Getting real about climate risks to property

Globally, the 100 largest property fund managers manage €3trn of assets (scalability, actors). But, the areas where much of this wealth is tied up are also some of the most vulnerable to climate change. Hong Kong and Shanghai are two of the worlds most expensive cities in which to own a home. They are also predicted to be underwater if global temperatures rise by 3 degrees Celsius which models suggest will be around 2100. Even 2 degrees of warming will have profound impact on these and other cities around the world. Yet, despite the typical mortgage term of 30 years stretching to 2050, climate change isnt yet factored in to decisions about property investment (criticality). Properties with sea views are still selling for roughly 10-20 more, and although solicitors check some environmental factors for homebuyers, changes to sea levels and increased susceptibility to extreme weather events are not considered. A sensitive intervention point in the real estate market would be mandatory disclosure of approximate risks from climate change in 2050, at 1.5, 2 and 3 degrees of warming (trigger). A simple proxy for this complex calculation would be increased risk of flooding due to sea level rise in a given region. Inland, a second proxy could be increased likelihood and intensity of extreme weather events such as forest fires. This simple disclosure paves the way for any number of mitigation and adaptation actions. It could inform mortgage terms and insurance premiums (feedback). It could steer capital investment away from areas that were likely to depreciate in value or towards investment in the infrastructures to protect coastal areas (feedback). Perhaps most importantly, it would provide each homeowner and property developer a tangible reason why they should support and demand global climate action in order to protect their homes and investments (feedback, actors). Finally, by highlighting the difference between 1.5, 2, and 3 degrees, actors would be incentivised to act as quickly as possible to minimise loss and damage (timescale).

 

Actor(s)

Insurance Sector

 

Trigger (intervention)

 

Criticality

 

Feedback Dynamics

 

Timescale and scaleability

 

Resistance

 

Author

Lucy Erickson

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