Understanding methods to assess physical climate risk for real estate assets

APG Asset Management

The world is currently on track to see substantial climate change throughout the 21st century. As well as bringing higher temperatures, changes in precipitation and a range of other impacts, climate change will also influence the likelihood and intensity of extreme weather events. Collectively, these ‘physical climate risks’, threaten the interests of investors and lenders, especially those with interests in real estate (RE) and infrastructure assets (ClimateWise, 2019).

Regulators, investors and lenders are increasingly aware of the possible implications of physical risks across different parts of the financial system, but they are also searching for practical, analytical approaches to guide their decision-making. However, there is still little understanding of how these risks can be assessed, and therefore reported, managed and, ultimately, reduced.

A growing number of organisations have emerged that offer services to assess physical climate risk for individual assets or a real estate portfolio on a global scale. The approach of these organisations varies significantly with respect to assumed climate change scenarios, the type of climate risks covered, and the type of information presented to help asset managers and owners make informed decisions about climate risks.

Which approach to use? APG Asset Management has asked the support of CAS to assess and compare providers of climate data analytics and their approaches, tools and methods to evaluate physical climate risks of RE assets. By providing tailored guidelines for assessing RE physical climate risk, CAS hopes to help APG in meeting the minimum requirements for a well-informed assessment of physical climate risk for RE investment portfolios.

More information?
Would you like to know more about this project? Then please contact Felix van Veldhoven.