2017 was quite a year for extreme events. Shocks and stresses from 16 events that each triggered over $1 billion in damages and took their toll on lives and livelihoods in the United States alone.\u00a0\u00a0And it wasn\u2019t just hurricanes, although Hurricanes Irma, Harvey and Maria played their part (with damages of $161 billion, $102 billion and $45 Billion respectively).\u00a0\u00a0Many other climate- and weather-related disasters hit the U.S., including hail and ice, heat and wind, and inland flooding.<\/p>\n
Many experts predicted this was likely \u2013 and I don\u2019t mean the climate scientists.\u00a0\u00a0The Global Risk Perception Report\u00a0\u2013 the latest of which came out last week \u2013 has for the last five years included the failure of climate change mitigation and adaptation on its list of the five global risks in terms of impact. It bases its list on survey data from about 1,000 World Economic Forum advisors worldwide.\u00a0Other risks in that set also are climate-related such as water crises, major natural disasters and extreme weather events.<\/p>\n
Plus, the stakes are high for the real estate industry. The\u00a0UNFCCC 2016 Biennial review of climate finance\u00a0notes that $35 trillion in real estate assets will be at risk in 2070 if we make no changes to our current carbon emission trajectory. That figure represents about half of today\u2019s global assets under management in any industry sector.<\/p>\n
But how do these risks relate to the U.S.? The shocks of powerful storms can destroy many of those assets, as the devastation from this year\u2019s climate disasters reminds us. Longer-term changes in temperature can cause other shifts.\u00a0Even from where I sit in the middle of the country in Chicago, we are in the midst of a shift to a climate that will look more\u00a0like New Orleans by the end of the century.<\/p>\n
So, there are both orderly shifts and shocking disasters occurring because of our changing climate, and I think one question we want to ask is: What does that mean for our shift as investors?\u00a0\u00a0Will it be orderly or will it be a flight?<\/p>\n
We can\u2019t say we haven\u2019t been warned. This\u00a0analysis from Zillow\u00a0shows that if we have sea level rise of six feet \u2013 predicted by the end of the century along much of the U.S. coast \u2013 we lose houses worth roughly $900 billion in value.\u00a0And this applies just for coastal properties. It doesn\u2019t include other risks such as inland flooding and fire that also loom.\u00a0It also doesn\u2019t value the PTSD, injuries, loss of life, loss of community and livelihoods that these figures suggest.<\/p>\n
These data came to mind as I was preparing to speak at this week\u2019s National Association of Real Estate Investment Managers Sustainability and investment Summit, whose tagline is \u201cLicense to Think in Public.\u201d<\/p>\n
One of the most thought-provoking data I shared:\u00a0\u00a0U.S. counties facing the greatest risk from natural disasters have the highest and quickest rising home values.\u00a0\u00a0\u00a0Counties with the very high risk from these disasters have seen a 55 percent\u00a0appreciation<\/em>\u00a0in their already very costly homes in the last 5 years.<\/p>\n The U.S. finally received the much-anticipated\u00a0Multihazard Mitigation Council\u2019s latest cost benefit analysis, illustrating that, on average, every dollar invested in disaster mitigation pays back $6.<\/p>\n The investors at NAREIM, representing over $1 trillion of assets under management, think it should, and some even think it will. What they need: project-level natural hazard data that includes climate change projections. This is something the climate resilience field is working on, with a variety of firms jockeying to be first with the roll out of their proprietary software.<\/p>\n In the meantime, as my fellow panelist Chris Smy, Global Practice Lead at Marsh Inc., noted, the stakes are high as insurance companies, by and large, do not price their policies according to the longer-term climate risks, and developers persist in going where the money is, which is along the coast.<\/p>\n Yet Darob Malek-Madani with National Real Estate Investors showed that some investors are taking notice.\u00a0His firm\u00a0finished a study\u00a0that convinced them to no longer invest in Miami.\u00a0Except for the financial situation of the state and city, he said, they might even prioritize Chicago.<\/p>\n Jack Davis \u2013 RE Tech Advisors and a resilience leader with Urban Land Institute \u2013 reminded us that the stakes go well beyond real estate.\u00a0As the New York Times reported last year, gross domestic product, especially in the Southern states, is predicted to record losses of 10-20 percent of GDP, hitting the poorest residents hardest.<\/p>\n I thought that when real estate investors bring equity questions to the table, we can perhaps sense a shift underway.\u00a0Certainly, the investment community at large is more vocal about the risks than in the past, though silent on the equity questions. The\u00a0Financial Stability Board\u2019s Taskforce on Climate Change-related Financial Disclosure (FSB-TCFD),led by Bank of England Governor Mark Carney and Michael Bloomberg, is developing climate-related financial risk disclosure commitments for companies.\u00a0The big guys, though, are not waiting for that guidance to disclose. My library is filling with articles that say what\u00a0BlackRock\u00a0demonstrates: Their investment stewardship features climate risk disclosure as a key priority.<\/p>\n While my climate resilience colleagues often ask where we can find financing for climate resilience, this group of investment managers brought a fresh spin to the money question: How can we avoid future investments in risky properties?\u00a0Both questions are valuable, and it\u2019s great to see some in the real estate industry \u201cthinking in public\u201d about how to make this market transformation happen.<\/p>\n Post originally appeared on Triple Pundit<\/a><\/em><\/p>\n