The prospect of climate change and the corresponding high risks for various forms of ownership and investment are increasingly beginning to be integrated into whole swaths of the economy. While the energy sector – particularly fossil fuel production – was first identified as an industry likely to be impacted by climate change concerns, these risks are now being addressed by others. industries, including real estate. In particular, certain towns or sites are considered particularly high risk, usually due to flooding issues. As the New York Times reports, “Investors who back a large portion of the [real estate] development [in Charleston, South Carolina] think more seriously about the risks of climate change.”
Despite increased attention to climate change as a risk to real estate, including efforts by rating agencies and others to “quantify the physical risk of an asset”, including “granular property,” developers generally “do not yet face scrutiny or higher rates for capital. However, knowledgeable observers believe that change will come soon, as “among the investment groups that provide capital to developers, the outlook is starting to change. . . [as] they are very careful now [to] [climate change]. In particular, the “CRE Finance Council, a professional real estate association”, develops “information related to sustainability and resilience”. . . at the urging of members, who have become increasingly concerned about the risks associated with climate change. the coast of South Carolina and Georgia – will see the cost of expansion or reconstruction become prohibitive.
Yet individual properties can adopt resilience methods, whether by constructing flood barriers or locating buildings on higher ground within the property, to mitigate some of the risks posed by climate change. . And these engineered solutions to promote resilience could increasingly become the norm, even in areas less vulnerable to climate change, as investors and developers seek to mitigate risk.
As real estate investors begin to seriously consider the costs and risks of climate change, it can be expected that investments will increasingly be directed away from vulnerable areas, such as low coasts or floodplains, and to other safer places. In addition, it can also be expected that engineering efforts to promote resilience to climate risk will become increasingly normalized in the real estate industry.