Feature: Why The Property Sector Needs Climate Intelligence Now
By Kate Rodger, head of customer success at Cervest
Climate risk is accelerating at an alarming rate, with increasingly devastating results for the real estate sector. A recent report from the UN Intergovernmental Panel on Climate Change (IPCC) highlighted how the persistent rise in global temperatures is triggering longer, more frequent and more severe weather events. We’ve seen multiple examples of the devastation these mounting climate hazards can unleash, for example, the unprecedented flooding in Germany, France, Netherlands, Belgium, and the UK last year, which led to insured losses of $43 billion, and Storm Filomena, which caused $2 billion worth of damage in Spain.
While reaching Net Zero is critical for long-term climate stability, reducing carbon emissions will not deter decades of hazards already ‘locked’ into our ecosystem. This damage poses an immediate danger to our lives and livelihoods through the destruction of physical assets – the real estate sector’s bread and butter.
Adaptation and resilience against climate-related risk are key, but most property decision-makers don’t know where to start. The climate system is complex and highly interconnected. This makes it extremely difficult to identify and study risks to individual assets, and to make appropriate contingency plans, like building defences in areas that will become more prone to flooding. Mounting risks aren’t the only climate-related issue property companies have to contend with. The industry is also facing growing pressure from regulators and investors to disclose the impact climate change is having on their businesses, most notably thanks to the emergence of climate-related financial disclosure requirements, like those coming into force in the UK on April 6th.
This challenging combination of risk and regulation is highlighting the need for decision-useful insights on asset-related climate risk, known as Climate Intelligence (CI). So how can property and real estate professionals harness CI to reduce their exposure to climate risks?
Technology provides an edge
Time and again, we’ve witnessed technology’s ability to empower decision-makers with groundbreaking, decision-useful insights about their business – this ability is proving especially important in the context of climate change. Advances in climate science and machine learning have made it possible for companies to access granular, asset-level information about their climate risk and to use that information to protect their bottom line. The power of these insights is one of the reasons global analyst firm IDC called Climate Intelligence a “strategic priority for organisations worldwide”.
Climate Intelligence solutions provide real estate businesses with several benefits that traditional climate data or analytics cannot offer. These include helping property professionals to not only identify but understand their climate risk, sharing this information with colleagues, investors and suppliers, making informed decisions in the short and long term, and uncovering new business growth opportunities.
Avoid the uninsurable
The cost and availability of insurance are major factors in real estate investment. Yet climate-related volatility creates the very real risk of a property becoming either impossible or prohibitively expensive to insure. Coverage for at-risk properties is projected to decrease while premiums continue to rise. In fact, according to a UNEP Finance Initiative report, “some insurers are already signalling that climate change may make buildings uninsurable in the future.”
To avoid being stranded with uninsurable assets, property owners can use Climate Intelligence to gain a clearer picture of the risks facing every property in their portfolio – looking at multiple climate hazards (e.g., heat stress, flooding, etc.) and across different timescales and scenarios – to determine exactly where and when their risks are and then make decisions to avoid near and long-term losses.
Balance emissions reduction with resilience
While many companies identify achieving Net-Zero as their primary focus, the need to protect physical assets from climate-related hazards is equally important. According to UN Secretary-General Antonio Guterres, “adaptation and mitigation must be pursued with equal force and urgency.” Yet there is still a lack of clarity about the emissions path the world will take, which creates uncertainty about the likelihood, extent and timing of climate impacts on specific assets, locations or regions. This can hamper decision-making on investment, divestment, and day-to-day operations.
Cervest’s EarthScan, which considers risks across multiple hazards, timeframes and emissions scenarios – including property risk ‘shocks’ like flooding events and ‘stresses’ like longer-term shifts in temperature or sea levels – equips real estate and property professionals to make better informed decisions about the most critical actions to take and where to allocate resources. For example, a property owner can use CI to look across their portfolio to determine how hurricane or flood damage could affect their buildings in the short term, creating financial repercussions like repair or rebuilding costs or erosion of asset value. They can also look across the industry at how major stressors will drive broader changes like the inability to insure exposed assets, lack of funding for exposed assets or higher operational costs due to a need for increased energy, heating or cooling. Both views are vital to ensuring economic health.
The bottom line is this: the property industry has reached an inflection point – it can harness the science, technology and practical application of Climate Intelligence via solutions like Cervest’s EarthScan, to analyse, anticipate and adapt to climate change.
Using CI, real estate decision-makers can confidently start building climate adaptation and resilience into their property portfolios today to not only alleviate risk but uncover opportunity, which is more relevant than ever as businesses set out to combat climate change as can be seen with climate-related financial disclosures becoming mandatory on April 6th.