Mitigating climate risk in CRE: Retaining asset value and advancing sustainability goals – Experts Weigh In

“We’re seeing some financial incentives coming to bear to drive sustainable improvements — FM Global recently announced a 5% resilience credit, [which is] going to cost them around $300 million,” shared Lindsay Brugger. “That’s a ton of money for a single company, but they see the ROI — they anticipate $100 billion in savings, a huge benefit-cost ratio. Those customers could see a more stable premium, maybe even a reduction in premium, and [this initiative may] preserve the availability of insurance.”

“Though [an asset] might be located in a high-risk area, understanding what a building already has and what it can do in terms of low-cost implementation measures to increase resilience in a flood or hurricane can be [beneficial for] evaluating insurance — and to assist in a smoother disposition of the asset to a potential buyer in the future,” said Chang Liu.

“[AXA] has the benefit of being affiliated with a property insurance company. They provide us with data on physical risk and what they’re looking at when they price their insurance policies,” said Benjamin Hochron. “We take into account the major perils of flood, windstorms, and earthquakes — all at the very beginning. The consequential rating that we have is reliable, structural, and based on historical data. It’s helpful to know what the risks are today, and to understand that a medium rating can be a high rating in the future. And if an asset is flagged as medium-to-high risk, we take it a step further with an engineering report or working with a partner firm.”

“Task Force on Climate-related Financial Disclosures (TCFD) reporting drives how we’re evaluating and mitigating risks. We utilize climate analytics platforms to understand what location-based risks could affect [an asset],” shared Liu. “We also look to historical resources — FEMA flood maps and other public resources — to see what events occurred to potentially justify a high risk in the future.”

“Energy efficiency is top of mind for many stakeholders, and ULI is doing a lot of work with owner-occupier collaboration towards Net Zero Carbon,” said Lindsay Brugger. “There are synergies between traditionally green sustainable measures and what we need in resilience – [dealing with] extreme heat is a perfect example. From a physical risk standpoint, tenants may not be naming it as a climate risk, but they are thinking about it specifically when it comes to business continuity and maintaining that ability to function.”

“Tenants are interested in adding solar on their property -– it helps you get off the grid and gives you more energy independence,” added Hochron. “That’s decarbonization, number one — and it addresses physical risk resilience alongside it. Everyone’s asking for a lot of the same things, just phrased differently or in a different package.”