How REITs can use climate intelligence to analyze and act on climate risk

Unpredictable, extreme climate and weather events also mean that REITs must adapt and fully integrate climate resilience into their strategies – if they don’t the results could be catastrophic – and financially devastating. In the U.S., there were 15 weather disaster events in 2022 alone, with financial losses exceeding USD1 billion each. As the severe weather shows no signs of abating, climate experts predict the financial burden will continue to rise with the increase in events.

To discover more about how climate intelligence can help REITs disclose and act on their climate risk, download our free ebook.

Decarbonization alone isn’t the full sustainability solution. While it’s crucial to have an effective net zero strategy, with decarbonization, there needs to be thoughtful adaptation of REIT’s assets.

There are a host of individual climate risk management issues with core REITS assets such as malls, offices, and other infrastructures. For example, REITS are still plagued by one challenge – physical assets cannot just be relocated.

Our REITs e-book highlights the scale of extreme weather, climate, and damage to physical assets: “In a Cervest survey, nearly 90% of respondents reported extreme weather impacts on at least one of their assets in the last five years. More than half reported negative climate impacts on multiple assets. In some cases, all company assets were affected.”

This makes it more important than ever that they discover where and what the material climate-related risks to their business are. Furthermore, this climate risk analysis must be granular. Only by understanding their asset-level climate risk can REITs create the most effective adaptation plans and take immediate action to build climate resilience into their portfolio. That’s where science-backed, asset-centric climate intelligence (CI) comes into play.

When managing asset-level climate risk, innovative technology is key. Advancements in machine learning (ML) have made it possible to communicate complex climate science into decision-useful insights that enable organizations to act on climate risk. CI blends ML and climate science to provide deep insights into assets and portfolios. This type of intelligence delivers detailed information about climate risk, exposure, and impacts like heatwaves or droughts over various emissions scenarios.

Climate intelligence is not all about loss prevention. The insight provided by EarthScan™, Cervest's climate intelligence product, can also be used to find new opportunities. For example, a real estate investment trust (REIT) conducting pre-transaction due diligence may be reluctant to trust climate-related information provided by the asset vendor in question. Finding a third party to conduct a comprehensive climate risk assessment in an incredibly tight timeframe can be very difficult, or come at an unsustainable cost.

EarthScan’s on-demand climate intelligence enables REITs and similar companies to rapidly screen the potential acquisition for climate risk across multiple emission scenarios, time steps and climate hazards simultaneously. Providing a repeatable and scalable process that enables a quick and accurate appraisal. Having such knowledge readily accessible during negotiations establishes climate intelligence as a powerful ally to any competitive business.

Regarding extreme weather events, insurance policies usually cover repair costs and some part of the lost revenue. But, as climate change impacts us even more, insurance companies are looking to mitigate their risk – starting with putting climate-based risk into insurance policies.

With our increasingly volatile climate, owning properties that are costly to insure, or can’t get insured, is a huge risk. Insurance for at-risk properties is projected to decrease and premiums will rise for at-risk properties. The UNEP Finance Initiative report highlights: “Some insurers are already signaling that climate change may make buildings uninsurable in the future.”

REITs can use the detailed insights from climate intelligence to adapt and build more resilient infrastructures and supply chains, avoiding costly insurance premiums. By having access to decision-useful insights, backed by the latest climate science, and acting upon that intel – REITs can avoid more losses, and pursue opportunities.

There’s mounting pressure from regulators to disclose climate-related financial risk in line with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). By accessing decision-useful and timely disclosure data, investors, regulators and insurance underwriters can accurately price the risk and opportunities related to climate change. This creates the market transparency required to facilitate efficient capital allocation, encourage climate-resilient action, and allow businesses to transition smoothly to a low-carbon economy. By April 2023, the 2022 UK Climate Disclosure Law requires publicly-listed companies and large asset owners to publish a TCFD-aligned report.

REIT shareholders want transparency on climate risk exposure and solid adaptation strategies. Investors are demanding this information – they don’t want climate change to reduce their ROI or lead them into a financial liability – visibility is key. This transparency on climate risk for investors means funds can be allocated with more confidence. REITs that provide authentic and actionable climate intelligence alongside robust sustainability strategies will win investors’ confidence.

EarthScan helps REITs discover, understand, and report their climate risk, including science-backed insights at the asset and portfolio level, scenario analysis against multiple climate hazards, emission scenarios, and time horizons, as well as built-in climate expertise. For REIT professionals and leaders, EarthScan generates valuable climate intelligence to help them disclose their climate-related financial risk, plan adaptation measures, and act – today.

To discover more about how climate intelligence can help REITs disclose and act on their climate risk, download our free ebook.