Updated 10 November 2026
Executive summary
Assess a property's emissions performance alongside its resilience to flooding, overheating and other physical hazards. A useful assessment connects location, building condition and operational dependencies to decisions about investment, insurance and asset management.
- Identify the hazards that could affect each asset over its holding period and useful life.
- Inspect the building, critical systems and services on which continued operation depends.
- Compare adaptation options using documented repair, downtime, maintenance and investment assumptions.
- Test the implications for cash flow and valuation, including uncertainty and residual risk.
- Support any expected insurance or financing benefit with evidence from the relevant insurer, lender and market.
Why adaptation affects cash flow
A building can perform well on energy use and still suffer flood damage or become uncomfortable during a heatwave. Physical resilience needs its own assessment, covering the site, construction, internal conditions and critical systems.
For an owner or lender, disruption can mean repair costs, lost rent, additional operating expenditure and interruptions to tenants' businesses. The financial effect depends on lease arrangements, insurance cover, recovery time and the parties responsible for repair and adaptation. We assess those channels before drawing conclusions about debt service, covenants or value.
Munich Re reported around US$108 billion in global insured natural-disaster losses for 2025, below its inflation-adjusted 2024 figure. Weather-related events accounted for 97% of the insured total. These annual figures describe worldwide catastrophe claims and illustrate their scale and variability. Munich Re's 2025 loss assessment.
Portfolio analysis needs locally relevant hazards, asset characteristics and insurance terms. Benchmark claims only when the peril, geography, period, coverage and denominator are comparable. For example, repair costs relative to insured replacement value answer a different question from lost rent relative to annual rental income. Build stress scenarios from plausible events and their effects on the portfolio.
The IPCC's 2023 synthesis identifies persistent adaptation gaps and uneven implementation across sectors and regions. It also recognises limits to adaptation and the need to consider the losses that remain after measures are implemented. IPCC AR6 Synthesis Report.
An August 2023 EDHECinfra study illustrates the importance of concentration. Its simulations of infrastructure portfolios containing roughly five to twenty assets produced a maximum physical-risk loss of 54% and a mean loss of 7% under the Current Policies scenario by 2050. The comparison measures value with and without the study's asset-level physical-risk effects. Applying the findings to real estate requires a separate assessment of the properties, scenarios and model assumptions involved. EDHECinfra, It's getting physical, Table 2.
Separate hazard, exposure and vulnerability
These three concepts identify different parts of the risk and help explain which interventions could work.
- Hazard describes the physical event or trend, such as flood depth and duration, extreme heat or sea-level rise.
- Exposure concerns the buildings, people, contents and activities located where those hazards may occur.
- Vulnerability concerns their susceptibility to harm. Construction, equipment location, occupancy, preparedness and dependencies on power, water and access all matter.
Two similar buildings in the same flood zone may experience different disruption if one has protected electrical equipment and the other has vulnerable switchgear below the expected flood level. Elevating equipment may reduce damage, but the result also depends on access, pumps, communications, maintenance and the severity of the event.
For a coastal asset, flood protection and backup systems can improve resilience while sea-level rise continues to change the underlying hazard. Assess how long each measure remains effective, which failure modes remain and whether it transfers risk to neighbouring properties or infrastructure.
Climate projections can inform this work. CMIP6 provides an ensemble of global climate-model outputs. Property-level analysis also needs suitable local hazard modelling and building information. Ask providers how downscaling, terrain, existing defences and vulnerability assumptions influence their estimates. Copernicus CMIP6 dataset, Copernicus guidance on spatial resolution.
Use regulation and risk scores carefully
The EU Taxonomy provides a classification framework for environmentally sustainable activities and identifies climate adaptation as one of its objectives. SFDR concerns sustainability-related disclosures in financial services, while the CSRD governs corporate sustainability reporting. Assess the requirements applicable to the relevant activity, financial product and reporting entity. Taxonomy Regulation, Commission guidance on SFDR, Commission guidance on the CSRD.
Building-specific duties also depend on national and local planning, construction, flood-risk and energy-performance rules. Review the applicable requirements for each location and project with the relevant authorities and advisers, particularly before acquisition, refurbishment or a change of use.
A risk score can help prioritise a portfolio for investigation. To support a capital decision, the assessment should explain the hazard, time horizon, scenario, building assumptions and consequences behind that score. Combine screening with site surveys, engineering assessments, local hazard maps and operating records.
We ask for enough information to understand how an intervention changes the result. This includes the assumed event intensity, damage and downtime relationships, existing protections, uncertainty and any important gaps in the data. Record model versions and revisit the assessment when the asset, hazard evidence or planned intervention changes.
Adaptation may affect expected losses, insurability, tenant demand and financing. Estimate those effects for the particular asset and market. Research reviewed by UNEP FI identifies several potential pricing channels, while also documenting substantial evidence gaps around how resilience investment affects real-estate value. UNEP FI's review of physical risk and real-estate pricing.
Green roofs, shading, drainage improvements and equipment protection may all deserve consideration. Their suitability depends on the hazard and the building. For a green roof, assess structural capacity, water availability, maintenance, the existing roof and insulation, and expected performance in the local climate. Compare the full costs and benefits of feasible options.
A three-step action plan
1. Map exposure
Start with a verified asset register, including coordinates, building footprints, use, replacement values and relevant operating information. Screen for current and future hazards over time horizons appropriate to the investment and the building. Record the scenarios and data resolution, then identify assets that require a detailed assessment.
Review concentrations and shared dependencies across the portfolio. Several buildings may depend on the same electricity substation, access road or drainage network. A common event can therefore disrupt assets whose individual scores appear manageable.
2. Inspect vulnerability and compare measures
Use site visits and engineering evidence to assess critical equipment, floor levels, drainage, building fabric, thermal conditions and emergency arrangements. Include tenants and facilities teams, who can identify operating constraints and previous incidents. Compare feasible measures against a documented baseline and assess the risk remaining after each option.
The following hypothetical examples illustrate how the approach changes by asset type.
- Office. An audit identifies electrical equipment in a basement exposed to flooding. Assess equipment relocation, water-entry controls and recovery arrangements, including the cost and disruption of the works.
- Retail. An overheating assessment identifies uncomfortable occupied areas during heatwaves. Compare shading, ventilation and cooling options against thermal comfort, energy use, maintenance and tenant operating needs.
- Logistics. Flooding could damage stock and interrupt access to a warehouse. Assess storage heights, protection of critical systems, alternative access and continuity arrangements for temperature-sensitive goods.
3. Test the financial effects
Estimate physical damage and business interruption under documented hazard scenarios. Apply the relevant insurance deductibles, limits, exclusions and waiting periods to assess retained losses. Include adaptation capital expenditure, maintenance and disruption during installation.
Trace these assumptions through rental income, operating costs, cash flow and the chosen valuation method. Report probability-weighted annual losses and severe-event stress losses with their respective assumptions. Test sensitivity to uncertain inputs and check that repair costs, interruption losses, insurance recoveries and valuation adjustments are counted consistently.
Seek insurer feedback before assuming improved cover or lower premiums, and lender feedback before assuming better financing terms. Where a valuation adjustment is proposed, explain the market evidence and how it relates to the property's income, expenditure, liquidity and risk.
Assign an owner, budget and completion date to each selected measure. Set review triggers, such as a flood event, new hazard information, an insurance renewal, major refurbishment or a change in occupancy. Track whether the measure was installed, maintained and effective.
We use this process to connect physical climate risk with the decisions facing owners, lenders and investment committees. A portfolio review can identify where screening is sufficient, where site investigation is needed and which adaptation options deserve detailed appraisal. Discuss your portfolio's resilience priorities with us.