Paramount : 2024 IFRS Report

Published: 2025-06-24 15:32:04 ET PGRE

Published on 06/24/2025 at 15:32

2024 IFRS S2 Report

Headquartered in New York City, Paramount Group, Inc. is a fully integrated real estate investment trust that owns, operates, manages, acquires, and redevelops high-quality, Class A office properties located in select central business district submarkets of New York City and San Francisco. Paramount is focused on maximizing the value of its portfolio by leveraging the sought-after locations of its assets and its proven property management capabilities to attract and retain high-quality tenants.

The Task Force on Climate-Related Financial Disclosures (TCFD) was created by the Financial Stability Board in December of 2015 to improve and increase reporting on climate-related financial information.

In 2023, the Financial Stability Board announced that the work of the TCFD has been completed and asked the International Financial Reporting Standards (IFRS) Foundation to take over the monitoring of progress on companies' climate-related disclosures from the TCFD. The IFRS Foundation also announced the publication of the inaugural International Sustainability Standards Board (ISSB) Standards-IFRS S1 "General Requirements for Disclosure of Sustainability-related Financial Information" and IFRS S2 "Climate-related Disclosures." The objective of IFRS S2 is for entities like Paramount to disclose information about its climate-related risks and opportunities. The IFRS S2 disclosures are focused on climate-related risks and opportunities that may affect an entity's cash flow, access to finance, or cost of capital over the short-, medium-, or long-term.

IFRS S2 requirements are structured around four categories that represent core elements of how organizations operate - governance, strategy, risk management, and metrics and targets.

We are an industry leader in sustainability initiatives that have helped us to manage operating costs, attract and retain premium tenants, and ultimately enhance portfolio value. We operate our portfolio in alignment with the highest corporate responsibility standards and in 2024, 100% of Paramount's REIT portfolio achieved LEED, ENERGY STAR, and Fitwel certification.

At Paramount, we also refer to the IFRS S2 framework to incorporate climate-related risks and opportunities into our risk management and strategic planning processes. Paramount recognizes the importance of IFRS S2 and has disclosed climate change as an emerging risk in both our Annual and Sustainability Reports since 2019. We disclose our greenhouse gas (GHG) emissions, reduction targets, and strategies for achieving them in our annual responses to CDP's Climate Change Questionnaire and GRESB, formerly known as the Global Real Estate Sustainability Benchmark.

In this IFRS S2 report, we disclose how climate change and the transition to a low-carbon economy can potentially affect our business over the short-, medium-, and long-term.

The Board believes that a complementary balance of knowledge, experience, and capability will best serve the Company and its

stockholders. The Board Skills and Experience summary in Paramount's 2025 Proxy Statement summarizes the types of experience, qualifications, attributes, and skills the Board believes to be desirable because of their particular relevance to the Company's business and structure.

Paramount's Board of Directors vested the Audit Committee with oversight over Environmental and Social matters and considers climate-related issues when reviewing financial statements and disclosures. The Audit Committee is responsible for assessing and managing climate-related risks and opportunities. The Audit Committee also maintains oversight of Paramount's Sustainability Committee. The Sustainability Committee reports to the Audit Committee on a regular basis.

When evaluating both the existing portfolio and new acquisitions, the intersections of climate-related issues with strategy, annual budgets, capital expenditures, acquisitions, and divestitures are considered initially by the Executive Committee and then reviewed, as needed, by our Board of Directors, or the Investment & Finance Committee, a subcommittee of the Board of Directors. Our Board is also involved in evaluating the impact on investor sentiment and market reputation and balancing the need to comply with evolving regulations with the flexibility to adapt to future changes in climate policies. Updates on the progress towards Paramount's corporate responsibility compensation targets, with a focus on environmental and social aspects, are presented to the Board as well.

The Executive Committee, chaired by Paramount's CEO, is responsible for leading corporate responsibility initiatives. Paramount's CEO is also the most senior decision-maker at Paramount regarding climate-related risks and opportunities. Climate-related issues and objectives are a core responsibility of our Senior Vice President of Energy and Sustainability. Paramount also engages Sodali & Co and Sustainable Investment Group (SIG) as external third-party sustainability consultants to support Paramount in its consideration and management of climate-related issues and objectives.

Paramount also established a Sustainability Committee in 2019 to ensure we are continuously monitoring and adapting our corporate responsibility strategy as needed, and to integrate corporate responsibility goals into our business strategy. Paramount's General Counsel chairs the Sustainability Committee and has climate-related issues and objectives among his responsibilities. The Sustainability Committee also has management-level representation across various departments of the organization, including Finance, Legal, Leasing, Human Resources, Asset Management, Operations and Property Management.

The Committee plays an important role in our environmental and social strategy, including improving the sustainability of all assets, increasing the health and well-being of employees and tenants, and reporting on Paramount's initiatives. Paramount's Sustainability Committee meets monthly to discuss the latest sustainability trends in the industry, current portfolio performance, and next steps. The Sustainability Committee reports to the Executive Committee on an ongoing basis.

Improve the environmental performance of all assets

Increase the health, well-being, and social awareness of employees and tenants

Provide spaces that promote physical and mental well-being for all building occupants

Report on Paramount's achievements toward best-in-class governance and transparency efforts, including coordinating stakeholder engagement

As an additional layer of our sustainability strategy, Paramount has incorporated pay incentives into our compensation structure for the management of climate-related issues. During annual performance reviews of Paramount Group's Senior Management, Engineering, and Property Management teams, accomplishments including building performance, sustainability, and social achievements are considered. To further integrate corporate responsibility into Paramount's business strategy, the Compensation Committee incorporates key corporate responsibility indicators into Executive Management variable pay awards, which is detailed on Adobe pages 63-64 of the 2025 Proxy Statement. These encourage, for example, the achievement of additional green building certifications and evaluating climate risk.

Understanding Paramount's climate-related risks and opportunities bolsters the resilience of our organization. Our approach to reporting in alignment with IFRS has identified several categories of climate-related risks and opportunities that may affect our cash flows, access to finance, or cost of capital over the short-, medium-, or long-term.

Climate-related risks and opportunities in the following sections and in the tables below are identified over the short-, medium-, and longterm. Paramount defines short-, medium-, and long-term risks as 0-5 years, 6-15 years, and 16-35+ years, respectively, which aligns with our capital planning cycles. Transition risks are results of policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change, while physical risk results from climate change can be event-driven (acute) or longer-term shifts (chronic) in climate patterns.

Risk Type

Risk Description

Time Horizon

Short

Medium

Long

Transition

Market

M.R1

Increased energy costs and resiliency systems for buildings due to the transition of grid-supplied energy to more renewable sources

M.R2

Increased energy prices due to market supply and geopolitics

M.R3

The increased cost of raw materials due to climate change impacts

Regulatory and Legislative

RL.R1

Carbon pricing and taxation obligations

RL.R2

Penalties due to natural gas restrictions

RL.R3

Requirements to procure renewable energy

RL.R4

Mandates and regulation of energy efficiency, electrification requirements, targets, and disclosures (e.g., NYC's Local Law 97, CA SB253, and SB261)

Reputation and Market

RM.R1

Changes in investor and tenant preferences

Technology

T.R1

Costs required to replace existing systems and services with lower emissions

or all electric options to avoid regulatory penalties

Physical

Acute

PA.R1

Increased precipitation, hurricanes, tropical storms, extreme heat, wildfire, and air quality impacts leading to increased insurance premiums and

construction costs

Chronic

PC.R1

Changing weather patterns and sea level rise requiring building infrastructure upgrades and increased insurance premiums

PC.R2

Rising temperatures and global climate change lead to increases in cooling costs

Opportunity Type

Opportunity Description

Time Horizon

Short

Medium

Long

Cost Savings

CS.O1

Reduced resource consumption leads to lower utility bills

Technology

T.O1

Installation of new technologies that lower emissions

T.O2

Pursuit of supportive policy incentives and rebates

T.O3

Procurement of lower-emission sources of energy

Reputation and Market

RM.O1

Increases in the number of green building certifications, responsible resource management, energy efficient design, environmental data tracking and transparency, and availability of renewable power leads to tenant engagement, attraction, and retention

RM.O2

Running an environmentally responsible business attracts and retains employees

Resiliency

R.O1

Reduced fines, energy costs, and operating expenses due to reduced source-generated carbon emissions of renewable energy delivered from the grid

The risks and opportunities included in the table above have the potential to affect Paramount's business model, strategy, and financial performance. We expand upon how each of these risks and opportunities may affect our business, as well as our strategy to manage these risks and opportunities in the section below. Depending on the risk or opportunity, our activities to manage these issues are a result of proactive capital planning and pursuing available incentives. Based on these climate risks and opportunities, we do not anticipate significant risk of material adjustment within the next annual reporting period to the carrying amounts of assets or liabilities reported in our financial statements. Where available, quantitative financial impact metrics have been provided in the sections below; otherwise, qualitative discussion on financial impacts are included instead.

Climate-related Risks and Business Impacts

Given the transition of grid-supply energy to more renewable sources due to legislated commitments, we anticipate increases in energy costs needed to power our building systems. Utility companies must make upfront investments in new renewable energy sources as well as upgrades to the grid to accommodate additional renewable sources, costs that are passed through to consumers. Additionally, with

increased reliance on renewable energy systems that may only be intermittently available, we expect that utility companies will need to invest in storage systems, costs that are also typically passed through to consumers. One way in which we monitor and track these changes is through assessing cost premiums associated with purchasing newly constructed, location-specific RECs and comparing those against general REC pricing. Our recent assessment showed that in comparison to standard U.S. market Green-e certified RECs, PCC1 RECs in the San Francisco market and Tier 4 RECs in the New York City market are estimated to be about twenty and twenty-eight times higher in price, respectively. We monitor pricing to understand how renewables may impact costs for energy generation and regulatory compliance in the markets in which we operate.

In support of enhancing the resiliency of the grid, Paramount is enrolled in Demand Response plans with our utility providers to mitigate risks associated with grid failures, supported by programming our BMS with global curtailment options. Paramount has also included policies in its Emergency Response Plans to address grid failures, such as reducing energy on vacant floors, and installing backup generators.

The impacts of climate change and geopolitical events can lead to supply disruptions and price volatility in energy markets, resulting in increased energy prices that could affect our assets and operations. We aim to reduce the risk of this impact by pursuing measures for energy efficiency, renewable energy, and resiliency, as well as monitoring energy prices and procurement options on an ongoing basis.

The impacts of climate change may also increase the costs of raw materials, resulting in higher materials costs for construction of renovations, fit-outs, and development. To reduce our exposure to this risk, Paramount receives quarterly price forecasting results from vendors to make our supply chain more resilient against price fluctuations. If vendors forecast near-term price increases, we may authorize the earlier acquisition of materials to avoid the increases. We also evaluate options to source materials domestically. In addition,

Paramount's Sustainable Purchasing Policy aims to reduce the demand for virgin resources or raw materials by setting performance expectations on purchasing, thereby promoting reuse and recycling, and durable materials. We strive to use salvaged material, FSC-certified wood, and low-VOC content of paints, seals, and flooring in construction and building upgrades.

Paramount owns or manages assets in multiple cities, and we therefore are required to comply with numerous local regulations throughout the entire portfolio, including those specific to climate such as carbon pricing, electrification, renewable energy procurement, energy efficiency, data tracking, targets, and disclosures. Examples include New York City's Local Law 84 and San Francisco's Code Chapter 20, which require energy and water consumption benchmarking, and California's SB253 and SB261, which require disclosure of climate-related topics including emissions reporting. Our current approach to data tracking for regulatory preparedness is aligned with best practices, including climate reporting in alignment with IFRS S2 recommendations, GHG inventory process aligned with the GHG Protocol, and emissions data assurance aligned with ISO14064-3.

We are also subject to Local Law 97 for our New York City properties, which sets emissions thresholds for buildings. To inform our capital planning cycles and address potential fines, we analyze the projected financial impact of Local Law 97 on our New York City portfolio annually. Paramount is not projected to incur any Local Law 97 fines during the first compliance period of 2024-2029.

These current and emerging regulations may lead to penalties in the case of non-compliance. We work to comply with applicable regulations and leverage these legislative requirements as an opportunity to pursue greater building measurement and efficiency, enhance data quality and processing, and guide emissions reporting. Additionally, some potential risks that we consider include future legislation that may involve natural gas restrictions that may result in penalties or taxation obligations.

Changing investor and tenant preferences around the management and disclosure of environmental and social issues can pose reputational risks. These topics can be subject to different levels of scrutiny under varied political landscapes, tenant priorities, and investor views.

Across our organization, we aim for value alignment with our stakeholders and prioritize activities that are beneficial to our business. We continue to monitor shifts in the political landscapes in which we operate, as well as changes in tenant and investor preferences.

As part of our transition towards lower emissions systems to address regulatory requirements, we may face increased costs to upgrade existing systems with higher efficiency or all electric options. In response, we apply proactive thought to our equipment upgrades and investment decisions across the portfolio. We identify building systems that require retrofits or that are near end-of-service life, and plan capital investments accordingly. For example, when a boiler is at the end of its useful life, we evaluate options for electrification when updating the equipment. During acquisitions, we analyze building mechanical systems regarding both location and efficiency, and we consider compliance with current and future environmental regulations.

Weather events such as increased precipitation, hurricanes, tropical storms, extreme heat, or wildfires can cause property damage, which may lead to higher operating costs for maintenance, retrofits, or construction in more severe cases. This can also result in increased insurance costs for assets located in markets vulnerable to climate change. According to the Deloitte Center for Financial Services, they project that for a commercial building in the United States, the average monthly cost of insurance could increase at an 8.7% compound annual growth rate from 2023 to 2030. Due to our portfolio concentration in coastal cities, we are aware that climate-related adaptation and mitigation strategies will be important to our business. Paramount strives to limit physical risks and reduce the impacts of potentially harmful climate events by assessing preventative measures for potential climate-related risks.

Changing weather patterns and sea level rise may result in increased insurance costs for buildings located in markets vulnerable to climate change, as well as property damage which may require building infrastructure upgrades. Investing in resilient infrastructure to limit physical risk is important to reduce the impacts of potentially harmful climate events. Climate effects such as rising sea levels and increased flooding may cause widespread population mitigation to non-coastal areas. Our properties are evaluated for flood-based risks and undergo risk assessments on a bi-annual basis through our third-party property risk management provider, FM Global. Our Property Managers and Engineers use these quantified assessments to inform and prioritize capital investments and building upgrades. For example, we evaluated the installation of thermal storage tanks in the basement of one of our assets as part of our electrification strategy. When making this upgrade, we decided we would also need to relocate our chillers to the eleventh floor due to potential flood risk. This action will help protect our boilers from damage and prevent repair costs in the event of potential future flooding.

Disclaimer

Paramount Group Inc. published this content on June 24, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 24, 2025 at 19:31 UTC.