Whether or not you believe in the Earth’s accelerating climate change, a Climate Vulnerability Assessment (CVA) can be a useful tool for evaluating your facility’s preparedness for natural hazards. The purpose of a CVA is to assess the potential for natural climate risks associated with the local environment and to develop an understanding of how these risks might impact a property. A CVA helps to guide building owners or management teams to better plan for climate events that could cause physical damage or disrupt day-to-day operations of the asset.
Climate Vulnerability Assessments can help evaluate your facility’s risk and preparedness for natural hazards.
As climate change has come to the forefront of the commercial real estate industry, CVAs are becoming ever more important. Investors, mortgage lenders, insurers and even tenants are ramping up their awareness of climate risks and the potential profound impacts natural hazards may have on their physical assets. Underwriting and credit decisions are now taking into consideration these types of risk. For higher risk properties, risk mitigation may be required in advance of closing in order to secure more favorable rates.
According to the U.S. Department of Energy (DOE), credit rating agencies such as Moody’s and Standard & Poor’s are integrating climate risks into their ratings, resulting in public and private sector debt issuers having their credit grade reduced (or potentially increased) depending on how risks are managed. Insurance industries are also increasingly incorporating climate- and resilience-related risk into property insurance pricing and availability. Commercial real estate investors and other stakeholders have increasingly pushed for companies to disclose information related to environmental, social, and governance (ESG) performance, with climate resiliency included in the “E” portion of ESG. In fact, GRESB, one of the most well-known real estate ESG and sustainability evaluation firms, has their own climate risk platform to help understand and benchmark an asset’s exposure to physical climate risks. For funding resiliency strategies, commercial property assessed clean energy (C-PACE) financing programs in many US jurisdictions now include a range of required climate mitigation, adaptation, and other resilience measures.
Including Evaluations during Real Estate Due Diligence
Many of the factors mentioned above have created a movement to include a CVA or similar evaluation during the real estate due diligence period.
There are several publicly available resources to assist with the identification of potential risks of a variety of natural hazards. The most common resources are data applications published by Federal Emergency Management Agency (FEMA), the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) and the Department of the Interior (DOI), to name a few.
In 2021, FEMA introduced the full application of its National Risk Index application. The National Risk Index as defined by FEMA, “is a dataset and online tool to help illustrate the U.S. communities most at risk for natural hazards. The Risk Index leverages available source data for natural hazard and community risk factors to develop a baseline relative risk measurement for each county and census tract in the U.S.” This invaluable tool can be used as a baseline to evaluate local climate risks such as flooding, extreme cold, extreme heat, extreme weather (such as lightning, tornadoes or hail events), geological (such as earthquakes, landslides or volcanic activity), and wildfires. Scores are presented both quantitatively (from 0 to 100) and also qualitatively (ranging from “Very Low” to “Very High”). Each of these respectable resources can be used individually or collectively to develop an informed assessment of various potential climate risks.
At VERTEX we can help to not only evaluate the risk of location-specific natural hazards but also identify their potential impact on your specific facility. In general, we apply a four-step process:
Step 1: Explore Potential Hazards – research location-based climate hazards
Step 2: Assess Vulnerability & Risks – based specifically on the characteristics of the subject facility
Step 3: Evaluate Resilience Strategies – potential building system retrofit options or upgrades
Step 4: Estimate Costs for Action – value capital improvement projects
A CVA can assist with planning and withstanding the impact of extreme climate events.