Companies overlook climate risks despite growing threats

High costs hinder adoption of climate risk strategies in real estate.

Extreme climate events are increasingly affecting asset pricing and liquidity, but despite the growing impact, climate risk remains a blind spot for many real estate companies, according to JLL’s recent report.

Kamya Miglani, Head of ESG Research for Asia Pacific at JLL, said, “Climate risk can be tough to manage for organisations, as the climate changes rapidly, and there are multiple threats.” She noted that the varied nature of these threats across different regions makes it difficult for companies to adopt a single, cohesive climate risk strategy.

Miglani said that the scale of the issue is significant. “More than 80% of the world's largest companies will have at least one real estate asset financially exposed to climate risks by 2050,” she said, citing data from S&P Global. Yet, despite this looming threat, only one in five companies has a plan in place to mitigate the physical risks of climate change.

“Cost and lack of good quality data are two of the biggest barriers when it comes to implementing climate risk strategies,” she said, explaining that organisations need high-quality data to make informed decisions about de-risking efforts, but gathering and analysing this data requires substantial financial investment in technology.

In addition to these financial and data-related challenges, Miglani identified other obstacles such as inadequate policies, lack of standardisation, and limited education on climate risk. She said that collaboration among different stakeholders, including government bodies, policymakers, insurers, and credit rating agencies, is essential to overcoming these barriers.

To address the unpredictable nature of climate risk, Miglani advocates for a three-pronged strategy based on the principles of evaluation, adaptation, and action. Additionally, she emphasised the importance of factoring in city resilience strategies and the vulnerability of local infrastructure, such as transport, power, and water supply, to ensure the continuous operation of assets.

Miglani also calls for a holistic approach that includes evaluating physical climate risks alongside resiliency planning and repositioning strategies. For assets identified as most vulnerable, companies should either make them resilient to climate risks or offload them entirely.

“Open communication and alignment between stakeholders at all levels are essential for effective climate risk management,” she concluded.