Climate Risk and Resilience 101
What is Climate Risk?
Climate risk is the umbrella term for any physical, financial, or reputational impact stemming from climate change. As we are seeing now more than ever with extreme weather events occurring globally, businesses must begin recognizing their level of exposure to these risks in order to remain competitive and financially viable into the future. Risks may also be indirect, such as changes in consumer preferences and government regulations.
Source: S&P Global
8 Key Climate Risks in Real Estate Development
Natural disasters (the obvious one): increased frequency and severity of hurricanes, floods, wildfires, and earthquakes damage buildings and infrastructure, increase insurance costs, and affect property value over time.
For example, 2017 Hurricane Harvey caused ~ $125 billion in damages in the United States.
Extreme weather events (already occurring): rising temperatures, heatwaves, and droughts, impact the availability/demand and cost of resources such as water and energy, thus increasing utility bills.
Shifts in market demand: concerns and trends are driving new preferences for sustainable design, development and green building certifications (ie: LEED, WELL, BREEAM, Zero Energy, Zero Carbon, Zero Water, Living Building Challenge), renewable energy, and “clean tech”.
Regulations (growing quickly): new laws and codes often have compliance costs and impact the value and marketability of properties. Regulations on energy efficiency and carbon emissions are starting to reduce the demand for energy-intensive buildings.
Stranded assets: policies such as the transition to a low-carbon economy will leave certain types of assets worthless or uneconomic.
A study by the Grantham Research Institute on Climate Change and the Environment found that stranded assets could lead to a loss of up to $4 trillion globally by 2035.
Sea level rise and coastal erosion (a long-term concern): coastal properties are at risk of flooding and erosion due to sea level rise and storm surges, which impact property values, insurance premiums, and the ability to obtain financing.
Supply chain disruptions: According to a study by World Economic Forum, natural disasters can cost companies up to 5% of their annual revenues.
Health and safety risks: exposure to environmental hazards such as pollution, toxic substances, and airborne allergens impacts the health and safety of occupants, affecting property values and can lead to costly liability claims.
Building for Climate Resilience: Best Practices and Strategies for Developers
The two phases of addressing climate change and building for resiliency:
Mitigation = Activities or measures that reduce or prevent greenhouse gas (GHG) emissions.
Adaptation = Activities or measures that help communities, buildings, and infrastructure adapt to the impacts of climate change that are already occurring or are expected to occur.
Real estate investors, owners, and developers are increasingly interested in decarbonization as a mitigation strategy as they recognize the financial, environmental, and social benefits.
Decarbonization refers to the process of reducing greenhouse gas emissions—with a focus on cutting carbon dioxide— and presents a significant opportunity— by investing in decarbonization, operational costs go down, asset value goes up, and tenant satisfaction is improved.
There is no single action that can lead us to resilience. Developers need to understand technical aspects. For example:
Prioritize energy efficiency to reduce greenhouse gas emissions, such as installing
High-efficient lighting, fixtures, and HVAC systems
Renewable energy: photovoltaic (PV) solar panels
Meters and occupancy sensors
Leveraging passive design strategies such as tree shading and roof vegetation
Implement circular economy systems to reduce waste, such as
Rainwater capture for irrigation
Grey and blackwater systems for recycling water from taps, showers, laundry, and toilets
Cradle-to-cradle design, which prioritizes the use of materials that can be recycled or reused at the end of their useful life, rather than being sent to landfill
Recycled or reclaimed building materials in construction and renovation
Designing buildings with flexibility in mind for easy reconfiguration of spaces for future changes
Design with resilient materials to withstand extreme weather events projected in their climate zone.
Add green spaces in the forms of gardens, parks, trees, living walls, and courtyards which
Sequester (remove) carbon from the atmosphere
Provide shade thus reducing cooling demands
Reduce heat-island effect
Improve air quality
Enhance community-social interaction
Engage with stakeholders such as community members, local officials, and climate experts to learn what their needs and concerns are.
Conduct a life cycle assessment to identify opportunities to reduce embodied carbon.
Conduct a climate risk analysis including modeling to assess the physical risk of an asset.
Plan for water management such as rain gardens and water-efficient fixtures to reduce usage and improve flood protection.
Sustainable building frameworks (such as LEED and Living Building certifications) are tools to guide the design and construction process and can be aligned with a company’s corporate and sustainability goals. GAIA is recognized by the U.S Green Building Council as a LEED Proven Provider. Reach out for any questions on LEED certification or other sustainable development needs.
Why Decarbonization and Net-Zero Matter for Real Estate Investors
“In the midst of every crisis, lies great opportunity”
- Albert Einstein
Real estate investors understand the importance of a diversified investment strategy to build a successful portfolio. This includes investing in commercial properties across different geographic regions and asset types, with the primary goal of maximizing returns while minimizing risks.
Savvy investors have been increasingly incorporating environmental, social, and governance (ESG) considerations into their investment strategies. This is because sustainable assets have demonstrated better performance (compared to non-sustainable ones) and there is a growing demand for these buildings from tenants, regulators, and stakeholders. The value of ESG as an investment and risk management principle is no longer subject to debate.
Competitive Advantage: By incorporating physical risk analysis and resilience planning into their investment strategies, investors can improve their ability to make informed decisions, minimize negative financial impacts, and generate long-term returns.
Organizations like the Global Real Estate Sustainability Benchmark (GRESB) measure and report on sustainability issues and use its assessments to produce benchmark reports that enable investors to compare the sustainability performance of different companies and funds. Issues covered include energy and water use, greenhouse gas emissions, waste management, social and labor practices, community engagement, and governance.
Decarbonization is becoming an essential aspect of the real estate industry, and those who prioritize it are well-positioned to benefit from the increasing demand for sustainable, energy-efficient buildings. Additionally, climate-resilient buildings may yield substantial returns over an extended period, all while promoting the health and wellbeing of people, cities, and an ecologically rich future.
Building a Decarbonization roadmap?
GAIA supports clients in developing a custom roadmap to achieve their sustainability and corporate goals.
Contact us at hello@gaiadevelopment.com to start the conversation.
Industrial Developers: Download our free guide Decarbonizing Industrial Buildings updated for 2024.
