Global real estate assets are exposed to an estimated US$559 billion in growing climate-related risks, according to data provider S&P Global Sustainable1 and Singapore-based long-term investor GIC. In a new report, they explored the projected economic cost of climate hazards on companies in the S&P Global REIT Index, as well as adaptation opportunities that could help to mitigate risk. The index consists of 416 constituents with a total market capitalisation of US$1.7 trillion and real-estate asset value of US$2.3 trillion as of July. The findings showed that the projected costs of changing climate physical risk exposure could reach 28% of the latter value by 2050 under a medium-high climate change scenario. Global demand for climate adaptation solutions, such as green or cool roofs and wet and dry floodproofing adaptation measures in non-residential real estate, could reach approximately US$29 billion annually by 2050, totalling US$726 billion. With the right policy support and timely development, such adaptation measures could however offset physical hazard costs by US$3.55 and US$7.45 respectively, for every dollar invested. “Climate change is driving changes in the frequency, intensity, and patterns of extreme weather events globally, placing economies and communities at increasing risk,” said Rick Lord, Head of Climate Methodology at S&P Global Sustainable1. “Leveraging advances in climate science and modelling can help decision-makers to better understand their future exposure to the physical risks of climate change, and to plan for adaptation to new climatic conditions.” As climate change increasingly impacts the real economy and the value of assets, understanding and quantifying the financial impact of climate physical risks is becoming critical for investors, insisted Wong De Rui, Senior Vice President in GIC’s Sustainability Office. “Existing analytical tools are nascent and often omit the mitigating effects of adaptation,” he said. “This report aims to catalyse further discussion in this space by incorporating adaptation measures into impact analysis to better reflect operating realities on the ground and uncover potential upside opportunities.”
