Open a broadsheet or scroll through Twitter in 2018 and climate change is everywhere. Wildfires in California, heatwaves in Australia and drought in India. The effects of our coal-powered, mechanised, convenient world are beginning to catch up with us. And slowly but surely, businesses and governments across the globe are realising their current systems won’t be much use in tomorrow’s world.
As companies come under increasing pressure from the investment community to disclose climate risks, this question is slowly being addressed.
The Task Force for Climate Disclosure (TCFD) encourages companies to offer more transparency on how they contribute to climate change, with the intention of allowing investors to make better choices. Whilst this will help fund managers divest high impact, fossil fuel-heavy stocks and move toward cleaner investments, there’s another side to climate risk we need to consider.
The effects of a warmer planet are already showing: 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.
This is the fundamental question of climate risk, yet many companies are failing to ask it. To answer it, companies need to take a detailed look at the science and work out what the impact will be.
TCFD encourages businesses to really understand how their strategy and operating model might need to change in future. And this is of paramount importance in property, where our assets are exposed to weather and the changing climate.
If the UK is two degrees hotter on average, what does that mean for summer temperatures and offices in London? If sea levels rise by a metre, how high could a storm surge be on the south coast? If the storm track moves, how much will windspeeds increase in Scotland?
Ahead of our TCFD disclosure this year we partnered with the Strategic Risk team from Willis Towers Watson to answer these questions.
In the near term to 2030 the results of our study aren’t what you might assume. The UK benefits from a unique position when it comes to weather and the impacts of climate change will manifest more harshly abroad. Cooling costs will increase due to higher temperatures, but heating costs will decrease, with these two effects cancelling each other out. Our modelling did not find a material energy pricing risk in the near term despite changes in temperature. And even flooding and windstorm, which feel more regular in today’s climate, won’t intensify in the UK in the lead up to 2030.
But in the long term, after 2030,the picture is different.
Flooding, coastal floods and windstorms will become far more regular and will become even more intense. London will start to feel more like Milan in summer, with much hotter temperatures, which will put pressure on the capital’s infrastructure and buildings. Coastal properties without improved sea defences will start to look far less appealing, and assets sited on floodplains will experience more regular and higher losses.
We’ll need to adapt building services design, moving away from heating while also keeping summer cooling capacity to cope with intense heatwaves. Property companies with older assets in the portfolio will need to think hard about rising cooling costs, which will push up customer’s operating costs and could lead to downward pressure on rental values as a result.
Future developments will need to be constructed with resilience to flooding and high winds in mind, especially in the north of England and Scotland. And an eventual hardening of the insurance market in response to global weather events will push up premiums and cause companies to self-insure.
But whilst we have modelled the effects of climate change on our portfolio, the results for everyone will be different.
With TCFD driving businesses to look at this subject and model the impacts, what is your company doing to take a long-term view on risk? Undertaking this type of modelling is possible for everyone but it needs an iterative and open way of working, handing detailed data about your assets and operating costs over to the experts. And crucially, having an open mind about what you will find.
Has your company modelled how climate change will affect your assets and operations? What did you find?
This blog was originally published on LinkedIn here.
Sustainability Insights Director, Landsec