Quantifying Climate Change Risks for the Real Estate Industry

The increase in CO2 emissions leads to rising temperatures and a change in the climate. The change in the climate is connected to various risks. These risks can be either labeled physical climate risks or transitional climate risks. Under physical climate risks for the real estate industry one can summarize direct challenges like heat, droughts, flooding, storms etc. but also indirect effects, like that the insurance against these damages become more expensive or impossible and that finance opportunities will be costlier. Furthermore, potential of conflicts through water shortage, famine, migration could be seen as an indirect physical climate risk.Transitional climate risks are connected to legislative changes and further rises in regulations as reaction to climate change and to increases in CO2 emission costs. This leads to changes in relative prices and some business models, products and services become obsolete but also to new opportunities arise. Reputational risks or judiciary risks could be linked to these transitional risks.Ways to quantify these risks are discussed in this study. Thereby it is possible to approximate the damage of physical climate risks to buildings through calculations based on the values covered by insurances. However, it is more difficult to quantify indirect effects like production losses or limitations in usability. Various parameters are used within climate models to estimate the risks for property. These can be combined to deduct a monetary magnitude of climate risks.