Posted on: April 28th, 2022
The world of UK real estate is no stranger to the elements – environmental and economic. While organizations in the property space have done well to rebound from the unprecedented disruptions caused by Covid-19, they are now facing growing pressure – political, financial, and social – to address the escalating risks posed by climate change. Last year alone, extreme weather events and other global warming-related hazards cost the worldwide economy more than £260 billion. These losses will only accelerate as climate change intensifies. Property firms and other organizations that rely on fixed assets cannot afford any delay in taking action.
Companies that can harness Climate Intelligence (CI) – asset-level intelligence for managing climate risk – will have a significant advantage in responding to climate change. Businesses equipped with CI will be able to understand and act on the risks and opportunities created by climate change at the level of individual assets faster and more effectively than their competitors. As a report from McKinsey concluded, “real-estate owners and investors will need to improve their climate intelligence to understand the potential impact of revenue, operating costs, capital costs, and capitalization rate on assets.”
To learn more about incorporating Climate Intelligence into risk planning for your property business, download Cervest’s free ebook.
Real estate’s unique vulnerabilities
The real estate sector is uniquely susceptible to the physical risks posed by climate change. Physical risks include both extreme weather events like floods and slower-onset risks like rising temperatures.
The sector’s vulnerability arises from its reliance on large, physical structures: office blocks, hotels, retail parks, and so on. Climate causes a variety of issues for buildings, depending on their composition, location, and layout. Taller structures, for example, are more susceptible to accelerating wind speeds, while complexes with open layouts are more exposed to weather elements like driving rain. Both situations lead to increased wear and tear, inflating maintenance costs.
Buildings are also generally fixed- they cannot simply be relocated from areas exposed to climate-related risks. They are also relatively illiquid compared to other types of assets and connected to decades-long investment cycles. This makes property-related returns innately vulnerable to long-term climate trends.
Finally, there is the issue of insurance. Growing awareness of the impacts of climate change is prompting providers to raise premiums for at-risk properties. There has been a sharp increase in insurance companies issuing non-renewal notices and refusing to guarantee vulnerable assets altogether. In 2021, 64% of the economic losses caused by climate change were uninsured. Both cases add to the likelihood of a property becoming stranded.
So, what can Britain’s real estate sector do to manage the risks posed by climate change? There are many ways companies can adapt their properties and develop strategies to compensate for climate-related hazards. Assets prone to faster winds and heavier rainfall can be retrofitted with more durable materials. Properties stationed in areas exposed to heat stress can be fitted with energy-efficient air conditioning and green roofs. These upgrades have benefits, such as improving a building’s EPC ratings, which enhances its value.
This process of adjusting existing plans and systems to the realities of climate change is called adaptation. In a recent report, the Intergovernmental Panel on Climate Change (IPCC) said adaptation “plays a key role in reducing exposure and vulnerability to climate change.” To adapt in a way that is both effective and cost-efficient, real estate firms must first understand the specific risks facing each of their assets. Only then can they prioritize worthwhile measures.
The challenge is that, historically, it has been extremely difficult to look at climate-related risks in the context of individual assets. Climate datasets are vast and complicated, making them challenging to explore at a granular level. Also, as Cervest’s 2021 climate-related disclosure report revealed, many companies face a range of knowledge and technical barriers when attempting to understand and assess their climate-related hazards.
Thanks to breakthroughs in climate science and machine learning, granular, asset-level analysis of climate-related risk is now possible. This capability is called Climate Intelligence, and it is revolutionizing the way organizations discover, quantify, and act on climate risks and opportunities. In a report published earlier this year, leading analyst firm IDC called Climate Intelligence “a strategic priority” for organizations worldwide and positioned CI as one primary solution to the £17 trillion worth of global economic losses climate change could cause by 2050.
If you want to learn more about incorporating Climate Intelligence into your real estate business, you can download Cervest’s comprehensive ebook. Written by our team of climate scientists, this free resource explains the opportunities and risks facing the sector, how you can become climate intelligent, and how to access personalized CI that empowers better-informed investments.
Download your free copy of the ebook here.
Author: Dr. Helen Beddow is Climate Content and Knowledge Lead at Cervest, the climate technology company working to put climate at the core of every decision.
Director, Built Environment Networking
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