COMMENT Last month, the UK recorded its highest temperatures of more than 40°C. The intense heatwave lasted just two days but threatened lives, livelihoods and exposed the lack of preparation in the UK against the effects of extreme weather conditions. More than 40 homes were destroyed by wildfires, sparking the busiest day for the London Fire Brigade since World War II.
In other parts of the world, pressure from intense heat resulted in the melting of electrical cable sheaths and power outages that affected 10,000 households in Baden-Württemberg, Germany. Infrastructure in parts of China buckled, causing splits in bridges.
These types of events are not only inconvenient and disruptive, they are costly too. According to insurance company Munich RE, the cost of natural disasters soared in 2021, with storms, floods, wildfires, earthquakes and other severe weather events worldwide costing around $280bn (£230bn) – of which only roughly $120bn were insured – up from $82bn in 2020 and $57bn in 2019.
As current and future extreme weather trends drift further from past experiences thanks to the non-linear and non-stationary nature of climate change, the gap between insured and uninsured losses is expected to widen or become increasingly costly to manage.
Climate change is an emerging risk category that investors, government and businesses are requiring urgent action from industry to manage.
So what can cities do, both in the UK and globally, to mitigate risk and start addressing and managing these issues at local government level?
Withstanding physical risks
One of the major problems is that the majority of work being done by cities to date have been focused on reducing impacts to climate change. This includes actions such as introducing no/low-emissions zones, installing EV charging infrastructure, expanding bike lanes and unlocking “green” financing to support a transition to net zero.
There is nothing wrong with doing any of this. It is certainly not to be dismissed. But investment into adapting cities to be able to withstand physical risks that already exist have been slow off the mark. This includes strengthening flood defences such as the Thames Barrier in London, as well as in coastal areas, securing and safeguarding energy supply and back-up power generation, considering terraforming our cities and using nature to help us create more green spaces to better absorb rainfall and dampen the effects of heavy rain. Something as simple as the planting of more trees in urban areas will help introduce shade and cool surfaces across our streets as temperatures continue to rise year-on-year.
So why is there still so little investment at government level into the adaptation to climate change? It comes down to a lack of data in part. Traditionally there hasn’t been much available, but that is changing now thanks to the emergence of climate risk data analytics. Then, of course, there is the issue of cost.
The projects that need to be delivered to deal with adaptation in the face of climate change are often more costly and complex to manage. But this hurdle is also slowly being overcome as governments and local councils start to realise that both the challenges of mitigation against and adaptation to climate change need to be managed simultaneously.
As severe weather events become more frequent and costly, this is becoming increasingly hard to dismiss, not least because cities are exposed to material risks that the UK government has already acknowledged following the most recent Independent Assessment of UK Climate Risk.
Two of the most high-profile risks from a city point of view are: high risks to people and the economy from climate-related failure of the power system; and high risks to human health, wellbeing and productivity from increased exposure to heat in homes and other buildings.
The hope must be that as we see more damage, destruction and, ultimately, death off the back of severe weather events here in the UK and around the world, investment will catch up with the scale of the issue and significant funds will be channelled towards adapting to the risks we are already facing rather than being funnelled towards mitigating against potential future risks.
Why data is key
Speaking of risk, it is useful to define the two key categories we are currently facing: physical and transition.
Physical risks arise in the form of both acute and chronic risks. Multiple types of each risk can happen at the same time.
Acute risks typically happen more suddenly and over shorter-duration events. They include certain types of flooding, such as surface and river flooding, as well as geophysical hazards including landslides.
Chronic risks tend to occur more gradually and over a longer period of time. They are not as easy to spot but can be more complex and costly to deal with. The types of risks that fall into this category include subsidence – affecting up to 30% of properties across the UK and costing £10bn in the past decade, as well as coastal flooding linked to sea level rise and heat stress.
Transition risks are commonly associated with the cost of moving a business and supply chain to net zero by a particular timeframe. In the context of real estate and building owners, that means assessing how to decarbonise entire supply chains from construction through to energy supply.
Any emissions that can’t be removed will need to be offset, and the price of that will change depending on government policy, often in the form of carbon tax.
Identifying risks early is key and there are different ways to address this problem. The most common approach taken by property owners is to look at environmental agency flood data. These data sets represent today’s risk profile based on what has happened in the past. If a place has flooded every year for the past decade, the assumption is that trend will continue and worsen with an almost linear trend.
However, the way climate change can affect extreme weather events doesn’t mean that is always true. In fact, we know that climate change is non-linear and non-stationary. That means the further we move from a past data point, the less relevant that data point is likely to be.
That changes drastically when you change the modelling approach. Models, like Climate X’s, fuse satellite data to recreate the world in a digital twin and then they apply the laws of physics to simulate how weather such as rainfall will interact with the built environment. Think of it as a real-world version of The Sims. Except with real world applications.
With this new technology, it’s now possible to distinguish a range of risk profiles, even on the same street.
As you look to the future, the same method can be used to connect climate pathways to local impacts with unprecedented accuracy. This type of modelling, referred to as climate risk modelling, is already being adopted by financial institutions such as mortgage lenders and corporate banks to assess the vulnerability of risk across their portfolios, and under a range of hazard types and climate assumptions.
For the real estate industry the use cases are similar in many ways – think about how and where your property portfolio is already exposed to different types of physical risk. Should you diversify your risk by changing your strategy for new transactions? When you do assess new transactions, how could you think about including climate risk in the due diligence process? Would knowing that a place that has never flooded before but is highly likely to flood in the future affect the way you look at that deal?
And, crucially, think of the value this sort of forward-looking data could bring to cities and local governments. Rather than investing to mitigate and adapt to potential issues based on the likelihood of past trends repeating themselves, being able to channel funds into addressing problems and protecting areas that have been flagged as future risks is a much more efficient deployment of funds.
Lukky Ahmed is founder of Climate X
