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Climate change

Climate change is an increasingly important focus for QIC. The risks and opportunities posed by observed and projected changes in the climate have the potential to impact the asset classes and companies that QIC invests in, including our Real Estate Portfolio. Climate change is a key focus area of QIC Real Estate’s ESG Strategy. Understanding the risks and opportunities presented by climate change allows us to make more informed decisions across the asset classes we invest in.

Since 2018, QIC has responded to the Taskforce on Climate-related Financial Disclosure recommendations in our QIC Sustainability Report. To view this report, which includes information on QIC’s approach to understanding and addressing climate risk, see the latest QIC Sustainability Report.

QIC Real Estate’s approach to managing and reporting climate change and other sustainability-related risks and opportunities is guided by our ESG strategy and QIC’s Enterprise Risk Management Framework.

We have committed to the following long-term objectives for climate change under our ESG Strategy:

  • Minimise our contribution to climate change and achieve our net zero carbon emissions target by 2028 (Scope 1 and 2)
  • Maximise our resilience to the impacts of climate change on our business, assets, and surrounding communities.

For more information on how QIC Real Estate governs climate-related risk please see Our Governance.

Assessing climate-related risks and opportunities

We have adopted the following short-, medium-, and long-term time horizons to assist us in our consideration of climate-related risks and opportunities: 

Table 6: Short-,medium-, and long-term climate change considerations

Time horizon QIC Real Estate's time frame Rationale
Short-term To 2030 To assist in understanding potential short-term climate-related risks and opportunities, particularly short-term transition risks and enable us to incorporate mitigation measures into existing operational and capital plans and inform property development design guidelines and investment decisions.
Medium-term 2031 to 2050 To assist in understanding potential medium-term climate-related risks and opportunities, including how they may influence major capital equipment replacement or upgrade requirements and enable us to incorporate mitigation measures into existing operational and capital plans and property development design guidelines and inform investment decisions.
Long-term 2051 to 2070 To assist in understanding potential long-term climate-related risks and opportunities, particularly related to high emissions scenarios and enable us to incorporate resilience measures into property development design guidelines and inform investment decisions. 

 

Climate-related risks and opportunities have been considered with reference to two Network for Greening the Financial System (NGFS) transition scenarios which we believe broadly align with the low, medium, and high emissions scenarios described by the Intergovernmental Panel on Climate Change (IPCC) developed Representative Concentration Pathways (RCP) 2.6, 4.5 and 8.5.

Table 7: NGFS transition scenarios

Type of transition Scenario Detail1
Orderly transition

'Net Zero 2050' 

RCP 2.6 - low emissions scenario

Net Zero 2050 is an ambitious scenario that limits global warming to 1.5°C through stringent climate policies and innovation, reaching net zero CO2 emissions around 2050. Some jurisdictions such as the US, EU and Japan reach net zero for all greenhouse gases by this point. Physical risks are relatively low but transition risks are high.
Disorderly transition

'Nationally Determined Contributions'

RCP 4.5 - medium emissions scenario 

&

RCP 8.5 - high emissions scenario

Nationally Determined Contributions2 (NDCs) includes all pledged policies even if not yet implemented. 

This scenario assumes that the moderate and heterogeneous climate ambition reflected in the conditional NDCs at the beginning of 2021 continues over the 21st century. Emissions decline but lead nonetheless to 2.6°C of warming associated with moderate to severe physical risks. Transition risks are relatively low.

 

To account for large variability in climate under each emissions scenario, we used four climate models (downscaled General Circulation Models) to understand the climate-related risks and opportunities across our asset portfolio. These model a range of changes to climate and provide variances for different regions of Australia. For each asset, we considered the results of each of these models at the asset’s location and classified them into: Hot/Dry, Cool/Dry, Hot/Wet, and Cool/Wet to represent variability in projected temperature change and rainfall change relative to current levels. This allowed us to explore the potential consequences for our assets across a range of outcomes produced by the climate models (reflecting the scientific uncertainty related to the impact of emissions on climate), including potential relative financial effects across our asset portfolio under each climate scenario.

 

1 Detail sourced from NGFS transition scenarios. 
2 The 2015 Paris Agreement requires each Party to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions. NDCs are submitted every five years to the UNFCCC secretariat. In order to enhance the ambition over time the Paris Agreement provide that successive NDCs will represent a progression compared to the previous NDC and reflect its highest possible ambition.

Minimising our contribution to climate change

Net zero carbon emissions

In June 2020, QIC Real Estate announced a commitment to achieving Net Zero Carbon Emissions (Scope 1 and 2) by 2028 for our core managed portfolio of Australian retail assets within the QIC Property Fund (QPF) and QIC Town Centre Fund (QTCF). In FY21, the same target was expanded to cover QIC’s Office Fund (QOF), and in FY22 it was extended to our QIC Active Retail Property (QARP) and QIC Australia Core Plus (QACPF) funds.3

Our funds are also signatories to the World Green Building Council’s Net Zero Carbon Buildings Commitment, demonstrating our commitment to achieving net zero in operational carbon emissions (Scopes 1 and 2), and driving our focus on reducing embodied carbon within our new development and renovation projects. As a signatory, we are committing to achieving net zero in operational emissions (Scopes 1 and 2) by 2028 and net zero in embodied carbon within any new developments from 2030 onwards.

Roadmaps have been developed for each of our funds, detailing the various carbon emissions reduction initiatives required at an asset level to achieve net zero carbon emissions (Scope 1 and 2) by 2028. The roadmaps are aligned with each asset’s 10-year capital plan and annual budget, and are reviewed and updated annually to maintain currency. An aggregated roadmap for the real estate portfolio is presented below, demonstrating the progress we have made to date, as well as planned future initiatives to achieve net zero carbon emissions by 2028 (Scope 1 and 2) across our five funds.

Figure 11: QIC Real Estate portfolio summary - Net zero carbon emissions roadmap

QIC Real Estate portfolio summary - Net zero carbon emissions roadmap

 

Fund level roadmaps detailing our strategy to achieve net zero carbon emissions by 2028 can be found here: Fund level net zero carbon emissions roadmaps.

* All long-term objectives, short-term targets and Net Zero Carbon Emissions targets apply to only assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2023 - QTCF: 89%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 99%). Short-term targets to reduce carbon emissions are in line with each Fund's Net Zero Carbon Emissions target, which rely on increase in renewable energy consumption through onsite solar rollout and purchase of grid sourced renewable energy (QPF and QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF and QTCF: ~25%, QOF: ~35%including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF and QTCF: 2018, QOF: 2015, QARP: 2021, QACPF: 2021). Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives. Progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000). QPF, QTCF, QOF, QARP and QACPF are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment.

 

FY23 carbon emissions performance

To track performance towards our 2028 net zero carbon emissions objective, we set interim, year-on-year carbon emissions reduction targets for each of our funds, which act as a steppingstone to achieving our longer-term carbon ambition. Performance against the FY23 targets is presented below.

Table 8: Fund level carbon emissions reduction targets

Fund FY23 Performance Target (% reduction on FY22 performance) FY22 Scope 1 & 2 emissions (tCO2-e) FY23 Scope 1 & 2 emissions (t-CO2-e) Percentage variation FY23 performance target achieved
QARP 15% 2,719 1,730 ↓ 36%  Yes
QACPF 10% 5,122 4,359 ↓ 15% Yes
QOF 3%4 4,646 4,454 ↓ 4% N/A
QTCF/QPF5 10% 65,228 57,480 ↓ 12% Yes

 

Onsite solar rollout

Our large-scale onsite solar roll out program6 continued during FY23, with the completion of new rooftop solar systems at Bathurst City Centre (NSW), Nerang Mall (QLD), The Village Upper Mount Gravatt (QLD), and Merrifield City (VIC). The energy generated by our onsite solar systems accounted for 15% of QIC Real Estate’s total direct energy use in FY23. System sizes and supply commencement dates can be seen in the table below.

Table 9: QIC Real Estate solar system sizes and supply commencement dates

Fund Asset System capacity (DC) Supply commencement date
QPF and QTCF Watergardens 2.4 Megawatts 23 March 2021
Grand Central 1 Megawatt 5 May 2021
Robina Town Centre 5.5 Megawatts 14 June 2021
Hyperdome 4.9 Megawatts 23 May 2022
Merrifield City 0.3 Megawatts 1 May 2023
QARP Domain Central 1.4 Megawatts 1 November 2020
Bathurst City Centre 0.67 Megawatts 1 December 2022
Craigieburn Junction 0.9 Megawatts Installed by previous asset owner
QACPF
Nerang Mall 0.5 Megawatts 14 March 2023
The Village Upper Mount Gravatt 0.35 Megawatts 17 March 2023

 

Energy efficiency initiatives

Initiatives completed during the year to reduce energy use across our portfolio are outlined below. 

 

Lighting upgrades

Energy efficient LED lighting and lighting control upgrades were completed at various assets, including common mall lighting upgrades at Forest Lake Shopping Centre, Nerang Mall, The Village Upper Mount Gravatt, Grand Central and Robina Town Centre (all located in QLD).

 

Mechanical plant optimisation

Upgrades to vertical transport systems (elevators, escalators, and travelators) were completed at several assets including Westpoint, Castle Towers (both located in NSW), Eastland (VIC), and Robina Town Centre (QLD). These upgrades include energy efficiency initiatives such as regenerative breaking on elevators, energy efficient motors and VVVF7 invertor controls to manage escalator speed based on passenger use.

HVAC system upgrades were carried out at Watergardens (VIC) and Domain Central (QLD), with design activities and procurement of new plant and equipment also completed at Canberra Centre (ACT) and Eastland (VIC) in preparation for the implementation of upgrades in FY24.

 

Data analytics and plant optimisation

The data-driven maintenance regime enabled by our partnership with CIM has been working well across the retail portfolio, with roughly 1,000 unique optimisation opportunities identified and addressed during FY23. Significant savings in gas use were achieved through winter by the tuning of boilers and related HVAC equipment at Victorian, New South Wales, and Canberra-based assets to optimise temperature setpoints, and equipment run-times while continuing to achieve thermal comfort requirements within the common mall areas of the shopping centres.

 

Key energy performance insights

QIC Real Estate saw a 4% increase in total energy consumption in FY23 compared to FY22. This was driven by a 9% increase in natural gas use year-on-year, as a result of returning to normal operating conditions in FY23 following the significant disruption to operations experienced across our Victorian, New South Wales and Canberra-based assets in FY22 as a result of COVID-19 lockdowns. The majority of natural gas usage across the portfolio occurs at assets located within these States and Territories. Electricity generated from onsite solar PV increased by ~36% in FY23 compared to FY22 and this contributed to a ~2% reduction in grid-sourced electricity use in FY23 compared to FY22.

Similarly, to natural gas consumption, electricity consumption will have been impacted by the return to normal operating conditions in FY23 following the significant disruption to operations experienced across our Victorian, New South Wales and Canberra-based assets in FY22 because of COVD-19 lockdowns.

Figure 12: QIC Real Estate portfolio annual energy consumption and intensity, FY19 - FY238

QIC Real Estate portfolio annual energy consumption and intensity, FY19 - FY23

Figure 13: QIC Real Estate portfolio annual carbon emissions, FY19 - FY239

QIC Real Estate portfolio annual carbon emissions FY19 - FY23

 

 

Managing climate-related transition risks and opportunities

In considering climate-related transition risks and opportunities across our key decision-making processes, our focus is on integrating our net zero carbon emissions by 2028 objectives, and the outcomes of any other relevant assessment work, in the following ways.

 

Active asset management

Within our active asset management processes, our efforts are focused on transitioning our assets to net zero operational carbon emissions, identifying and employing new business opportunities, and continually improving internal data management and reporting processes to ensure we can meet rapidly evolving climate-related reporting obligations.

QIC Real Estate has committed to achieving net zero carbon emissions (Scopes 1 and 2) by 2028.10 Roadmaps to achieve net zero carbon emissions have been developed for each fund based on asset level carbon reduction opportunities, and are updated annually. Carbon emissions reduction initiatives included in the roadmaps are incorporated into asset level capital plans and annual budgets.

We also seek to identify and employ new business opportunities such as the use of supportive policy incentives like the Victorian Energy Upgrades program and the roll-out of electric vehicle charging stations at our retail assets.

 

Development projects

Within our development processes, our focus is on ensuring our development and major renovation projects align with the concept of a low carbon economy. We want our new developments to be highly energy efficient, low in embodied carbon, avoid the use of fossil fuels, and maximise onsite renewable energy generation.

Our Sustainable Design Brief guides ESG decision making in our development work and embeds our ESG strategy and long-term ESG objectives into our building design and delivery activities, clearly stating our minimum requirements regarding sustainability performance of new developments and major renovations, and ensuring we maximise the improved investment performance that highly efficient, sustainable buildings can deliver.

 

Capital transactions

A separate process is used to assess climate-related risks within any capital transactions that we undertake, which leverages our knowledge gained from progressing our net zero operational carbon objectives across the existing portfolio through our fund level decarbonisation roadmaps.

A review of climate-related risks is included in an early stage ESG assessment undertaken on prospective asset acquisitions, to help the business understand how a potential property acquisition might either support or hinder the delivery of QIC Real Estate’s ESG strategy and long-term objectives. During this assessment, climate-related transition risks are assessed through the lens of the property’s existing energy efficiency and operational carbon emissions, and the effort and cost required to improve energy efficiency and achieve net zero in operational carbon emissions in line with our existing 2028 net zero carbon emissions (Scopes 1 and 2) target.

If our interest in a potential property acquisition progresses to the stage technical due diligence stage, we require, as part of the technical due diligence work, the assessment of climate-related transition risks and opportunities related to the prospective asset using scenarios that align with our existing assessments - Representative Concentration Pathways of 2.6, 4.5 and 8.5 and time horizons of 2030, 2050 and 2070. This provides us with a more granular view of the effort and cost required to achieve net zero in operational carbon emissions by 2028 associated with a potential property acquisition, and the results of the assessment are incorporated into the overall evaluation of the investment opportunity.

Potential asset divestments are assessed against how the divestment may impact our ability to achieve our ESG strategy and related long-term objectives, including our net zero carbon emissions targets. The findings from the assessment are incorporated into a divestment decision paper.  Additionally, information on current energy performance of an asset is provided to prospective buyers as part of the sale process.

 

Material climate-related transition risks and opportunities

The following tables present the material climate-related transition risks and opportunities, relevant time horizon, potential financial impacts identified through assessment of climate-related risks and opportunities, and QIC Real Estate’s responses to manage these.

Table 10: Climate-related transition risks and opportunities for QIC Real Estate

Climate-related transition risks/opportunities Potential financial impacts on QIC Real Estate Time horizon QIC Real Estate response
Energy systems
Use of supportive policy incentives Reduced CAPEX requirementsfor behind the meter renewables and energy efficiency investments due to government managed energy efficiency and renewable energy incentive schemes e.g. Victorian Energy Upgrades & New South Wales Energy Savings Scheme, as well as the opportunity for us to participate in such schemes Medium-term QIC Real Estate has realised CAPEX reduction opportunities offered through participation in government schemes such as the Victorian Energy Upgrades program (~$1.6M in FY23) and will continue to target these opportunities where available.
Use of lower-emissions sources of energy Reduced exposure to future fossil fuel price increases Short-term QIC Real Estate is progressively installing onsite solar PV systems at our assets (~24 Megawatts of capacity to 30 June 2023) which is reducing our exposure to current and future fossil fuel related electricity price increases and volatility.
Products and services
Development and/or expansion of low emission goods and services Increased revenue through demand for lower emissions products and services e.g. opportunity to directly purchase renewable energy to on-sell to tenants and reduce emissions Short- to medium-term QIC Real Estate is developing a forward-looking electricity purchasing strategy, which includes an opt-in renewable electricity offering to tenants from 2024.
Ability to diversify business activities Increased revenue opportunity presented by provision of electric vehicle charging stations at our assets
Medium-term QIC Real Estate has established an Electric Vehicle (EV) Charging Working Group to develop an EV charging station deployment strategy and plan that seeks to align deployment with demand, minimise CAPEX and OPEX related risks and maximise revenue opportunities
Markets
Improved ratings by sustainability/ESG indexes Increased investment opportunities through access to new and emerging markets Short-term QIC Real Estate’s voluntary actions to reduce carbon emissions to achieve net zero carbon emissions (Scopes 1 and 2) by 2028 and improve the energy efficiency of our assets is resulting in improved performance in sustainable building rating schemes such as NABERS, which opens up new potential tenant markets, and stronger scores in benchmarking schemes such as GRESB which increases the attractiveness of our investment funds to potential investors
Changing customer behaviour Changing expectations amongst stakeholders regarding the operational management of our assets, e.g. expectations around carbon neutral operations and provision of EV charging stations Short-term

QIC Real Estate has committed to achieving net zero carbon emissions (Scopes 1 and 2) by 2028.

QIC Real Estate has established an Electric Vehicle (EV) Charging Working Group to develop an EV charging station deployment strategy and plan that seeks to align deployment with demand, minimise CAPEX and OPEX related risks and maximise revenue opportunities.
Increased cost of raw materials Increased construction costs on property development projects
Short- to medium-term Driven by QIC Real Estate’s Sustainable Design Brief, our property development projects are prioritising reductions in upfront carbon emissions, including embodied carbon through good design and material selection. This focus includes identifying dematerialisation opportunities and seeking to reuse existing materials during demolition as well as selecting products containing a high percentage of recycled material, all of which help to mitigate the risk posed by increased cost of raw materials, particularly virgin and fossil-based materials. This focus is also backed up by our commitment through the World Green Building Council’s Net Zero Carbon Buildings Commitment, which requires us to achieve net zero in embodied carbon on all new development projects from 2030 onwards.
Policy and Legal
Enhanced emissions reporting obligations Increased data capture and reporting obligations driving higher compliance costs Short-term QICReal Estate utilises Envizi and Microsoft Power BI to manage the capture, collation, analysis and reporting of sustainability data including carbon emissions data. We are focused on the automation of data capture processes and performance reporting generation wherever possible to improve the efficiency of our data management and reporting processes and avoid manual data entry errors. Data also undergoes an external assurance process in accordance with ASAE 3000 every six months to ensure data completeness and accuracy prior to external reporting.
Technology
Transitioning to lower emissions technology CAPEX and OPEX impacts related to electrification of natural gas-powered HVAC and hot water systems Short-term Electrificationstrategies form an important part of our net zero carbon by 2028 pathway and have been developed with related CAPEX requirements incorporated into asset 10 Year capital plans. The strategies are being implemented in phases, aligned with life-cycle plant and equipment replacement requirements wherever possible to minimise unnecessary CAPEX.

 

 

3 Net Zero Carbon Emissions targets apply to only assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2023 - QTCF: 89%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 99%). Short-term targets to reduce carbon emissions are in line with each Fund's Net Zero Carbon Emissions target, which rely on increase in renewable energy consumption through onsite solar roll out and purchase of grid sourced renewable energy (QPF and QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF and QTCF: ~25%, QOF: ~35% including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF and QTCF: 2018, QOF: 2015, QARP: 2021, QACPF: 2021). Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives. Progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000). QPF, QTCF, QOF, QARP and QACPF are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment.
4 QIC Office Fund short-term target set for two years i.e. to achieve a 3% reduction below FY22 performance by FY24.
5 Excludes assets that are not 100% owned and managed by QIC i.e. joint venture assets.
6 Refer to Our Progress for details on our Modern Slavery approach, including reference to the human rights issue and risks associated with the allegations of the use of forced labour of Uyghur and other ethnic minorities. Further information on QIC’s approach to modern slavery can be seen in QIC’s latest Modern Slavery Statement.
7 Variable voltage variable frequency.
8 Energy use data covers QIC Real Estate's retail, office and industrial portfolios
9 Carbon emissions data covers QIC Real Estate's retail, office, and industrial portfolios. Scope 3 carbon emissions increased in FY21 due to the commencement of capturing energy use and emissions from major tenants.
10 Net Zero Carbon Emissions target apply to only assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2023 - QTCF: 89%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 99%). Short term targets to reduce carbon emissions are line with each Fund's Net Zero Carbon Emissions target, which rely on increase in renewable energy consumption through onsite solar roll out and purchase of grid sourced renewable energy (QPF/QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF/QTCF: ~25%, QOF: ~35% including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF/QTCF: 2018, QOF: 2015, QARP: 2021, QACPF: 2021). Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives. Progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000). All funds are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment. 

Maximising our resilience to the impacts of climate change

QIC Real Estate’s approach to managing climate-related risk has been developed in response to the outputs of our work to assess the financial impacts of physical climate risk on each of our assets.  Our assessment of the financial impacts of physical climate risk has involved consideration of both acute and chronic risks across scenarios that broadly align with the low, medium, and high emissions scenarios described by the Intergovernmental Panel on Climate Change (IPCC) developed Representative Concentration Pathways (RCP) 2.6, 4.5 and 8.5.

 

Assessing physical climate risk

In 2021, we undertook an assessment to provide an overview of physical climate risk exposure across our managed asset portfolio, including the possible impacts of a set of consistent climate variables across each asset.

QIC Real Estate has subsequently built on this 2021 assessment by working with an actuarial and insurance consultant with specific expertise in physical climate risk to evaluate and quantify the financial impacts of climate change at an asset and portfolio level. The work used a methodology that is specific to our business model, is adaptable for application across our diverse asset portfolio, and uses a consistent framework to ensure the results can be rolled up into a real estate portfolio view.

In trying to understand the possible financial impacts of physical climate risks and opportunities across our real estate portfolio, an assessment of the relationship between climate events (known as ‘climate drivers’, including both acute and chronic risks) and the Net Operating Income (NOI) for each asset was undertaken. This included modelling the potential impacts (both positive and negative) until 2070 under three climate scenarios (RCP2.6, RCP4.5 and RCP8.5) and four climate models (classified into: Hot/Dry, Cool/Dry, Hot/Wet, and Cool/Wet), across several relevant asset level income and expense items as shown in the following diagram.

Figure 14: Impact of climate drivers on NOI for QIC Real Estate11, 12

Impact of climate drivers on NOI for QIC Real Estate

 

Figure 15: Formula for working out the change in NOI and asset value as a result of climate drivers

Formula for working out the change in NOI and asset value as a result of climate drivers

 

In applying this assessment at an asset level, we have been able to identify the expected relative impact of climate change, be that positive or negative, across relevant asset level income and expense items, and therefore NOI over each time horizon across the portfolio. The assessment focuses on the relative impact of each climate driver and has highlighted those most material to the financial performance of our assets. The outputs of this assessment will assist us in prioritising the implementation of further asset level mitigation measures which respond to those climate drivers identified as having the largest relative financial impact. 

This work is still underway and will be finalised during FY24. This type of analysis will be reviewed annually as part of our risk management processes and repeated periodically (likely every 5 years) to incorporate current climate science.

 

Managing physical climate risks and opportunities

Our assessment of the financial impacts of physical climate risk has focused on understanding the inherent risk of a set of chronic and acute climate events at each asset. This has enabled us to then overlay the existing measures in place to mitigate and manage such risks, to understand the residual risk of each identified climate risk at an asset level across the portfolio. In assessing the risks, we consider the worst-case outcomes from the various climate scenarios and time horizons, and existing risk mitigants, as assessed within QIC’s risk management framework.

This process has helped us to understand the overall resilience of existing strategies and measures in place at each asset to mitigate climate-related risks and identify further actions for implementation, prioritising those that respond to climate risks likely to have the greatest financial impact.

In considering physical climate risk across our key decision-making processes, we integrate the outcomes of our assessment work in the following ways.

 

Active asset management

Within our active asset management processes, the results of our work to understand the possible financial impacts of climate change have informed the assessment, management and prioritisation of climate-related risks in asset level risk registers, which are established and maintained through QIC Real Estate’s WHS&E management system. These risk registers use QIC’s enterprise-wide risk matrix to:

  1. Assess the inherent risk rating
  2. Document existing risk mitigation controls
  3. Assess the residual risk rating considering the controls in place
  4. Identify and manage the implementation of any additional risk mitigation initiatives, focusing on those which respond to those risks expected to have the biggest financial impact to an asset.

The specific consideration of climate-related risks in the business' standard operational risk management processes ensures:

  • Asset specific experience and operational knowledge contributes to the risk assessment
  • Climate-related risks continue to be assessed and managed within the business's existing management processes
  • Role and responsibilities for managing risk are clearly defined
  • The implementation of additional risk mitigation initiatives is incorporated into capital and operational budgets as required and tracked and reported on.

 

Development projects

Within our development processes, the results of our work to understand the possible financial impacts of climate change have informed project-specific climate change risk assessments, and the resulting climate adaptation measures have been incorporated into our projects. The results have also informed climate resilience guidance contained in our Sustainable Design Brief.

Our Sustainable Design Brief embeds our ESG strategy and long-term ESG objectives into our building design and delivery activities, clearly stating our minimum requirements regarding the sustainability performance of new developments and major renovations, and ensuring we maximise the improved investment performance that highly efficient, sustainable, and resilient buildings can deliver.

 

Capital transactions

A separate process is used to assess climate-related risks within any capital transactions that we undertake, which leverages our understanding gained from the financial climate assessment completed across our existing portfolio.

A review of climate-related risks is included in an early stage ESG assessment undertaken on prospective asset acquisitions, to help the business understand whether a potential property acquisition might pose a risk to, or support, the delivery of QIC Real Estate’s ESG strategy and long-term objectives. Climate-related physical risks are initially assessed via Munich RE’s Location Risk Intelligence portal. This portal provides location-specific exposure ratings for a range of climate-related physical risks under two climate scenarios (RCP4.5 and RCP 8.5) and three time horizons (2030, 2050 and 2100).

If our interest in a potential property acquisition progresses to the stage of undertaking technical due diligence, as part of the technical due diligence work we require the assessment of climate-related physical risks (including acute and chronic risks) and opportunities related to the prospective asset using scenarios that align with our existing analysis - Representative Concentration Pathways of 2.6, 4.5 and 8.5 and time horizons of 2030, 2050 and 2070. The results of this assessment are incorporated into the overall evaluation of the investment opportunity.

Potential divestments consider asset level climate risk as determined by our physical climate risk assessments, which may partially drive our decision to divest.  Technical due diligence reports provided to prospective buyers include an assessment of the potential physical climate risks the asset could be exposed to in future.

 

Material climate-related physical risks

The following table presents the material climate-related physical risks, relevant time horizon, potential financial impacts identified through assessment of climate-related risks and opportunities and QIC Real Estate’s responses to manage these. Physical climate risks are deemed material if the risk is assigned an inherent risk rating of 'Medium' or higher13 as assessed within QIC's risk management framework. 

Table 11: Material climate-related physical risks for QIC Real Estate

Climate-related physical risks Potential financial impacts on QIC Real Estate Time horizon QIC Real Estate response
Acute
Increased severity of extreme weather events (such as cyclones, intense precipitation or wind events, floods, and heatwaves) Increased OPEX and CAPEX to respond to, and recover from, 

weather related damage to buildings, and disruptions to centre and retailer operations.

Increased insurance costs due to increased frequency and severity of physical damage of assets.
Medium- to long-term

Active asset management: Assets with a high exposure to this risk have been identified through our assessment of the potential financial impact of climate risks. Climate-related physical risks including extreme weather events are managed through QIC Real Estate’s business management processes, including but not limited to our WHS&E management system. Risks with a residual risk rating of ‘Medium’ or above are reviewed at least annually, encouraging a focus on continual improvement and the identification and implementation of initiatives to further mitigate the risk. Through assessing the potential financial impact of these risks, we can prioritise the implementation of mitigation measures at the asset level and focus on those that will mitigate those risks with the highest financial impact first.

Development projectsClimate resilience and adaptation measures are assessed and incorporated into the design of new developments and major renovation projects through the adherence to specific requirements within QIC Real Estate’s Sustainable Design Brief that guide the assessment and mitigation of climate-related risks during the design process. Addressing the risk of increasing frequency of extreme weather events may be mitigated through building and roof design, increasing guttering and stormwater management system capacity, increasing external permeable surfaces to maximise percolation and reduce surface run-off.

Capital transactionsExposure to climate-related physical risks including extreme weather events are assessed during the early evaluation and during technical due diligence on potential property acquisitions with findings fed into the overall investment evaluation.

Increased frequency and severity of bushfire events Increased OPEX and CAPEX to respond to, and recover from, 

bushfire related damage to buildings, and disruptions to centre and retailer operations.

Increased insurance costs due to increased frequency and severity of physical damage of assets.
Short- to long-term
Chronic
Changes in precipitation patterns and extreme variability in weather patterns e.g. droughts Increased OPEX related to extreme rainfall events e.g. cleaning costs, responding to water ingress, flash flooding, etc. Medium-term

Active asset management: Assets with a high exposure to this risk have been identified through our assessment of the potential financial impact of climate risks, helping us to prioritise the implementation of mitigation measures at assets with the highest financial exposure first. Ongoing risk management occurs through QIC Real Estate’s business management processes, including but not limited to our WHS&E management system (e.g. existing risk control measures are documented and reviewed, and identified additional risk mitigation actions are incorporated into future operational/capital plans and implemented as required).

Development projectsClimate resilience and adaptation measures are assessed and incorporated into the design of new developments and major renovation projects, through the adherence to specific requirements within QIC Real Estate’s Sustainable Design Brief that guide the assessment and mitigation of climate-related risks during the design process. Addressing the risk of increasing droughts may be mitigated by improving water efficiency of plant, equipment and processes and maximising rainwater capture and reuse onsite.

Capital transactionsExposure to climate-related physical risks are assessed during the early evaluation and during technical due diligence on potential property acquisitions with findings fed into the overall investment evaluation.

Rising mean temperatures increasing operating and capital costs Increased OPEX and CAPEX related to greater air conditioning demand Medium-term

Active asset managementQIC Real Estate is targeting net zero in operational carbon emissions (Scopes 1 and 2) by 2028, which is driving annual carbon reductions through improved energy efficiency, engaging with building optimisation partners (CIM), improving HVAC system efficiencies during life cycle replacements, and deploying onsite solar which reduces our grid electricity supply needs (and costs), and limits transfer of thermal energy from our roofs into our buildings.

Development projectsClimate resilience and adaptation measures are assessed and incorporated into the design of new developments and major renovation projects. Our Sustainable Design Brief commits us to achieving minimum 5-Star Green Star Building and 5.5-Star NABERS Energy ratings on new development projects which results in highly efficient buildings more resilient to rising mean temperatures and related operating cost increases.  We also look to deploy onsite solar on larger projects, which reduces our grid electricity supply needs (and costs) and limits transfer of thermal energy from our roofs into our buildings.

Capital transactionsExposure to climate-related physical risks is assessed during the early evaluation and during technical due diligence on potential property acquisitions with findings fed into the overall investment evaluation. Regarding rising mean temperatures, special attention is paid to the thermal performance of the potential property, including the effectiveness of any passive design elements, and the capacity, performance and efficiency of existing HVAC systems and how these factors may influence future OPEX or CAPEX requirements.

 

The following table presents the residual risk ratings of the material climate-related physical risks as a percentage of QIC Real Estate’s portfolio gross asset value. The ratings demonstrate the overall resilience of our existing portfolio, and strategy related to managing climate-related physical risks.

Table 12: Residual risk ratings as a percentage of QIC Real Estate portfolio gross asset value (30 June 2023)

Climate-related physical risks Very low Low Medium High Very high Not assessed14
Chronic
Changes in precipitation patterns and extreme variability in weather patterns (e.g. drought) 62% 18% 18% 0% 0% 2%
Rising mean temperatures 30% 63% 5% 0% 0% 2%
Acute Increased severity of extreme weather events (such as cyclones, intense precipitation or wind events, floods, and heatwaves) 1% 42% 55% 0% 0% 2%
Bushfire 39% 54% 4% 0% 0% 2%
 Portfolio average 33%
44% 21% 0% 0% 2%

 

11 Management controlled rental affected by chronic climate drivers included car parking income, but did not include storage income. 
12 The impact of blackouts on assets was not modelled in this iteration of the modelling.
13 Using a scale of Very Low, Low, Medium, High and Very High, as assessed within QIC's risk management framework.
14 Assets not currently assessed represent 2% of portfolio gross asset value and include a development site and two industrial assets acquired in FY23 under joint venture, and another joint venture asset managed by the co-owner. Risk assessments on these assets will be undertaken within the next 12 months.

QTCF Green Bond - calendar year 2022 update report

In 2019, QIC Town Centre (QTCF) issued a A$300m Climate Bond Initiative (CBI) certified green bond, a world-first for the retail property sector and an important milestone for QTCF, endorsing QIC Real Estate's progress and ongoing focus on sustainability.

The Green Bond asset pool included three high-quality Australian retail assets (Robina Town Centre - QLD, Grand Central - QLD, and Eastland - VIC) which have undergone staged redevelopment programs and are part of a portfolio-wide energy efficiency program of works which continue to deliver further energy improvements. 

You can download our 2022 calendar year Green Bond update report here

The QTCF 2022 calendar year Green Bond update report has received limited assurance from Sustainalytics. Their annual review letter can be viewed here

Tags
ESG 2023