Apr 13, 2023

11 questions real estate investors must ask climate data providers

Data | by Sam Eckhouse, CTO | 8 Minutes

When flood, fire or other disaster hits a property, investors can find themselves facing costly repairs or even total loss. The progression of climate change unfortunately means these types of extreme weather events will occur more frequently and with greater intensity. Regulators are responding by ramping up pressure on investors to disclose climate risks to their portfolios as part of ESG compliance.

Climate risk data helps real estate investors understand changes in physical risk to their portfolios, contributes to due diligence ahead of closing deals, and can inform how investors plan individual property improvements. The right information can even shape what markets investors prioritize in the future.

Climate risk data providers comprise an emerging market. Each provider has their own approach to acquiring, analyzing, and categorizing data. Some providers offer broader data, while others take a more granular approach. Providers may also differ in their approach to customer service, how responsive they are, how transparent they are, and their willingness to fulfill unique client requests.

Climate change poses material risks to property. Your choice of data firm will determine how well you can prepare and adapt your portfolio in the near term and over the coming decades.

The following questions can help you assess whether a prospective firm meets your needs. Learn how ClimateCheck helps real estate investors identify and quantify climate risk to their portfolios.

  1. Who is on the climate risk data provider’s team?
  2. Who are their clients?
  3. What is their geographic coverage, and how granular is it?
  4. How far into the future can they project risk?
  5. What emissions scenarios do they cover?
  6. What are their data methodologies and where do they get their data?
  7. What hazards do they cover, and how do they categorize them?
  8. What are the deliverables?
  9. How responsive are they?
  10. Are they a large corporation or a nimble startup?
  11. How do they price their product?

1. Who is on the climate risk data provider’s team?

Climate science is constantly evolving. As we learn more about the effects of global warming on weather events and the environment, experts find new ways to quantify what physical risk will look like under different climate scenarios. Real estate investors need climate data providers that keep up with new science, models, and raw data as it becomes available.

Look for a provider that boasts a robust team of academic experts. Analysts should hold master’s degrees or PhDs from respected climate science and data science university programs. A climate risk data provider can further bolster their expertise by consulting leading climate science experts, such as professors leading major university labs.

If you don’t know who performs the analysis for your climate data provider, or the provider is not transparent about analyst backgrounds, that’s a red flag. In general, seek providers that offer transparency wherever possible.

2. Who are their clients?

Another area of transparency that’s important is whether the provider shares names of current clients. Look for press releases or media coverage detailing who the provider works with. If recognizable organizations work with them, that’s a good sign. Note that some clients may prefer anonymity if they operate in a sensitive space.

3. What is their geographic coverage, and how granular is it?

Different providers will cover different regions with different levels of granularity. Ask providers to explain what regions they cover, and how far they can narrow down their analysis . Can they provide data for individual zip codes? Individual properties? Can they show you how risk varies within a single property in your portfolio? You can also ask providers whether they plan to expand to specific regions.

While high-level data can be sufficient to satisfy some ESG requirements, investors need more granular data to perform due diligence and understand risks that are material to their bottom line. That means going beyond data at the city or regional level, and querying through a narrower lens: zip code, parcel number, even variation of risk within parcel boundaries.

4. How far into the future can they project risk?

Property is a long-term investment. Ask the provider how far into the future they can project risks: 10 years out? 30 years out? Can they project risk in smaller increments? Knowing how risks may change over time can help with planning maintenance budgets in advance, and can also help with planning investment priorities over time.

5. What emissions scenarios do they cover?

Climate risk isn’t set in stone. A lower emissions scenario where governments and corporations take greater measures to reduce or eliminate fossil fuel consumption would lead to less warming, and thus would reduce the probability of certain risks. A higher emissions scenario projects more warming and greater risks. It’s helpful for providers to cover multiple scenarios to reflect a wider range of possibilities.

6. What are their data methodologies and where do they get their data?

Some providers may tout trendy approaches to data, but ultimately come up short when explaining how they come to their conclusions. Look for providers that share explanations of their methodologies and how they come to their conclusions. These could be published publicly on their website, or shared directly with clients. What’s important is that your climate data provider is forthcoming about their exact sources of data and how their data science team operates. Trustworthy climate data comes from government, academic and other public and institutional sources, such as the Intergovernmental Panel on Climate Change (IPCC)

7. What hazards do they cover, and how do they categorize them?

Hurricane, wildfire, blizzard, heavy rain, drought — these are all weather events made more intense and frequent by climate change. A single disaster event carries multiple hazards. Hurricanes can cause both flooding and wind damage, for example. A property could be at higher risk for wind damage from a hurricane, but lower risk for flood damage. Or the property could be at high risk for both, perhaps because of the added risk of river flooding.

Some providers will break out the different hazards, while others will categorize them together as just “hurricane risk,” which can be misleading. Ask providers what hazards they cover and how they categorize them. Do they rate the hazards individually, or combine them under weather events?

8. What are the deliverables?

There are many ways to present and format climate risk data. Different providers could offer one or a combination of any of the following, or other deliverables:

Narrative documents, normally PDF format

Deliverables with more narrative qualities, such as paragraphs describing each risk level, are helpful for people without climate or data backgrounds seeking to understand risk.

Examples:

  • A high-level overview of your whole portfolio
  • Individual narrative reports for each property

Maps that illustrate risk

Maps help you see where risk is highest within a property — for example, you might see that certain structures within a single property are at higher risk for river flooding than others.

Examples:

  • Maps that illustrate risks across your portfolio
  • Maps that illustrate risks for individual properties

Raw data

Raw data enables you to combine climate data with other data within your organization. You can use raw data to derive deeper insights.

Examples:

  • API for individual properties or regions that includes granular data such as expected flood depth, expected temperature changes, expected wildfire risk.
  • Searchable dashboard of individual climate risks for each of your properties
  • Spreadsheet, CSV, or Parquet file to integrate into your existing analysis tools
  • Customized data delivery solution to quickly match existing analysis workflows

9. How responsive are they?

A good climate risk data provider will offer more than PDFs and spreadsheets — they’ll give you API access to data for direct integration with your own software, specialized modeling tools, and access to expertise. If your firm doesn’t have a climatologist on staff, your climate risk data provider should be able to fill that gap. Similarly for data delivery, a nimble climate risk data provider will use the latest data science and public cloud technologies to ensure data integration is seamless.

Ask your prospective provider how quickly they tend to respond to client questions, and whether they can make time for phone calls to go over reports and explain the relevance of data and how you can actually apply it to decision making. You may also ask whether the provider can customize data and feeds or provide expert help with analysis and building of models.

10. Are they a large corporation or a nimble startup?

Climate risk data is a relatively new market with two main types of players: Startups that focus on climate risk data, and corporate consulting firms that offer climate risk data as one of their many solutions.

  • Startups tend to move faster and add new features more frequently, sometimes in direct response to customer demand. They may be more transparent about their product roadmaps. Startups may also offer more flexible contracts and can be more cost effective to work with.
  • Corporate consulting firms can offer climate risk data in combination with other tools, which can be convenient especially if you are already a client. However, their data may be higher-level or less granular, and they may be less able to tailor solutions to your needs. Working with them may also entail more bureaucracy and less flexible contracts.

11. How do they price their product?

Some providers will let you buy reports à la carte, while others will require subscriptions that lock you into long-term contracts. Ask the provider about the flexibility of the pricing structure, in addition to costs for different types of deliverables.

- ClimateCheck’s proprietary risk assessment tools empower property buyers, owners, and brokers by exposing and quantifying climate risk to real estate. Our team of experts uses data from government, academic and other public and institutional sources, such as the Intergovernmental Panel on Climate Change (IPCC) to rank drought, heat, fire, flood, and storm risk for entire portfolios as well as individual properties.

Looking to incorporate climate into your risk assessments?