As published in CRE Media Europe on 14 May.

As the US is pulling out of the Paris Agreement we are seeing sustainable capital being diverted from the US and moving to Europe.

While it is true to say that many institutions are removing ESG from their literature, most remain committed to the substance of what it entails. Rather, they are simply using the term ‘sustainable’ and continuing to pursue the same future proofing targets. The language has changed but the direction of travel remains the same.

In real estate, what that means is that assets that do not conform to ever more stringent environmental performance standards are increasingly unattractive to both investors and occupiers. In short, they risk becoming stranded assets and suffering a reduction in value. Even to climate change sceptics, the financial argument is compelling.

To date, that has largely been about energy efficiency. In Europe, for example, the EU-funded Carbon Risk Real Estate Monitor (CRREM) project aims to decarbonise the built environment by 2050, in line with the Paris Agreement. Buildings that fail to fall in line risk being rendered stranded – and all institutional investors, at least, are aware of the fact.

However, the issue with potential stranded assets is widening. As events around the world – the recent fires in Los Angeles or the flooding in Valencia, for instance – demonstrate, climate-related disasters are becoming far more common. Buildings need to prioritise resiliency in the face of such events.

“These natural disasters have wiped out property values instantly so there is a need to invest in climate mitigation and adaptation to ensure the long term values of assets.”

Take the fires in LA. While thousands of buildings were reduced to ashes others survived relatively unscathed. The situation is forcing landlords and designers to reconsider how to future proof for these types of natural disasters. It’s a similar situation when it comes to flood-risk. If, for instance, a building’s plant room is located in the basement, which is hardly uncommon, a flood risks knocking out the entire asset for months at a time. Water and electricity, after all, do not mix. Seemingly mundane items like drainage and pumps also need to be considered.

These natural disasters have wiped out property values instantly so there is a need to invest in climate mitigation and adaptation to ensure the long term values of assets. Following a history of property devastating hurricanes in Florida, I have seen how building regulations and insurance requirements change to adapt to these climate events. Materials have changed from wood to concrete and living spaces are required to be raised above ground level.

At a city level, planners also need to think about how excess water will be dealt with. For decades, most drainage systems have involved hard solutions, but these can quickly become overwhelmed in an extreme weather event. Increasingly, enlightened city authorities are introducing more green spaces and parks that can absorb excess water or slow down the speed water enters the drainage system.

Technology and design can be the solution to adapting to many of these risks of climate change. We know now that the world faces more frequent and more severe extreme weather events, no matter how quickly carbon emissions are reduced. It is a safety, financial and social imperative that the built environment is focused on becoming more resilient and future proofed.

By undertaking effective climate risk assessments and implementing mitigation and adaptation measures, property owners and potential buyers will be able to better understand the specific risks that each property is facing. It is essential that people know how to protect their buildings from the physical and financial damages that can occur and understand the potential costs of doing nothing.