ESG and Extreme Weather
Extreme weather events are becoming more and more common, posing increasing risks to buildings. The challenge here is not only for designers and operators but also for business supply chains. Increasing insurance premiums, repairs to damage caused by high winds, and increasing incidences of stranded assets mean that the effects of climate change are being felt across the investment cycle. We need to understand and quantify the climate–related risks faced by a building over the course of its operational lifecycle. And these risks have to inform organizational governance decisions. They cannot be ignored.
ESG isn’t going anywhere. But its adoption needs to ramp up. From April, large organisations will, in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), have to measure and report on climate risks. Small organisations will have to follow suit by 2025. So there is still time to get out ahead of the curve and lead on ESG before reporting becomes mandatory.
While the TCFD recommendations are helpful, they are not the end of the story. In a recent report, the UK Green Buildings Council attempts to outline some of the blind spots that need to be more clearly defined. For a start, as they write,
TCFD recommendations lack the granularity necessary to explicitly guide organisations through this process at asset level. As a result, there is currently a lack of consensus within industry regarding measurement and disclosure methodologies.
Their proposed framework considers both transition risks and physical risks posed by extreme weather events. It attempts to develop a more “granular” (i.e. built asset level) understanding of the decisions that should underpin a physical risk assessment. As they put it, “how to assess baseline and future risks from physical hazards, how to assess an overall risk rating for a built asset and how to disclose physical risk.”
In summary the framework asks building owners and operators to define the direct and indirect risks that the built asset will face, outline the baseline risk from climate events, consider future risk, risk interdependency, and the likely cost of physical damage to the asset over time. Once the risk level is understood, owners should decide on their risk tolerance, and then create an ongoing management and reporting strategy.
In their most recent Independent Assessment of UK Climate Risk (CCRA3), the Committee on Climate Change (CCC) has shown that as our exposure to climate related risk has increased, our mitigation strategies and level of adaption has lagged increasingly behind. Our level of preparedness is actually worse than it was in 2017. In short it is very clear that in the long run, action to adapt to climate risks will cost far less than inaction.
After Storm Eunice, it will be no surprise to anyone that gale-force winds cause about £300 million of damage to UK infrastructure every year according to NC Insurance. This is only one effect of increased global temperatures. If trends continue, the Climate Action Tracker expects there to be a global temperature increase of 2.7% by the end of the century, far more than the limits outlined during the Paris Agreement. With this comes increasingly severe weather events and, for building owners, higher aggregate risk. We must act quickly to adopt and improve ESG measurements; and pay close attention as legislation evolves between now and 2025.