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Castellum 2021 in brief

Emissions scenarios – risks and opportunities

Castellum uses emissions scenarios to identify financial and operational risks and opportunities linked to climate changes that impact the company over both the short and long term. The purpose is to ensure that both operations and the property portfolio have the conditions to manage climate changes.

Climate reporting

For three years, Castellum has provided climate reporting in accordance with the voluntary international recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). This year, the TCFD’s updated recommendations for the property sector were also taken into account. The purpose is to report climate-related financial disclosures and make it possible for investors and other stakeholders to better understand the company’s exposure to climate-related risks and opportunities.

Two emissions scenarios: the world in 2050

In 2019, an analysis was conducted to evaluate climate risks and opportunities based on two different emissions scenarios linked to how the world might look in the year 2050. The scenarios used were developed by the UN Intergovernmental Panel on Climate Change (IPCC):

  • Fulfilling the Paris Agreement (RCP 2.6)
  • On the beaten path (RCP 8.5)

RCP 2.6 is a scenario in which we have succeeded in limiting the temperature increase to 1.5–2 degrees Celsius. RCP 8.5 is a “business as usual” scenario in which the world has failed to make any changes and greenhouse gas emissions continue to increase at the current rate. Both scenarios entail risks for Castellum, but opportunities as well. The company needs to be resilient, adapting its operations based on changed climate conditions both locally and nationally.

Evaluating climate risks

Castellum conducts an annual survey of all the company’s risks based on the perspectives of likelihood, impact, priority and development for a period of up to ten years. For climate risks, we have a more long-term perspective, with an analysis based on emissions scenarios up through 2050.

As regards climate risks, both physical and transition risks that could follow from a changed climate are assessed. Ahead of investments in new production, the climate risks are evaluated for a building during its technical service life, with emphasis on precipitation, extreme weather and the risk of flooding. The intermediate IPCC scenario, which involves emissions increasing up until 2040 and then tapering off, is also used here. Ahead of decisions on investment, the Head of Sustainability assesses the investment from a sustainability perspective, in which climate change is an important issue.

The resistance of properties to climate change

Castellum is investigating the possibilities of evaluating the exposure of its property portfolio to climate change through participation in the EU-financed Carbon Risk Real Estate Monitor (CRREM) research project. This project will define scientificallybased measures to reduce carbon emissions in commercial properties and housing in the property sector for the purpose of achieving the Paris Agreement.

“Fulfilling the Paris Agreement” 
(RCP 2.6)1)

  • Greenhouse gas emissions halved by 2050.
  • +1.5–3 °C national temperature increase in Sweden.
  • New renewable energy technology introduced on a large scale.
  • Low energy intensity.
  • Dramatic changes made to society, the infrastructure and buildings.
  • The countries of the world succeed in collaborating on shared initiatives.
  • Political decisions, taxes and regulations regarding greenhouse gases introduced.
  • Increased regulations with sustainability requirements regarding land use and construction codes.
  • Changed demands from customers and investors.

1. Sources: smhi.se/klimat/framtidens-klimat and TCFD, The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities

“On the beaten path” (RCP 8.5)1)

  • Greenhouse gas emissions continue to increase at current rates.
  • +2–4 °C national temperature increase in Sweden.
  • Rising ocean levels.
  • More days with extreme weather and flooding.
  • Increased number of forest fires.
  • Unchanged behaviour and demands from customers and investors.
  • High energy intensity and heavy dependence on fossil fuels.
  • Political climate initiatives and collaboration fail.
  • Poorer indoor climate impacts peoples’ health.
  • Increased population and immigration to Sweden.
  • Operations become more event-driven owing to extreme weather.

1. Sources: smhi.se/klimat/framtidens-klimat and TCFD, The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities.

Emissions scenario:
“Fulfilling the Paris Agreement”

Risks

  • Increased regulation, taxes and fees for carbon emissions, land use, construction codes, etc.
  • Older properties could become obsolete.
  • Risk of unprofitable investments if unproven technology is used to rapidly initiate the transition.
  • Requirements for zero emissions of greenhouse gases throughout the value chain; the circular economy requires major changes in the business model.
  • Price increase for construction materials, transportation and energy owing to political restrictions.
  • Volatile or steeper energy prices.
  • Increased need for investments in new technology, new construction and existing properties.

Opportunities

  • Increased production of solar energy and increased use of renewable energy.
  • Increased demand for innovation and new technology.
  • Increased urbanisation and need for consolidation in core city areas make the portfolio attractive.
  • Decreased energy needs owing to more efficient resource use.
  • Changed customer and investor preferences, as well as increased sustainability requirements make Castellum an attractive property owner and investment.

Potential impact on Castellum’s financial performance

  • Increased investments in the transition.
  • Increased costs for climate adaptation.
  • Increased operating costs.
  • Decreased value of properties that are not climate-adapted or are located in risk areas.
  • Increased value of climate-adapted properties.

Emissions scenario:
“On the beaten path”

Risks

  • Water damage owing to flooding in ocean-front constructions and low-lying zones.
  • Damages to roofs and façades owing to extreme weather such as storms, heat waves and fires.
  • Decreased demand for properties located in areas at risk.
  • Risk of obsolete properties, since the cost of climate adaptation measures exceeds the value.
  • Increased need for maintenance, repairs and periodic building closures, as construction materials and technology are negatively impacted by increased temperatures and a moist climate.
  • Increased shortages of electricity and energy, which is strongly driven by increased electrification and the need for more energy in society.
  • Increased competition from low-price operators who lack sustainable agendas.

Opportunities

  • Increased production of solar energy and increased use of renewable energy.
  • Measures to enhance energy efficiency become more profitable to carry out.
  • Increased requirements for indoor climate place demands on more adaptable properties and districts.
  • Climate-adapted properties make Castellum a more attractive property owner.

Potential impact on Castellum’s financial performance

  • Dramatically increased investments in managing climate changes.
  • Dramatically increased costs for climate adaptation.
  • Volatile or reduced rental incomes.
  • Volatile or increased energy costs.
  • Dramatic increase in operating costs.
  • Increased insurance costs.
  • Decrease in or eradication of value of properties that are not climate-adapted or are located in risk areas.
  • Increased value of climate-adapted properties.

Case: "100 on Solar" initiative

Castellum’s “100 on Solar” project means that 100 solar cells will be completed by 2025.