This year, Schroders included an environmental impact score on its latest Global Cities Index, which ranks the top investment cities globally. While the inclusion of the environmental score didn't affect the rankings this year—Los Angeles, London and Hong Kong took the top three spots, as they did last yea—the environment did have an impact on each city's score and shows the important role that an EIS score will have on investment activity.

A city that is environmentally sustainable will be economically sustainable and therefore a good place for capital investment," Hugo Machin, co-head of the global cities at Schroders, tells GlobeSt.com. "Cities will have to respond to climate change. They cannot change where they are located, but they can change how they respond. Policy response will become increasingly important and this will be captured in the index."

Investors are following suit. Environmental scores are becoming a key factor in deciding geographic targets. "The EIS score is now integrated into the Cities index. The index is a measure of where to allocate capital. If cities don't respond to climate change then their long-term attractiveness wanes," says Machin.

While the list didn't impact the top positions this year, it will in the future. The EIS score is also a signal to cities that they must combat climate change and environmental impacts to attract investment and capital. "If cities in the top 30 don't react to climate challenges then they will fall in the rankings," says Machin. "If they do fall, it will be a further spotlight on certain locations as they struggle to synthesize economic growth with environmental challenges."

Chinese markets are a prime example, according to Machin. "The absolute amount of carbon produced by China exceeds the US but not on a PER CAPITA basis, there are 1.3 billion Chinese," he says. "Importantly, China has to have a low carbon future given current air quality and their use and investment in renewables is impressive. As the index captures this, we expect Chinese cities to become much more attractive for global capital."

Overall, the inclusion of the score is a signal to cities and investors that this is now an important metric to consider when investment—and it is only becoming more important. "If policy makers don't get a handle on climate response in cities then we believe that will have a major impact on pricing further down the line," says Machin. "People have to live in cities given eco-system of the knowledge economy, but companies and people can choose where."

Instant Insights /

Why Schroders Included the EIS Score in Its Latest Ranking

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