In an ever-changing world where climate change is one of the biggest challenges, it is essential that all industries do their part to reduce greenhouse gas emissions. The real estate industry, as a significant player in global CO₂ emissions, has a special responsibility to promote sustainable practices and minimize impacts on the climate.

As a result of advancing global warming, adaptations to climate change are already mandatory, as the European Environment Agency (EEA) urgently stated last week in its first report on climate risk assessment (EUCRA) and I have summarized some important excerpts here with a view to the real estate industry .

Takeaways from the European climate risk assessment (EUCRA):

The European Environment Agency has published a comprehensive study on European climate risk assessment. One finding from the report is that Europe is the fastest warming continent in the world. Extreme heat, once rare, is now occurring more frequently while rainfall patterns are changing. Heavy rain and other extreme precipitation events are increasing in intensity, and in recent years there have been catastrophic floods in various regions. At the same time, significant declines in total precipitation and more severe droughts are expected in southern Europe. These events, combined with environmental and social risk factors, pose major challenges across Europe.

More takeaways:

  • Insurance plays a critical role in mitigating the economic and financial consequences of climate-related events, particularly disasters. They provide funds for reconstruction and cover loss of income and costs during the recovery period. However, only 19.5% of losses from extreme weather events in Europe were insured between 1980 and 2022, with significant differences between countries. (see 17.3.3 EUCRA).

  • A key challenge in reducing this protection gap is that increases in the frequency and severity of natural disasters over time can lead to higher claims, which in turn increases insurance premiums.

  • One study found that under a single climate scenario, the average flood insurance premium in the EU could double (Hudson et al., 2020). Considering the increased energy costs for most apartment tenants in the past, there is a risk that another operating cost item will develop in one direction. Up.

  • Price increases following events with high claims are also possible. Higher premiums can, in turn, reduce demand for insurance or make it unaffordable, leaving more assets uninsured. Another associated risk is that insurance companies reduce the coverage offered to avoid high-risk areas. This in turn means that assets that are exposed to climate risks are exposed to losses in value. For example, there is evidence that homes exposed to sea level rise in the United States are selling at a discount (Bernstein et al., 2017).

  • The study authors (Hudson et al., 2020) suggested that governments could offer reinsurance in combination with insurance requirements and financial incentives for consumers to take adaptation measures that limit flood risk. The extent to which damage can be avoided depends largely on how quickly we can reduce global greenhouse gas emissions and how quickly and effectively we can prepare and adapt our societies to the inevitable impacts of climate change.

Graphic European climate risk assessment — Executive summary – Economy and finance cluster

Examples of adaptation measures to climate change:

  • Energy-efficient renovation: Investments in the energy-efficient renovation of buildings are crucial. Improved insulation, efficient heating and cooling systems and the use of renewable energies do not reduce energy consumption and CO₂ emissions, but rather contribute to a comfortable indoor climate.

  • Greening of roofs and facades:

    > Green elements of the building envelope absorb sun rays and cool the air, thus acting as natural heat protection, which is particularly advantageous in inner-city locations.

    > Green roofs/facades also serve as backwater retention. This reduces the strain on the sewage system and the intensity, especially during heavy rain.

    > Biodiversity: Green roofs provide habitat for plants, insects and birds. They promote biodiversity and contribute to the preservation of biodiversity, provided that an integration concept that fits the environment is taken into account.

  • Flood protection: Due to increasing extreme weather events, properties should protect vulnerable areas from flooding. This can be achieved, for example, through better drainage systems, efficient pumps, raised foundations and dams.

  • Heat adaptation: Heat islands in urban areas can be reduced by selecting heat-resistant materials, greenery and shade structures. Air conditioning and cooling systems should also be made more efficient.

Recommendations for action:

  • Energy efficiency: Investing in energy efficient buildings is crucial. Modernizing existing buildings and integrating renewable energies are effective ways to reduce the carbon footprint and thus curb climate change.
  • Green infrastructure: The integration of green spaces in buildings combats two major crises: climate change and biodiversity loss. Green elements in real estate projects not only improve the quality of life and increase resilience to climate risks, but also contribute to ecological and functional diversity.
  • Risk monitoring: Raising awareness of stakeholders in the real estate industry about sustainable practices is crucial. With regard to the real estate industry, it is no longer enough to simply check whether the asset has insurance coverage. Implement climate risk/vulnerability analysis to understand the impact of climate change on portfolios. This includes, for example, taking into account flood risks, heat waves and other weather extremes.

1: European Climate Risk Assessment – ​​EEA
European Climate Risk Assessment — European Environment Agency (europa.eu)