Recently, Urban Land magazine published an article about the risk rising sea levels pose to real estate investments.
In the context of such significant exposure, how should investors incorporate the risk of climate change into their investment strategies? Many investors assume that their risks are covered through insurance. But insurance policies typically require annual renewal, and premiums can skyrocket from year to year if risks come into focus. Moreover, insurance protects against actual losses, not the potential devaluation of a property due to shifts in the perception of risks.
Another lever that investors are using to manage risk is to focus on the property itself. Some new developments incorporate physical characteristics that attempt to achieve resilience against climate change by, for example, constructing storm surge barriers to protect against flooding or incorporating backup power to protect against major storms. However, building a resilient property is just one part of the equation; another part is having the resilient infrastructure at the city level. A property could be prepared for a storm, but that goes only so far if the city’s streets are underwater.