Climate resilience certificates – a standardised assessment of climate risks in real estate

In 2021, heavy rainfall in the Swedish city of Gävle caused severe flooding, affecting many properties in the area. To date, insurance companies have paid more than one billion Swedish kronor in compensation to affected property owners. The distribution of damage was uneven, making it clear that the individual preconditions of each affected property had a substantial impact on the degree of damage suffered. This sparked a discussion about the risk of natural disasters on mortgages and insurance policies in light of climate change, and whether more consideration should be given to the individual conditions of a property rather than relying on general area-based risk maps where all properties in one area are assessed similarly. In many cases, small measures can have a substantial effect on the degree of climate-related hazards tied to natural disasters. In Sweden, the responsibility to undertake measures to decrease such risk today lies with the property owner. However, many owners lack relevant information on how to assess their property’s risks to natural disasters as well as hands-on recommendations on how to mitigate those risks. At the same time, financial institutions, insurance companies and many other actors face new European and national legislation that requires them to understand, measure, remedy and account for their risks related to this area. In the case of lenders assessing the risks to their collateral at an individual property level, the ability to get an overview is limited. At best, risks can be described on an area level only, meaning that the individual conditions of the property are being not considered. In this report, we have explored whether a standardised classification system, a so-called climate resilience certificate (CRC), that outlines the individual risk exposure of a property could offer a potential solution to this problem – and if it could be both easy to use by private homeowners and meet the needs of industry stakeholders. To test our idea, we conducted a case study by applying the system to the events that took place in Gävle in 2021. We suggest further work on the feasibility of a preferably European-wide, threestep model of a CRC taking into consideration all acute and chronic physical climaterelated hazards described in EU law. The first step of the classification is based on a databased screening tool resulting in a preliminary assessment, ranging from green to yellow to red. The second step is an in-depth assessment conducted by a certified climate expert who collects data through an on-site inspection of the property and/or an examination of documentation, resulting in a classification ranging from A to G, together with suggestions on climate adaptation measures that could be taken to decrease risk. In the third step, the data is made available to the property owner and, to a limited extent, other relevant stakeholders. A CRC could facilitate and improve climate adaptation efforts made by property owners by (i) making it clear, on an individual property level, which owners should take measures (and in certain cases get support) to decrease risk and (ii) creating an incentive to take these measures from lenders, insurance companies and investors.This report is the result of a Vinnova-funded project, “Feasibility study on climate resilience declarations”.   Svensk version av denna rapport finns på: https://urn.kb.se/resolve?urn=urn:nbn:se:ri:diva-64052</p

Climate resilience certificates – a standardised assessment of climate risks in real estate

In 2021, heavy rainfall in the Swedish city of Gävle caused severe flooding, affecting many properties in the area. To date, insurance companies have paid more than one billion Swedish kronor in compensation to affected property owners. The distribution of damage was uneven, making it clear that the individual preconditions of each affected property had a substantial impact on the degree of damage suffered. This sparked a discussion about the risk of natural disasters on mortgages and insurance policies in light of climate change, and whether more consideration should be given to the individual conditions of a property rather than relying on general area-based risk maps where all properties in one area are assessed similarly. In many cases, small measures can have a substantial effect on the degree of climate-related hazards tied to natural disasters. In Sweden, the responsibility to undertake measures to decrease such risk today lies with the property owner. However, many owners lack relevant information on how to assess their property’s risks to natural disasters as well as hands-on recommendations on how to mitigate those risks. At the same time, financial institutions, insurance companies and many other actors face new European and national legislation that requires them to understand, measure, remedy and account for their risks related to this area. In the case of lenders assessing the risks to their collateral at an individual property level, the ability to get an overview is limited. At best, risks can be described on an area level only, meaning that the individual conditions of the property are being not considered. In this report, we have explored whether a standardised classification system, a so-called climate resilience certificate (CRC), that outlines the individual risk exposure of a property could offer a potential solution to this problem – and if it could be both easy to use by private homeowners and meet the needs of industry stakeholders. To test our idea, we conducted a case study by applying the system to the events that took place in Gävle in 2021. We suggest further work on the feasibility of a preferably European-wide, threestep model of a CRC taking into consideration all acute and chronic physical climaterelated hazards described in EU law. The first step of the classification is based on a databased screening tool resulting in a preliminary assessment, ranging from green to yellow to red. The second step is an in-depth assessment conducted by a certified climate expert who collects data through an on-site inspection of the property and/or an examination of documentation, resulting in a classification ranging from A to G, together with suggestions on climate adaptation measures that could be taken to decrease risk. In the third step, the data is made available to the property owner and, to a limited extent, other relevant stakeholders. A CRC could facilitate and improve climate adaptation efforts made by property owners by (i) making it clear, on an individual property level, which owners should take measures (and in certain cases get support) to decrease risk and (ii) creating an incentive to take these measures from lenders, insurance companies and investors.This report is the result of a Vinnova-funded project, “Feasibility study on climate resilience declarations”.   Svensk version av denna rapport finns på: https://urn.kb.se/resolve?urn=urn:nbn:se:ri:diva-64052</p