ESR-REIT Annual Report 2024 187 Country Risks identified Australia Transition Risks • Regulatory Changes (Medium and Long Term): Australia’s “Trajectory for Low Energy Buildings” national plan, aiming for zero-energy and carbon-ready buildings by 2050, presents a significant transition risk. Meeting the 40% energy productivity improvement target by 2030 will require substantial capital expenditure in upgrades to existing assets and the implementation of energy-efficient design in new developments. This necessitates investment in energy-efficient technologies and building designs to comply with evolving regulations and maintain a competitive edge in the market. Physical Risks • Flooding (Short, Medium and Long Term): Australia already experiences frequent flooding, exacerbated by projected increase in intense rainfall and rising sea levels. This poses a significant risk to assets, particularly those located in low-lying coastal areas. The potential for damage, business interruption and loss of rental income requires both short-term mitigation strategies (e.g., improved drainage) and long-term adaptation measures (e.g., relocation or building design adjustments). • Water Stress (Long Term): Decreased rainfall, as documented in the Australian Government’s Bureau of Meteorology’s State of the Climate 2020 report, poses a chronic long-term risk. Water scarcity could impact operational efficiency and increase costs. Implementation of water management strategies, including water conservation and exploring alternative water sources, are necessary to mitigate this risk. Japan Transition Risks • Regulatory Changes (Medium and Long Term): Japan’s strengthened Building Energy Efficiency Act of 2016, mandating energy-saving standards for mid-size buildings, presents a medium-term risk. Further tightening of energy conservation targets by the METI, potentially increasing by around 10%, will increase capital expenditure for upgrades to meet stricter standards. This requires investment in energy-efficient technologies and building designs to ensure compliance and maintain a competitive edge. Further regulatory changes are anticipated beyond 2030, requiring ongoing adaptation. Physical Risks • Flooding (Medium and Long Term): Japan’s high rainfall and the projected nine-fold increase in flood damage by 2100 (Bank of Japan research) represent a significant and escalating threat. This necessitates both immediate mitigation strategies (improved drainage, flood defences) and long-term adaptation measures (e.g., relocation of vulnerable assets, building design adjustments) to protect assets and minimize financial losses. • Earthquakes (Short, Medium and Long Term): While not directly climate-related, the potential for increased earthquake frequency due to climate change warrants consideration alongside other physical risks. Japan’s geographical vulnerability requires robust earthquake-resistant building design and disaster preparedness measures to minimise damage and operational disruption.
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