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You’ve Got a Physical Climate Risk Assessment—Now What?

By Emma Hughes, Director of Climate Risk Solutions at RE Tech

June 27, 2025

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Commercial real estate owners and lenders are increasingly focused on mitigating exposure to physical climate risk across their assets and investment portfolios. And with good reason – ignoring this exposure comes with huge downsides. According to Accuweather, the wildfires that ravaged Southern California earlier this year resulted in total economic loss of more than $250 billion, making it one of the costliest natural disasters in U.S. history. This figure includes the costs of damage, loss of life, healthcare, business disruptions and other economic impacts[1]. In the U.S. alone, there were 27 separate billion-dollar weather and climate disasters last year[2]. These natural disasters are contributing to a surge in insurance premiums, which have increased year over year.

While the disadvantages of ignoring the financial impacts of physical climate risk are clear, effectively managing this risk presents an unprecedented opportunity for savvy investors. A United Nations Report predicts global demand for investments in climate adaptation and resilience to rise between $0.5 trillion to $1.3 trillion a year by 2030[3]. Specific to the buildings industry, the National Institute of Building Sciences has reported that mitigation saves $13 per $1 invested[4]. With climate risk rising, investing in resilience is no longer optional – it’s a competitive advantage.

Many owners or investors in real estate assets have taken steps to understand exposure to physical risk. It’s common to begin with a portfolio-scale physical risk assessment, which helps build awareness of potential hazards and exposure level, typically using qualitative hazard ratings (e.g., red – yellow – green indicators of hazard). Organizations may also pursue more detailed assessments, which consider building-specific or use type-specific characteristics, providing greater confidence in the results, and generating quantitative metrics (e.g., Climate value at risk) based on proprietary methodologies. Arup has proposed a universal taxonomy for natural hazard and climate risk and resilience assessments that classifies and delineates between the various types of assessments[5]; this common language will help standardize quantitative analyses and metrics and support building owners, property teams, sustainability professionals, and financial and insurance professionals, in determining the level of assessment that best meets defined needs.

What remains challenging for owners and property managers today is taking the steps to translate the results of portfolio-scale climate risk assessments into insights that inform capital planning, resilience upgrades, and smart portfolio moves. This article outlines a step-by-step approach to action, exploring emerging best practices to move from screening and quantifying risk to developing and implementing a strategy that can protect asset value and maximize returns.


Step 1: Understand Portfolio-Wide Climate Risk

The challenges are varied when it comes to understanding physical risk exposure. Once an organization has successfully navigated the dynamic landscape of climate risk analytics providers and completed a portfolio risk assessment, they receive a summary output or report. This report may contain property-specific indicators of risk as well as portfolio-level metrics such as average risk scores for the portfolio by peril, maximum and minimum scores for the portfolio, and total value at risk.

Because climate risk analytics providers typically use different datasets, proprietary methodologies, and varying degrees of resolution in their assessments, it’s important for organizations to clearly understand the key characteristics, strengths, and weaknesses of the tool they’re using. This includes an understanding of how the tool assesses and assigns risk levels, quantifies financial risk (where applicable), the scale of the resolution in the assessment (e.g., some tools assess wildfire risk at the granularity of 30 meters – others consider a radius of 1 – 10km), and whether historic climate and weather data are used in combination with predictive future datasets. This baseline understanding helps contextualize the results and can help indicate where portfolio managers may conduct additional investigations to increase confidence in final assigned risk levels for specific assets.


Step 2: Define Priority Assets

After reviewing the results of the portfolio risk assessment, it’s important to identify “priority” assets for further evaluation. This step enables the development of a focused and efficient mitigation strategy that targets specific assets or groups of assets for resilience interventions. It helps reduce the number of properties to be considered for more in-depth, building-specific assessments.

Discussing and establishing shared criteria for defining high-risk properties with key internal stakeholders, including sustainability, finance, and asset management teams, can help streamline the process and simplify decision-making. To define “high priority” properties, consider the following:

  • Asset was deemed high-risk in the portfolio assessment and is vulnerable to identified risk(s) based on verification of measures on site
  • Asset value – represents a significant % of GAV (Gross Asset Value) from the total portfolio
  • Financial impact – including lost revenues, impacts to property value, and costs of repair in case of a climate event
  • Geographic concentration of the portfolio – are multiple properties at risk from a single climate event?
  • Investment period – will the property be held for the medium or long term?
  • Operability impact – is this a facility that requires 24x7 operations (e.g., hospital, data center)?
  • Property use type – different property types may be more exposed to specific physical risks (e.g., factories and warehouses with complex machinery and/or storing hazardous materials)


Step 3: Identify Mitigation Opportunities and Quantify Anticipated Returns

Once you’ve assessed portfolio-wide climate risk and defined high-priority assets, the next step is to identify mitigation opportunities for the priority assets and quantify the anticipated returns of these. Various industry resources outline mitigation strategies; ULI’s Urban Resilience program has published a “Commercial Real Estate (CRE) Guide to Natural Hazards and Property Insurance Underwriting” which can be used as a starting place for understanding risk-reduction strategies and implications for property insurance properties[6].

It is important to maintain a knowledge base of resilience strategies that have previously been implemented. Many climate risk assessments today are not building-specific; in other words, these tools determine risk exposure based on a property’s latitude and longitude and don’t typically consider design or mitigation strategies in place at a given asset. When reviewing the results of a portfolio screening, consider resilience measures that have been previously implemented to contextualize the model outputs and frame the true mitigation opportunity. If a property has installed flood barriers and mechanical systems are elevated on higher floors, it is likely better positioned to withstand and recover quickly after a flooding event.

Once the menu of mitigation opportunities is defined, owners should seek to quantify anticipated returns on investments in mitigation. This may include conducting on-site assessments and/or pursuing more advanced, building-specific risk modeling for high priority assets, projecting reductions in value at risk as a result of implementation, and identifying co-benefits of resilience measures to better define the business case. For priority assets in the portfolio, owners may consider procuring an on-site property resilience assessment in line with ASTM E3429-24: Standard Guide for Property Resilience Assessments[7]. A Property Resilience Assessment (PRA) can be used to inform capital planning, operations and maintenance, as well as underwriting or financing activities. Because completing a PRA can be resource-intensive, facility-level assessment is recommended for high-priority facilities.

Co-benefits of mitigation measures may include extending the life of building equipment, improving energy efficiency and reducing operating costs, providing additional amenities to tenants, reducing exposure to Building Performance Standard (BPS) fines, and/or a reduction in insurance premiums.

Quantifying anticipated returns on investments in resilience empowers owners to better articulate how these investments can deliver reductions in operating expenses, improved tenant experience, and enhanced asset value. A holistic consideration of the anticipated financial impacts and co-benefits helps to inform the next step in this process: prioritization of mitigation opportunities.


Step 4: Prioritize Mitigation Opportunities

With a diverse real estate portfolio composition and a list of potential mitigation opportunities that can number in the tens or hundreds, establishing a framework to prioritize investments is critical. Resilience is not one-size-fits-all, which complicates decision-making for owners with assets spanning multiple geographies and property use types. Some geographies are prone to flooding, while some are prone to wildfires. This means that a resilient building in Miami Beach is going to look different than a resilient building in Omaha, Nebraska.

To prioritize selection of mitigation measures, establish a framework approach that considers the following for each contemplated measure:

  • Cost of implementation
  • Difficulty of implementation (e.g., changing exterior landscapes is typically easier to implement than a building retrofit)
  • Financial returns of implementation (e.g., improved operational efficiency)
  • Co-benefits (e.g., stakeholder and community engagement, human health and wellbeing, emissions reductions, biodiversity conservation)

Throughout the process, consider how mitigation strategies can reduce exposure to acute risks (e.g., hurricanes, floods), as well as chronic risks (e.g., heat stress, sea level rise). While acute risks are typically more insurable than chronic risks, planning for both types of risks should inform development, acquisition, and underwriting strategies.


Step 5: Implement Mitigation Measures

Armed with a list of prioritized properties and targeted measures, the next step for owners is implementation. Work with experienced vendors to upgrade vulnerable infrastructure and building systems based on identified local hazards in alignment with capital planning and budgeting cycles. Communicate early and often to tenants about planned interventions and develop shared timelines for execution that minimize business disruptions. Consider upcoming lease expirations and renewals in the implementation timeline.

Maintain a record of mitigation measures implemented. Wherever feasible, track the impact of implemented strategies on asset valuation and net operating income. Some insurers maintain a list of pre-approved resilience measures – comparing your organization’s planned measures against an insurer’s recommendations can help support communications to key stakeholders, as outlined in step 6.


Step 6: Communicate Implemented Mitigation Measures to Key Stakeholders

Maintaining a record of property-specific resilience measures empowers owners to evidence a focus on risk management and value creation at all stages of the investment life cycle. For priority assets or those planned for disposition, preparing a clear and structured summary of the resilience features or installed measures can be valuable; this summary outlines how the asset reduces risks from climate change and natural hazards and supports transparency for insurers, lenders, and potential buyers or tenants.

The resilience information package should include: a summary of the climate risk assessment (including assessment methods, data sources, key hazards and exposures identified, vulnerabilities, and trends); description of any resilience strategies implemented to mitigate identified risk(s); description of how future conditions informed the building design and/or capital planning; an explanation of operational resilience features such as emergency power supply, passive survivability features (e.g., natural ventilation), and/or community resilience support spaces (e.g., resilience hubs, heat shelters); and a summary of how design features and/or installed measures improve risk mitigation and insurability.

When communicating with insurance providers, don’t wait to initiate the conversation. Carriers often won’t take the lead in these discussions but are open to engaging when clients bring forward risk data and compelling documentation of their strategy. Framing risk reduction as a strategic investment, supported with asset-specific plans, checklists, and visuals, can help set the stage for productive conversations with insurance carriers regarding rates and coverage.

When communicating resilience plans to stakeholder groups such as potential tenants and buyers, providing a balanced narrative is key. Communicate both the risks identified and the anticipated commercial benefits of mitigation strategies (e.g., business continuity, asset protection) to cultivate stronger buy-in and recognition for these investments.


Step 7: Track and Evaluate Progress Over Time

Just as investor expectations, climate conditions, and the regulatory landscape continue to evolve and shift, effective physical risk management for real estate assets and portfolios is an ongoing process. It’s best practice for organizations to complete climate risk assessments for new acquisitions as part of the due diligence process and at least annually for all existing assets to inform underwriting efforts, portfolio strategy, and capital allocation.

Annual evaluation enables owners to apply the latest climate science via continuously updated modeling tools and maintain a current understanding of portfolio exposure. Regularly reviewing progress also helps leadership teams track the impacts of investments on key indicators, such as net operating income and asset-level risk exposure, and track changes in value at risk as portfolio composition changes over time. These insights help to inform acquisition and exit decisions and can be used to demonstrate progress to investors.


In Closing

Every organization starts in a different place on its climate risk management journey. The typical trajectory begins with education and awareness, understanding physical risk exposure as well as sensitivity to identified hazards, and implementation of quick wins. Toward the leadership end of the spectrum, organizations are embedding a holistic understanding of climate risk into their standard governance, strategy, and operations – supported by robust climate risk assessments and scenario analysis – and establishing robust decision-making frameworks that enable prioritization of investments and streamline implementation of adaptation and resilience measures.

The downsides of ignoring physical climate risk are clear: the cumulative cost of climate-related damage in the United States totaled $746.7 billion between 2020 and 2024, with an annual average damage exceeding $149 billion; this is more than double the annual average cost of climate-related damage from 1980 to 2023[8]. Understanding the organizational and financial impacts of physical climate risk and recognizing the co-benefits of investments in resilience –improving operational performance, supporting the health and wellbeing of tenants, reducing exposure to transition risk, and supporting the surrounding community – provides a solid foundation to make the case for investing in resilience at any organization.

Savvy owners today are strategically integrating climate risk throughout the investment life cycle, undertaking risk evaluations during diligence, underwriting, portfolio management decisions, and capital planning. They recognize that addressing climate risk is both effective risk management and opportunistic value creation and are leaning in to gain a competitive edge.


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