The power of data-driven natural hazard risk modeling for property portfolios
For the last 53 years, Earth Day has marked a moment where individuals, businesses and governments alike can pause and consider their role in protecting our planet through climate risk management. What began in the U.S. as a national demonstration to raise awareness about environmental issues has since become a global phenomenon and a cultural touchstone in the worldwide effort to curb the progress of climate change.
For decades, scientists have issued increasingly emphatic warnings about rising global temperatures and the future effects that they will have on seasons, storms and sea level rises. And authorities have paid attention. From the Kyoto Protocol in 1997 to the Paris Agreement almost two decades later, which set out a global framework to delay dangerous climatic consequences by limiting global warming to below 2 degrees Celsius, calls to action have come from the highest levels of government for years. However, it is going to take more than an accord between governments to incite change.
Change will require a coordinated investment between individuals, businesses and governments to develop innovative solutions for climate risk management that help move our planet toward a safer future. From investing in Climate Risk Analytics models to equipping citizens with a more nuanced understanding of their exposure to accelerating natural hazard perils, it is critical that everyone knows how the future of our climate will impact their lives and their livelihoods.
Climate Risk Management in Real Estate
Although real estate and the housing market are not the first industries that come to mind when considering the impacts of climate change, the Intergovernmental Panel on Climate Change (IPCC) has indicated that our cities and global infrastructure are one of the four major categories that a changing climate will adversely impact.
To analyze the intensity of the consequences prompted by a changing climate, the United Nations scientific body released its AR6 Synthesis Report in March 2023. This study builds on 2014’s AR5 Synthesis Report, refining its focus on Earth’s geography by increasing horizontal resolution by an average of about 30%. This increase in granularity is coupled with a more realistic image of earth systems physics to capture climate extremes with reduced uncertainty and a smaller range of possible outcomes.
The degree of this measurement downscaling can be illustrated by imagining the difference in size between Texas and Massachusetts. The AR5 Report would represent a measurement on the scale of Texas while the AR6 Report can be likened to Massachusetts, which is about 33 times smaller than Texas.
However, although the refinement in measurement introduced more accuracy into IPCC predictive models, it is still offering high-level insight into implementing mitigation measures, such as where to direct resources for wildfire suppression/prevention and where to invest in sea walls. But since not all properties within a given state are created alike, zooming in even further to the parcel level is necessary to accurately understand the future of property risk.
Property Risk: An Individual Concern With a Collective Solution
To achieve a more granular view of Climate Risk Analytics, scientists employ downscaling. Downscaling methods can be statistical, dynamical or hybrid, but dynamical downscaling is the most powerful method due to its ability to bridge the gap between reality and expectation.
Dynamical downscaling, such as what is employed at in CoreLogic’s Climate Risk Analytics tools, requires industrial computing capacity coupled with deep data reservoirs filled with years of historical data on financial, peril and property data. However, due to its incredible granularity, this method is combined with statistical downscaling to create a hybrid analysis of land parcels across the United States.
Once this picture of the present is filled in, it is paired with the IPCC’s forward-looking climate risk management models to create risk scores associated with every property in the continental United States. These scores can then be analyzed in the context of different future scenarios to determine the safest places to live in the U.S. for natural disasters or simply to understand how a property risk will evolve in the coming decades.
This Earth Day, consider future generations that will also call this planet home. In doing so, it is important to prepare for the future that we will all face, together. From climate risk management and mitigation to understanding the future of property risk in the housing market, it will take in-depth Climate Risk Analytics to ensure that our choices today will model a resilient path for the generations to come.