How is climate change going to affect our future?
Open a broadsheet or scroll through Twitter in 2018 and climate change is everywhere.
Wildfires in California, heatwaves in Australia and drought in India. With climate change affecting trends in weather and causing increasing numbers of natural catastrophes, the world is waking up to what is fast becoming the defining issue of our time.
Property is no exception and our industry is under increasing pressure from the investment community to disclose climate risks.
The Task Force on Climate-related Financial Disclosures (TCFD) encourages companies to offer more transparency on how they contribute to climate change, allowing investors to make better choices. But as well as the risk of investing in companies with excessive carbon emissions, there is another side to climate risk which investors are starting to consider.
As the effects of climate change start to show, the weather outside our window is changing and natural catastrophes are starting to become more common. This presents a variety of risks to business, from loss of trading to increased operating costs and even total loss of assets.
What will the impact be to businesses?
This question is of paramount importance in property, where our assets are exposed to weather and the changing climate. Ahead of our TCFD disclosure this year, we partnered with the Strategic Risk team from Willis Towers Watson to ask this question.
In the near term – up to 2030 – climate change will continue to take effect with rising temperatures making for a warmer climate across the globe. This is already contributing to warmer weather and is leading to more rainfall.
While this won’t affect the UK as much as other countries, property owners will need to be vigilant and make sure properties are well maintained and equipped to deal with heavy rain and storms.
One of the advantages of warmer weather is decreased heating costs. This might mean we’ll use less gas for heating, but it does mean that cooling costs will rise, putting pressure on older buildings with less capable cooling systems. Our modelling shows these two factors will cancel each other out, with no material effect on energy prices.
But there are many applications here in how we design our new buildings, reducing heating capacity and improving summer cooling capacity to cope with intense heatwaves.
What about beyond 2030?
In the long term, after 2030, our research shows we will start to see much greater impacts from climate change.
Flooding, coastal floods and windstorms will become more frequent and will become even more intense. Central London will start to feel more like Milan in summer, with much hotter temperatures, putting pressure on the capital’s infrastructure and buildings. Coastal properties without improved sea defences will experience more severe flooding, and assets sited on floodplains will experience more regular and higher losses.
Our modelling shows these losses could increase by over 30% every year, a significant number. This will start to have severe impacts on the property industry, as assets liable to damage or loss of trading from climate change become too risky for investors.
Looking at the effect climate change will have on insurance, we see very little change in the near term to 2030. The insurance market has proved to be slow to respond to climate change and, despite more frequent natural catastrophes, our analysis shows premiums aren’t set to rise. But in the long term, this will change and global weather events will push up premiums, leading companies to self-insure instead of paying out for expensive cover.
Our research into the risks from climate change will form part of our TCFD disclosure this year and we’ll be taking steps to make our business more resilient to climate change in everything from design to developments and insurance to investment.