Climate resilience is no longer optional – this is what you can do
The effects of climate change are now a reality and for real estate it requires strategic management to mitigate effectively, says Michael Adjei.
Now, more than ever, understanding and addressing physical climate risk has become a core priority for responsible investors. With the increasing severity and frequency of climate-related events, a proactive and strategic approach is essential to effectively manage the built environment’s exposure to physical climate risk.
Defining physical climate risk: beyond the obvious
Physical climate risk encompasses a broad spectrum of environmental threats, extending beyond routine weather events. These risks can be categorised as two primary types: acute and chronic. Acute risks are sudden, intense events, such as extreme storms, wildfires, floods, and heatwaves. Chronic risks, on the other hand, are long-term environmental shifts, including rising sea levels, temperature increases, and evolving rain patterns.
These risks are not merely abstract concerns, but represent tangible and pressing threats to real estate assets, requiring a precise and thorough approach. Proactive management of physical climate risk is not just a prudent choice, it is an essential part of a long-term investment strategy that seeks to protect asset value.
Assessing physical risk: why and how
For real estate investors, the potential financial impacts of physical risk include property damage, increased insurance premiums, the potential loss of insurability in high-risk areas, as well as reduced liquidity and marketability. Addressing these factors through strategic adaptation, however, presents a significant opportunity to enhance asset resilience and even add value.
Investors are increasingly turning to climate risk assessments to better understand these vulnerabilities, going beyond traditional due diligence to build a more comprehensive picture of climate-related risks. Partnerships with climate risk specialists have made this possible, allowing for sophisticated modelling that analyses both acute and chronic risk factors and offers a nuanced understanding of potential impacts.
Innovative mitigation strategies
Mitigating physical climate risk requires a multi-faceted approach. This can include considerations around site selection, resilient design opportunities, a property’s local urban environment, and climate scenario modelling outputs. Rather than viewing these efforts solely as defensive and disjointed, forward-looking real estate managers and investors see them as a holistic means to future-proof assets and drive sustainable long-term returns.
One example of our climate resilience approach is our future plans for our Sky Homes site in Valencia. The findings of a comprehensive assessment revealed the opportunity to harness the power of nature by implementing a range of measures to combat heat stress.
The future installations of a green roof and natural vertical garden will contribute to the property’s cooling capacity, and will provide shade as well as facilitate evaporative cooling through transpiration. Additionally, these initiatives will provide habitats for insects, birds, and bats, which will foster a biodiverse ecosystem.
Looking forward: a collaborative future
The real estate sector has now progressed to a point where climate resilience is no longer an option, but a requirement. Investors who recognise this shift and prioritise climate resilience as a core element of their strategy will be well-positioned in an increasingly competitive and climate-conscious market.
Emerging frameworks, best practices, and investment tools are reshaping how real estate investments are assessed, structured, and managed in a climate-conscious era. Investment managers who see climate adaptation as a strategic advantage rather than a burdensome cost will likely see resilient returns and lead the sector toward a sustainable future.
Michael Adjei is junior sustainability analyst at Savills Investment Management
