is that if you are not at the table, you’re undoubtedly on the menu and we cannot afford to be on the menu. So right now, I don’t really have any good ideas to inoculate our business from climate change or the climate change narrative, but I am absolutely certain that we need to pay attention. So, take it away, Jason.
