Climate Risks in the Real Estate Sector

Climate risks are already materialising for the real estate sector, and their frequency and severity are expected to increase in the coming years. Physical and transition risks threaten real estate asset cashflows as well as the future value of the assets themselves. Extreme weather and physical hazards, such as hurricanes, floods, and wildfires, can cause substantial damage to real estate located in vulnerable areas. The sector (directly and indirectly) is responsible for about 40% of all greenhouse gas (GHG) emissions globally (UNEP FI, 2022). As a result, actions taken to decarbonise the global economy to meet climate goals will have strong cost implications for the sector. The figure below shows the projected physical and transition risk for real estate from MSCIs Global Property Index using its real estate Climate Value-at-Risk Model (Figure 1) (MSCI, 2022).