How to Manage Climate Risk

WHAT YOU SHOULD KNOW:

Know why it matters. Climate risk has rapidly emerged as a critical consideration for real estate investors, owners and occupiers. After all, understanding the impact of climate change on a building or workspace can affect your site selection, property valuation, asset management strategy, or exit timing. It can also inform more effective decarbonization initiatives. Know the types of climate risk. How we talk about climate risk is also changing in step with evolving global weather patterns, standards, and regulations. Increasingly, you now need to identify, mitigate, and report on risks in two categories. The first is physical risk , where climate change-induced weather events and patterns become hazardous to your asset or its operation. The second is transition risk , those issues that arise as your business adapts to a lower-carbon future, such as the pace of change and extent of pressure to disclose ESG performance. This includes the transparent and adequate disclosure of these risks - an increasingly regulated task. Know how to manage it. Whether you’re an asset owner, investor, or an occupier, that means taking real-world steps. These include pinpointing climate-related hazards in your physical environment, reporting risks to your stakeholders like any other financial viability metric, and embedding climate risk management into your organizational processes.

THE RISK SPECTRUM

PHYSICAL

The threat to your building from one-off weather events or long-term changes in weather patterns, including:

• Changed operating practices due to extreme heat or cold conditions. • Severe weather restricting building or site access. • Physical damage due to fire or flood.

TRANSITION

Challenges to keeping pace with market and stakeholder expectations for transparent decarbonization:

• Adapting to new policies, regulations, and reporting requirements. • Development of technology and innovation. • Reputational impact from falling short of expectations or obligations.