After an increase in wildfires, storms and other natural disasters, many cities have begun both short and long-term planning for infrastructure that will blunt the effects of climate change. Their current property values could be at stake as well.
Real estate investors and developers are increasingly considering climate risk factors when deciding where to buy or build, according to a report this month from the Urban Land Institute, an organization that promotes the responsible use of land. This has also meant looking at how prepared local governments are to face such events, according to the study, which was conducted with Heitman LLC. The researchers interviewed firms including BlackRock Inc., CBRE Global Investors, Credit Suisse Group AG, Goldman Sachs Group Inc., Moody’s Corp. and Morgan Stanley on how they are considering climate risk.
Investors “are looking beyond the individual asset and assessing a city’s preparedness for climate change, but the models and metrics they need are still in their infancy,” ULI Chief Executive Officer Ed Walter said in a statement.
The real estate investment firms interviewed agreed that the industry’s valuation currently lags behind the recognition of climate risk, according to the report. It’s become difficult to ignore the increasing the frequency and intensity of weather events that result in droughts, floods, tsunamis, wildfires, heat waves and landslides. Worldwide, 40 natural disaster events last year each resulted in at least $1 billion in near-term, direct losses, according to research from the insurance company AON that was cited in the ULI report. Global losses from extreme weather events from 2010 to 2020 reached more than $3 trillion.