Article on improving physical climate risk assessments for real estate

Publications 

By Felix van Veldhoven 

09 / 01 / 2023 

Go to publication 

Climate change is a systemic risk for the financial sector. The effects of climate change can throw the financial system out of balance, which can have serious negative consequences for the economy. It is therefore important for parties in the financial sector to investigate the risks of climate change.  

More and more companies are reporting on climate-related risks. So far, they have emphasized transition risks. Transition risks are all costs arising from the transition to a sustainable and climate-resilient economy. It is important to also gain more insight into physical climate risks and thus contribute to a climate-resilient built environment. We call such an investigation a physical climate risk assessment. 

In the article Making physical climate risk assessments relevant to the financial sector, we make a number of recommendations to improve physical climate risk assessments for the financial sector. We make these recommendations based on interviews with decision-makers, several Dutch case studies and literature research. Here, we have limited ourselves to the real estate sector. 

Lars de Ruig weet alles over dit project

Physical climate risk assessments provide important information on real estate

The interviews revealed that climate risk assessments provide important information for real estate parties. For instance, a climate risk assessment supports investors to determine which real estate properties are potentially at risk from climate change and how much money is needed to mitigate the potential impacts. Also, information on climate risks helps in investment decisions. Moreover, a climate risk assessment provides an important basis for adaptation strategies. 

Five focal points for a good climate risk assessment

In the article, we list five focal points that are important for a climate risk assessment.  

  • End-user involvement and co-production. It is important to first agree with the information user on what exactly ‘risk’ means. 
  • Needs assessment. In order to share useful climate risk information, the needs of the users of that information must first be clear. 
  • Data availability and quality. It is usually not possible to collect all data on the risks of a specific building. Therefore, a climate risk assessment often has to use imperfect data, which includes uncertainty. 
  • Internal integration. In the article, we advocate that the implementation of a climate risk assessment should involve various stakeholders across the organisation and should be as transparent as possible. Disclosure of the information from the climate risk assessment should also be as transparent as possible. 
  • Communication. Finally, a climate risk assessment only achieves its purpose if you present the information at the right time and in a comprehensible form. 

  

These focal points were also considered when developing the approach to assess the physical risk for buildings. We published this approach together with the Dutch Green Building Council (DGBC) in 2022. 

Physical climate risk assessments provide important information on real estate

The interviews revealed that climate risk assessments provide important information for real estate parties. For instance, a climate risk assessment supports investors to determine which real estate properties are potentially at risk from climate change and how much money is needed to mitigate the potential impacts. Also, information on climate risks helps in investment decisions. Moreover, a climate risk assessment provides an important basis for adaptation strategies. 

Five focal points for a good climate risk assessment

In the article, we list five focal points that are important for a climate risk assessment.  

  • End-user involvement and co-production. It is important to first agree with the information user on what exactly ‘risk’ means. 
  • Needs assessment. In order to share useful climate risk information, the needs of the users of that information must first be clear. 
  • Data availability and quality. It is usually not possible to collect all data on the risks of a specific building. Therefore, a climate risk assessment often has to use imperfect data, which includes uncertainty. 
  • Internal integration. In the article, we advocate that the implementation of a climate risk assessment should involve various stakeholders across the organisation and should be as transparent as possible. Disclosure of the information from the climate risk assessment should also be as transparent as possible. 
  • Communication. Finally, a climate risk assessment only achieves its purpose if you present the information at the right time and in a comprehensible form. 

  

These focal points were also considered when developing the approach to assess the physical risk for buildings. We published this approach together with the Dutch Green Building Council (DGBC) in 2022. 

Delen via: