The value-added potential of climate services for real estate asset management

In recent years the financial sector has activated itself regarding the integration of climate change risks in its risk management. This is a slow process and the realization, that also physical risks engendered by climate change should be included, is even more recent (Hamaker-Taylor et al 2018). Within the segment of asset management, notably the management of real estate assets should have particular interest in climate change, as fossil free and efficient energy use, sustainable climate neutral building materials, and minimized exposure to climate change enhanced physical risks merit all sufficient attention. Overall asset oriented climate services will be an important segment (De Bruin et al 2020) This offers a significant scope for climate services for this segment within the financial sector, but both the financial sector as user and the suppliers of climate services are still very much in an exploratory stage of defining, ordering, providing, and using climate services, which are relevant for specific risk management issues within the financial sector (Keenan 2019).

The key issue for the real estate asset manager is how climate change would affect the value of its properties with and without adaptation measures, both as such, as well as in comparison to other property. Furthermore, the disclosure of hitherto not-disclosed risk information of assets will usually affect the prices of these assets, in comparison to similar not-exposed assets (Votsis and Perrels 2016). In this contribution we illustrate on the basis of Finnish cases under what conditions more information on climate change related risks (flooding; forest damage) could entail an economically viable climate service.

References

De Bruin, K., Hubert, R., Evain, J., Clapp, C., Stackpole Dahl, M., Bolt, J., Sillmann, J. (2020). Chapter 8: Physical Climate Risks and the Financial Sector—Synthesis of Investors’ Climate Information Needs, in Filho and Jacobs (eds), Handbook of Climate Services, Springer https://doi.org/10.1007/978-3-030-36875-3

Hamaker-Taylor, R. Perrels, A. Canevari, L., Nurmi, V., Rautio, T. Rycerz, A. Larosa, F. (2018). Results of Explorations of the Climate Services Market for the Financial Sector, EU-MACS Deliverable 2.1, 23.12.2018. http://eu-macs.eu/outputs/#

Keenan, J.J. (2019). Climate Adaptation Finance and Investment in California, Earthscan – Routledge, London/New York, ISBN: 978-0-429-39875-9 (ebk) / ISBN: 978-0-367-02607-3 (hbk)

Votsis, A., Perrels, A. (2016). Housing prices and the public disclosure of flood risk: a difference-in-differences analysis in Finland, Journal of Real Estate Finance and Economics, November 2016, Volume 53, Issue 4, pp 450–471, DOI 10.1007/s11146-015-9530-3