Real estate investors recognize the need to incorporate physical climate risks—including wildfires, hurricanes, and excessive heat—into their business models as the prevalence and severity of extreme weather events increases. Climate-risk analytics tools have proliferated in recent years to help investors assess, price, and mitigate these physical climate risks. Investors have welcomed these tools but face challenges selecting the right provider—or providers—to meet their business needs.
“Climate-risk analytic providers offer valuable insights to help real estate [investors] assess these risks; however, the data can’t be taken at face value,” said Lindsay Brugger, ULI’s vice president of urban resilience. “Investment managers need to understand the inputs behind the data to effectively act on the information.”
ULI and LaSalle Investment Management created a two-page resource with 10 questions that real estate owners can ask climate-risk analytics providers to assess the best fit for their needs. Some questions focus on methodology. For example, real estate investors should understand what hazards are covered by each tool, and how those hazards are defined before selecting a tool.
Other questions focus on tool features and supplemental services. For example, if investors are interested in hazard mitigation recommendations or supplemental consulting, they should confirm what level of service the provider offers. This supplemental guidance draws from the 2022 report that ULI and LaSalle Investment Management published. Titled “How to Choose, Use, and Better Understand Climate-Risk Analytics,” the full report goes into more detail about how real estate professionals can interpret climate-risk analytics, identify risks effectively, and incorporate them into decision-making throughout the investment life cycle.
ULI and LaSalle Investment Management published a second report in 2024 titled “Physical Climate Risks and Underwriting Practices in Assets and Portfolios,” which built on the first report and covers how leading firms are leveraging physical climate-risk data in their underwriting practices. The report explores the current state of the industry, the application of climate data in decision-making, and the impact of physical climate risk on acquisition, underwriting, and disposition practices.
“Physical climate risk is financial risk,” said Elena Alschuler, Americas head of Sustainability for LaSalle Investment Management. “As weather-related disasters increase in frequency, intensity, and cost, it is increasingly important to understand the physical climate risks facing an investment. Firms that thoughtfully assess and account for this risk in their investment strategy will be poised for greater success.”
