Weighing and Measuring Risks amid a Changing Climate: Q&A with Jessica Weyandt of Revantage

The opinions expressed in this article are solely those of the participant and not of Blackstone or Revantage.

How climate change impacts the commercial real estate industry has taken on more urgency and importance than ever before. Across the world, property owners and companies are increasingly looking for frameworks and guidance in order to assess and weigh risks, keep up with climate risk reporting, and chart a path of resilience forward. As climate risk reporting becomes mandatory in a number of countries, here in the U.S., the SEC has been deliberating on the passage of reporting standards for well over a year. More than just meeting regulatory standards, many publicly-traded companies are also recognizing the imperative of physical risk capture and have begun adopting their own internal standards to ensure their investments are secured from current and future threats posed by fire, flood, extreme weather, and other climate-related impacts.

To learn more about this crucially important topic, we reached out to Jessica Weyandt, senior associate, due diligence–engineering at Revantage, who will take part in a panel discussion on this subject at ULI’s upcoming 2023 Resilience Summit in Toronto.

Climate risk is impacting so many decisions real estate professionals make today. What are some of the biggest challenges you are seeing in the industry?

The commercial real estate industry is attempting to understand varying components of climate risk, set hazard risk baselines, and set goals around resiliency. Climate modeling sources and methodologies are complex, evolving, potentially proprietary, and vary, sometimes significantly, between providers. In addition, input variables used in climate modeling, such as the selection of Representative Concentration Pathways (RCP), time horizons, return periods, and acceptable risk thresholds, are not standardized across the industry, and may vary based on investor(s), property characteristics and functionality, hold period, and/or other factor(s). Also, current or pending property resiliency measures, which could significantly decrease climate risk, are not incorporated into the models. Meanwhile, catastrophe models, used by insurers, are based on historic events, and, consequently, may not align with events predicted in forward-looking climate models.

The development of a consistent and standardized way of understanding and measuring climate risk would increase confidence in comparisons of climate risk impacts across portfolios. Furthermore, communication of this information during due diligence would allow all parties to be aware of potential risks at key decision points, and plan for potential risk-reduction strategies. Being able to measure an overall reduction in climate risk will provide motivation to devote resources to increasing resiliency.

As climate-related events worsen, climate resilience design standards are being developed by industry groups, cities, and non-profit organizations. The ASTM Standard Guide for Property Resilience Assessments of Buildings has become particularly important for the industry. Can you explain what it is?

This guide provides an overview of a systematic approach for assessing the potential impacts of climate-related events or stressors on a property. The process is broken down into three stages. In Stage 1, the climate hazards likely to affect a property are identified and quantified, to the extent possible. This can be accomplished utilizing a combination of public and proprietary models, maps, or other resources. In Stage 2, professionals utilize the information from Stage 1, as well as building and site-specific information gained from documentation review and observation, to identify risks associated with safety, physical damage, and functionality. Options for enhancing the property’s performance or recovery are identified in Stage 3. This guide was designed so the assessment could be completed within a transactional due diligence period, by the same assessment team that would complete a property condition assessment. This guide should allow owners, occupiers, or other stakeholders to make more informed capital improvement and operational decisions about their assets regarding climate-related impacts.

What kinds of resources are available for identifying and quantifying climate risk-related vulnerabilities to assets?

As a best practice, hazard identification and verification should be pulled from an array of public and private resources. In addition to national flood, wind, and seismic maps, local and state-wide climate summaries often provide detailed magnitude and damage data on past events and climate forecasting. They may also incorporate community resilience planning, which can and should be incorporated into any property-level assessment, when available. Historic research should be completed to provide additional context on consequences of past hazard events.

Utilizing an online climate-risk analytics platform has become a popular first step for quickly identifying which hazards to further investigate. These platforms compile information from public and private data sources, mentioned above, to provide a quick overview of current and future hazard exposure. Selecting which platform to utilize should be a strategic and well-researched decision. Outputs from these platforms range from a simple hazard rating to a more complex estimate of value-at-risk, and the depth of information should align with a user’s goals. Climate model outputs can vary widely based on the resources compiled and which global warming scenario is used to model future events. Keeping all variables as consistent as possible is key when trying to understand how risk is distributed across a portfolio of assets.

In your view, what are some of the most promising approaches to mitigating physical climate risk in the real estate industry, and how can they best be implemented?

There is no one-size-fits-all solution. Each property is unique in its location and exposure to climate hazards, in the community it resides and the infrastructure it depends on, in its construction and inherent robustness or existing mitigation features, in its use and occupancy, in the tenants or residents and their resilience plans, in the transportation of goods and people, in insurance, capital, available technologies and materials, among others. A successful mitigation plan should attempt to address the risks of all stakeholders at the occupant, business, property, fund, and community level through any combination of resilience measures, adaptive measures, maintenance procedures, emergency protocols, or other strategies. While successful solutions may vary greatly between properties, they will likely all start with understanding the aforementioned items and participation from stakeholders.