Is the ESG Climate Overshadowing The Weather?

Fábio Hanashiro/Unsplash

As the real estate sector sets its crosshair on ESG commitments to pass scrutiny, weather driven risks to real estate may be inevitably getting out of its sight. 

However, the risks posed by both carbon and water, are equally big and far reaching. 

The Threat Is Legit

Per the much talked about book, Principles of Sustainable Finance, if sea levels were to rise by 1 metre later this century, then once-in-100-years flooding events would happen every six months in New York, every month in Kolkata and every tide in Wellington, New Zealand. 

And The Associated Costs Are Huge

If flooding risks were to be seen in money terms, global losses could approach USD1 trillion or more per year. 

In Kerala alone, INR 2,450 crore has been spent under the 'Punargeham' project to rehabilitate over 18,000 families living in coastal areas, where climate changes and tidal attacks pose a continuous threat to their lives.

In the US, structural damage to Commercial Real Estate (CRE) from flooding, is projected to cost USD13.5 billion in 2022, increasing to over USD16.9 billion by 2052. 

But, But, But...

When real estate users and investors don't have the numbers-backed data to shake them out of slumber, the risk seems more of an unfounded paranoia. Plus, present day risk forecast data seems fundamentally flawed itself.

That's because there is a common misconception that the way physical risk looks today is the way that risk will look in the future – that today’s weather patterns will remain the same but worsen when, in fact, there could be very different changes. 

For example, certain areas prone to flooding may actually get drier in the future or vice versa. 

Where Have We Seen This Before?

 
Experts feel that this is a parallel to how we talked about carbon 10 to 15 years ago. People are talking about weather driven risks to real estate usage and valuations, but there’s not much evidence of policies being implemented. 

Clearly, we need more of a sense of purpose, something that seems to be completely consumed by the sector's current ESG efforts.