Managing your risk in a changing climate

Managing your risk in a changing climate

The shocking photos of homes, backyards and swimming pools at Collaroy Beach sinking into the sea after Sydney’s recent superstorm should serve as a warning to investors.

The Climate Institute has found that as much as $90 billion in housing stock around Australia is exposed to extreme weather events. The Institute’s report, There goes the neighbourhood, examines risks to Australia’s property stock, particularly the potential exposure of banks and insurers, from the effects of climate change.

The report found that “homes are being built, bought and sold in locations with exposure to weather and climate-related risks, particularly flood, storm surge, rising sea levels and coastal erosion. As the climate changes due to human activity, these risks will be exacerbated.”

The report underscores that many of these homes won’t be inhabitable – they will just be uninsurable.

The World Economic Forum has identified “failure of climate change mitigation and adaptation” as the risk that could have the greatest impact on the world over the next decade. WEF’s assessment resonates with shareholders who are concerned about the resilience of their assets in the face of extreme weather, and their risk of being left with stranded assets as a result of climate change.

While our buildings will increasingly feel the full effects of climate change, they are also one of the main sources of the problem in the first place. Australia’s residential and commercial buildings are responsible for 23 per cent of the nation’s carbon footprint.

However our buildings can also offer solutions.  Investors with a long-term view are increasingly demanding green ratings – such as Green Star in Australia – to provide positive proof that their asset is sustainable. There are now have more than 1,070 Green Star rated projects around Australia, and 30 per cent of our commercial office space is Green Star certified. A growing number of residential developers are choosing to achieve Green Star ratings for their apartment developments as customers seek homes that are low-impact, energy-efficient and resilient to climate shocks.

The latest global real estate sustainability benchmark (GRESB) report, which rated Australia’s real estate market as THE global green leader, found that “investors are demanding reliable data on energy efficiency and sustainability to help guide their decision-making.”

A raft of research has found that verified green buildings are also better performing assets – which explains why GRESB says some superannuation funds and large foreign institutional investors are now “divesting from non-sustainable holdings”.

There goes the neighbourhood argues that everyone plays a role in adapting to climate change. Governments must take stronger action. The banking and insurance industries could be clearer in their communication so that people understand the risks. But ultimately, communities and individuals also have a role to play in understanding, reducing and avoiding these costs. 

For investors in the residential space, this means carefully considering the impact extreme weather events – whether they are storms, floods or bushfires – may have on your investment. And it also means taking steps to ensure your assets aren’t contributing to climate change in the first place. 

 

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