Climate change poses a significant threat to US commercial real estate markets, and various software tools are used to analyze climate risks. However, these tools can be effective for assessing baseline physical risks but often fall short when evaluating material physical risks from climate change. A report by MetLife Investment Management, “Pitfalls & Mitigants of Climate Assessment Software,” explores various risk assessments to understand how to mitigate these shortfalls.
The report identifies two categories of physical climate risk hazards: acute and chronic. To assess risks in the real estate industry, different models and data sources are needed. Historically, property insurers have assessed early physical risks by analyzing catastrophic risk from extreme weather events, using event-based modeling and historical data such as flood maps and weather patterns. The report highlights the need for more sophisticated models and data sources to accurately assess the impact of climate change on commercial real estate markets. By better understanding and mitigating climate risks, investors and property owners can make more informed decisions and reduce the potential losses associated with climate change.