by Sarah Peterson, Director of Sustainable Finance

With a cooling real estate market and a looming recession, insurance cost increases can no longer be offset by modest increases in rent or decreases in other operating expenses. Furthermore, extreme weather has depleted insurance reserves, setting the stage for another series of insurance rate hikes. Yet, insurance expense growth will not be uniform across markets and sectors. 

Savvy real estate investors can get ahead of the evolving insurance landscape by leveraging climate analytics to screen portfolios for risk, assess insurance policies for sufficiency, and take advantage of dislocations caused by climate change.

Future Growth of Insurance Premiums in the U.S.

Insurance rates are increasing nationwide, but properties in climate vulnerable regions such as South Florida and California are experiencing the most significant cost escalations. According to USI, a leading insurance brokerage and consulting firm, premiums for properties outside of catastrophe-prone zones are expected to increase 5% to 10%, whereas premiums for properties inside catastrophe zones are expected to increase between 15% and 50% during the first half of 2023. 

The rising cost of insurance will impact real estate investors differently. Real estate owners invested in property types like multi-family, condo, or hotel, will feel the pinch from premium growth the most because they cannot pass along insurance costs to tenants. By contrast, those invested in retail, office, or industrial, will not be as affected as much since tenants pay for insurance, either in part or whole. 

A 2021 report published by SitusAMC, a global commercial real estate solutions expert, expressed two notable concerns related to current insurance underwriting practices. Firstly, there is a large disconnect between insurers and real estate market participants about the magnitude of future insurance premium growth. Although the report does not share the premium growth rates modeled by market participants, it can be inferred from USI’s wide range that there’s considerable market uncertainty.

Secondly, there is also a disconnect concerning the persistence of rate increases. The same report also notes that appraisers are only modeling a one-year spike in insurance premiums, followed by a return to the annual inflation rate for the duration of the holding period. However, with global insured losses exceeding historical averages, it’s likely that premium increases will continue to outpace inflation for the next several years.

In combination, the differences between the estimated and realized size and persistence of insurance cost increases will likely result in an overestimation of net operating income, implying future write-downs for commercial properties. 

Climate Analytics to Screen for Risk & Resilience

Climate analytics serve as the first line of defense, helping real estate owners and investors identify exposure to high-risk locations. Properties that score high for climate risk are more likely to endure climate perils that will result in costly property repairs and a meaningful disruption to business operations;these high-risk assets are most susceptible to large and prolonged insurance costs increases. 

Real estate investors should also consider the resilience of a location, or its ability to manage disruption from climate perils and bounce back into good standing. Quality of infrastructure, recovery spending, and the underlying economics of the surrounding community are all important factors that determine resilience. 

Lastly, a sophisticated provider of climate analytics will allow investors to dissect their risk. In this regard, investors can break down climate risk by property-type to get a better idea of how much of the increase in insurance cost they will have to shoulder versus how much they can share or pass along to tenants.

Coverage Reduction and Policy Cancellations

Property insurers are not only increasing premiums, but they’re also reducing the degree of coverage provided. Examples of current coverage reductions include lower insured values, exclusions for water damage, and new sub-limits for named storms. Since commercial mortgage lenders require high levels of coverage, the new limits imposed by carriers may trigger a default or make some loans subject to costly, forced-place insurance. 

Another way insurers are protecting their balance sheets is by terminating policies in high-risk areas. Since admitted insurers are heavily regulated by the state, they must receive state approval before passing along costs to policyholders. If the state denies them, the insurer eats the cost, leading many carriers to opt for policy cancellation. The policy-termination trend spells trouble for commercial real estate valuations, since without proper insurance coverage properties are not eligible for loans. 

Climate Analytics to Assess Insurance Policies Sufficiency

Real estate investors can get ahead of the evolving insurance landscape by leveraging climate analytics to evaluate the sufficiency of their insurance policies. Climate data provides investors with a better understanding of what types of climate perils their properties are susceptible to and how the risk profile changes over time. Armed with this data, property owners can review insurance policies to ensure they’re appropriately protected. Since insurance contracts are renewed on a yearly basis, ensuring that coverage remains aligned with internal risk appetite as well as lender requirements will be a challenge. 

An advanced climate analytics provider will also help real estate investors quantify the financial impact of climate volatility. In this regard, property owners can compare the climate-adjusted value of a property against its insurable value and take appropriate action.

Climate Analytics to Identify Market Mispricing

Savvy real estate investors can use climate analytics to not only manage risk but identify markets that present the greatest opportunity for risk-adjusted returns, turning climate risk to climate opportunity.

Since economic outcomes are strongly linked to both geographic location and the natural environment, climate analytics help investors identify high-performing locations that financial analysts would not have been able to identify using traditional research and deal sourcing techniques. Investors have an opportunity to share in more upside by using climate data to identify and invest in mispriced, climate-resilient locations. 

Climate analytics empower real estate investors to navigate a difficult property and insurance market with confidence. By serving as the first line of defense, climate analytics help investors screen their portfolios for risk while simultaneously providing opportunities to take advantage of dislocations caused by climate change. 

For more information on how Climate Alpha can help you get ahead of the impacts from climate volatility book a consultation with our team.

Sarah Peterson, Director, Sustainable Investing

Physical climate risk refers to the potential damage to properties caused by natural disasters such as flooding, wildfires, hurricanes, and extreme temperatures, all of which are becoming more frequent and severe due to climate change. 

In today’s challenging market, leveraging data to gain a deeper understanding of climate risk and resilience may be the difference between an accretive or non-accretive investment. 

1. Direct Damage from Extreme Weather

2. Rising Insurance Costs & Reduced Coverage 

“Real estate is no longer guaranteed to go up and to the right. Climate change combined with other macro drivers such as interest rates and disruptions like demographic shifts and remote work heighten the need for deep, data-driven research and robust scenario planning to pick the winning locations of the future.“ 

Parag Khanna, CEO of Climate Alpha

3. Coastal Market Devaluation 

There is growing evidence that climate risk in coastal markets, which are susceptible to storm surges and flooding, has already affected residential real estate prices. More specifically, a 2018 study performed by Pennsylvania State University and the University of Colorado indicated an average 7% “sea-level-rise discount” for non-owner occupied coastal residential properties. Similarly, First Street Foundation released data showing that eight states lost a combined total of $14.1 billion in coastal home value since 2005 due to sea-level-rise flooding. 

4. Climate-Related Risk Regulation 

5. The Rise of ESG Motivated Capital 

Overall, considering climate risk is important for real estate investors who want to protect the long-term income and value appreciation while staying ahead of regulatory requirements. For more information on how Climate Alpha can help you get ahead of the impacts from climate volatility book a consultation with our team.

It’s didn’t take long for Zonda’s Builder magazine to put Climate Alpha HOMES through its paces. Using our first-of-its-kind climate risk-adjusted valuation tool to fact-check the long-term prospects of the five fastest-growing regions, Builder found that the Phoenix-Mesa-Chandler metro is best poised to thrive in 2030, with a positive price impact due to climate change of 1.2%.

If that weren’t surprising enough, three Texas metros are forecast to suffer negative price impacts: Austin-Round Rock-Georgetown (-0.13%); Dallas-Fort Worth-Arlington (-1.22%) and Houston-The Woodlands-Sugar Land (-7.97%). Taken together, the three demonstrate how America’s urban migration and growth trends will not necessarily last forever, and Houston’s decisively negative score — despite being the #2 market in the country — highlights how severe intra-state and regional differences can be.

See for yourself at homes.climatealpha.ai. Just as Builder felt compelled to stress-test the markets’ best guesses on the most valuable communities of 2030, out institutional clients are checking to see how much their portfolio assessments differ from our projection. Don’t wait for a climate disaster to reveal the gap between paper valuations and climate realities. Contact us to learn more about both our residential HOMES product and our more robust solutions for institutional investors.

Climate Alpha is featured in Tech Monitor’s survey of climate tech startups bringing AI to bear on future-proofing supply chains, operations, and real estate. Chief communications officer Greg Lindsay tells Stephanie Stacey the original inspiration for HOMES:

“As well as producing large-scale forecasts for developers, Climate Alpha offers a free digital product providing climate-adjusted property valuations for individual homeowners in the US and Canada. The startup developed this tool after being inundated by inquiries from families who’d lost their homes in Hurricane Ian. “They were just coming to ask us: Where should I move? Where should I retire? What value will be left for my kids?””

Check out HOMES and let us help you find the right time to sell and the best place to buy between now and 2040.

Since its inception in 1983, MIT/CRE has focused on how the built environment gets produced and changed. Today, its faculty and researchers are fully engaged in exploring how the fundamental nature of the real estate industry — location-based and capital-intensive — is critical to both mitigation and adaptation efforts.

As a partner, Climate Alpha contributes its resources and expertise to our shared mission to seek positive lasting change by bringing new knowledge, talented personnel, and innovative approaches to real estate worldwide. In that role, we are also proud to join MIT/CRE’s global network of researchers and industry leaders sharing their ideas and experience to quickly scale best practices such as climate risk modeling and pricing.

At an inaugural symposium held at MIT in December 2022, Climate Alpha’s chief scientific and commercial officer Dr. Michael Ferrari joined more than a dozen scholars presenting papers on the intersection of real estate and sustainability, which will form the basis of a special issue on climate change and real estate in the Journal of Regional Science. A “fireside chat” connected scholars and industry leaders in practical conversations about how to use research to aid practitioners.

“The event brought together a broad spectrum of participants with a variety of interests spanning property management and policy to data and infrastructure,” Dr. Ferrari said. “The common thread through all of the talks and sessions centered around creating value for property owners, asset managers and communities in a sustainable and resilient manner. The applied nature of the discussions certainly differentiated this event from many other academic conferences, which traditionally tend to lead to less practical outcomes.”

“Measuring the current and potential impact of climate change is crucial to accelerating adaptation, which Climate Alpha is dedicated to achieving. We’re excited to be a part of this vibrant and collaborative cohort of participants.”

ABOUT MIT CENTER FOR REAL ESTATE
The MIT Center for Real Estate (MIT/CRE) was founded in 1983 by MIT alumnus, Charles “Hank” Spaulding CE ’51. A prominent real estate developer himself, Spaulding had the vision to improve the quality of the built environment and to promote a more informed professional practice in the global real estate industry.

Before Liz Greene bought her home in Horry County, South Carolina, she made sure to ask the builder and real estate agent if the property was prone to flooding. “They said, ‘Not a drop.’” After the closing, it didn’t take long to prove them wrong. “I sit in water all the time,” she says today.

While Greene is determined to stay put, many of her neighbors would prefer to keep quiet and sell to new arrivals before more frequent flooding drives down the value of their homes, leaving their mortgages underwater, too.

Although that’s unlikely barring another storm like 2018’s Hurricane Florence, Greene and her neighbors are undoubtedly leaving money on the table. A home in her subdivision listed for $549,999 today — a price already reflecting pandemic-era inflation — can expect to see 8.71% shaved off its future appreciation by 2035, or more than $100,000.

That’s the unspoken risk premium Greene and her neighbors pay for living in a community rated by Climate Alpha’s Resilience Index™ as having moderate risks and vulnerabilities coupled with low readiness — a potentially catastrophic combination.

Ensuring prospective homeowners like Greene can protect  both their families and their nest eggs is why we’re launching Climate Alpha HOMES — the first tool of its kind to calculate future risks and losses in dollars and cents. Visit www.climatealpha.ai now to enroll in our open beta test and see for yourself how much you stand to lose — or gain — from climate change. 

#flooding #sunnydayflooding #hurricanes #climateadaptation #floodinsurance #climaterisks #realestate #resilience

The White House Council of Economic Advisers published the Economic Report of the President this past Tuesday. Given the systemic risks to American homeowners, infrastructure, and the financial system, the CEA touted upgraded climate data-and-modeling as one of “four potential pillars” of a national climate adaptation plan.

“Thanks to strong Federal support, the United States is a global leader in climate science,” the report said. “But the modeling tools used to understand the global climate system are not yet designed to deliver the decision-specific information needed by most stakeholders to manage climate risk.”

In response, the CEA argued, the federal government should invest in catastrophic risk modeling, develop transparent standards for climate data and modeling, create clear criteria for public adaptation funding, and use federal funds to incentivize local efforts.

We couldn’t agree more, which is why Climate Alpha has published technical white papers and FAQs explaining our models; have partnered with Mastercard and Statebook to help guide state- and local elected officials on where to best invest their adaptation budgets; and will shortly launch HOMES — our free tool for homeowners and buyers calculating how much they stand to gain or lose from climate change.

Visit www.climatealpha.ai to learn more about CA for Cities, enroll in the HOMES open beta, and download our technical papers. 

#climateadaptation #climaterisk #whitehouse #CEA #systemicrisk #climatedata #climatemodeling

In an interview with Bloomberg, he details the hedges his firm Atlas Capital is launching with Goldman Sachs — a suite of products combining assets such as short-term U.S. Treasuries, gold, and what he describes as “environmentally-resilient real estate.”

Climate Alpha is proud that Atlas Capital has been one of our first clients, partnering to create a first-of-its-kind REIT Sustainability Index scoring more than 200 publicly-traded REITs on the impacts of climate-related criteria to valuations. Our technology and methodology helps enable Atlas to dynamically respond to the shocks disrupting the global economy. 

Atlas Capital’s CEO Reza Bundy rightly notes that investors need protection against existential threats, including climate change. Our partnership aims to do just that, not only by creating financial products that hedge against volatility but also by pointing investors towards the most resilient geographies of the future. 

The New York Times’ Debra Kamin revisits Duluth, Minnesota — dubbed “climate-proof Duluth” by the paper in 2019 — to meet some of the hundreds of new arrivals who have bucked the pandemic-accelerated trend of moving to the Sun Belt in favor of “Minnesota nice,” affordable housing, and climate peace of mind.

“Real estate and climate change cannot be separated,” says UNLV professor of real estate and economics Shawn McCoy, who adds “the tug of war between risks and amenities” is slowly but noticeably beginning to favor communities such as Duluth.

Climate Alpha agrees. According to our proprietary Resilience Index™, St. Louis County possesses a low degree of risks (20/100), low vulnerability (39/100), and high readiness (70/100) — the latter of which is likely to be enhanced if Duluth Mayor Emily Larson is successful in her pledges to invest in solar power and build new affordable housing.

See for yourself with the public beta of Climate Alpha HOMES — a first-of-its-kind tool offering climate-adjusted real estate projections for every year out to 2040. We can help you put a number on what it means to live in a resilient community. Visit https://homes.climatealpha.ai to see what your home may be worth — or whether you should make the move to Duluth.

#realestate #climaterefuge #climateproof #duluth #climategentrification 

If this wasn’t bad enough, real estate as an asset class already lagged the overall market, delivering five-year average annual returns between 3% and 7%. With Goldman Sachs and Zillow forecasting modest gains in some markets and acute pain in others, residential investors would clearly benefit from novel forms of geographic and asset selection to achieve far higher returns.  Making matters worse, many real estate structured products and indices possess significant exposure to climate-stressed areas, suggesting more long-term suffering to come. 

For investors struggling to identify resilient housing markets from both a climate- and financial perspective, Climate Alpha offers solutions, tools, and data grounded in our “spatial finance” approach to drive outperformance. Spatial finance is predicated on the idea that location, the environment, and economic outcomes are intertwined. We use pattern-seeking machine-learning models to identify locations and then cross-check them against our proprietary Resilience Index™. Beyond physical risk exposure, we model impacts of second-order effects such as supply chains, insurance premiums, investment shifts, infrastructure investment, migration patterns, loan delinquencies, and more.

The latter can also prove useful in uncovering which high-risk areas to avoid. As an example, the map below features our analysis of core-based statistical areas (CBSAs) featuring both high mortgage delinquency rates and high climate risk. As one might expect, large swaths of coastal Florida and the Gulf of Mexico are endangered by storms and flooding, while much of inland and Southern California is at risk of fires and heat. But seemingly desirable areas of the Sun Belt, Rockies, and Pacific Northwest are threatened as well, challenging conventional wisdom and warranting further investigation.

Regular screenings of these areas can help investors avoid accumulating excessive risk in their portfolios. Visit www.climatealpha.ai to sign up for a free account and learn more how to analyze these results under different climate change and other scenarios. 

“If the globe jumps into El Niño it means more rain for the Midwestern corn belt and grains in general and could be beneficial,” reports the Associated Press’ Seth Borenstein, attributing this observation to Climate Alpha’s chief scientific officer Michael Ferrari, who expands upon this comment below:

“I’ll preface this by saying no two ENSO [El Niño Southern Oscillation] events are ever alike, but there are some things we can expect and start to monitor.

“A positive phase ENSO will typically produce more precipitation in the western corn belt states, and may extend westward. Warmer surface waters leading to higher convective activity — and a more active jet stream — will increase the flow of moisture from the Pacific into the central U.S.

“So, this is favorable outlook for grains and oilseeds. But there is some risk to milk production. High daytime temperatures impact the physiology of dairy cows, particularly in regions where grazing is standard. As food prices are already high, this may play a factor in extending food price inflation.

“More important, these impacts can’t be viewed in isolation. As global supply-and-demand drives prices in most markets, global dynamics will be important. Corn stocks are at their lowest in a decade. Soybeans are at their lowest levels since 2014. Even with higher U.S. yields, low supplies elsewhere can still put upward pressure on prices. Add to that the potential for elevated oil prices — which will make corn ethanol more attractive — and we may see even more pressure on the markets.

“Needless to say, this will be a very interesting year.”

Dr. Ferrari’s efforts to model these complexities are at the core of Climate Alpha’s abilities to price the climate risk-adjusted valuation of American and Canadian cropland out to 2040. Visit www.climatealpha.ai to sign up for a free account and explore your own scenarios for the future of agricultural production. 

“Give everyone $250,000 and send them on their way. And say, ‘Here’s a map of resilient geographies. Here’s ZIP codes and counties that are not climate-stressed, where there’s building permitting, where there’s homes and schools, go live there and start a new life.’ Because otherwise you, as a human being, are going to spend 240 days a year just dealing with climate disaster. We’re Americans, we’re not meant to be survivalists, it’s not a way for a modern society to be.”

The data bears him out. Citing Climate Alpha’s analysis of southwest Florida following Hurricane Ian, he explains:

“We looked at the areas of damage and we’re like, OK, there’s a ring of ZIP codes inland from Fort Myers, Sarasota and whatnot, that actually have fairly high resilience characteristics. And they actually have good infrastructure. And if you had higher building permitting in those areas, you would actually want to right now go and build, like, 50,000 homes in those ZIP codes. So the people of Fort Myers could leave and reliably find a new place to live and never have to deal with the next hurricane.”

And we can help. Whether you’re a homeowner, investor, or mayor, visit www.climatealpha.ai to sign up for a free account and start planning for the future today. And coming soon is Climate Alpha HOMES — a free tool for prospective home buyers and seller to forecast the effects of climate on the future vale of their homes.

“People have to move,” Parag tells Politico. “People have to adapt.” Let us help you.

To read the entire interview, click here.

#climateadaptation #climatemigration #managedretreat #realestate #climatedisaster #reinsurance

That’s what sets our platform apart from competing tools obsessed with only with climate risk and loss. We not only warn of underperforming assets but our proprietary Climate Price™ also identifies assets that outperform the baseline under various scenarios.

We do this by capturing both physical risks and their second- and third-order effects on the economy, insurance premiums, and migration patterns, and much more. Our ever expanding data lake is an exemplar of “wide data”: more than 1,500+ datasets spanning climate factors as well as socio-economic variables designed to measure local vulnerability as well as readiness.

We train this massive pool of data using machine-learning models that generate actionable results and attribution analysis to key drivers of valuation change. Our documentation makes Climate Alpha accessible rather than a black box.

These are only a few of the factors that set Climate Alpha apart from a previous generation of climate analysis tools that are too narrow, too opaque, and too focused on downside risks to capture the complex interplay of climate change, physical assets, and markets.

Download the detailed guide to our analytics — including how we can help your firm meet TCFD-recommended disclosures and other regulations.

“A history of stability in real estate may be about to be challenged,” warns Climate Alpha’s founder and CEO Parag Khanna in a wide-ranging interview with IPE Real Assets.

Covering everything from the complexity of climate data to which places are sunk (New Orleans) and which might be saved (Miami), Parag underscores the importance of calibrating climate-risk models when balancing risk averseness with a hunger for yield. “The ESG team might be arguing ‘sell it now’, but the investment committee will push back with the question, ‘no, sell it when?’” he says.

Timing is everything, especially in communities with the political will and resources to adapt. Which is where Climate Alpha comes in, with our suite of tools combining climate risk with quality of life to create a more holistic view of assets under multiple scenarios.

“Ultimately, what we’re trying to produce is the climate price, by which I mean the deviation from the baseline expectation of valuation for any given year,” Parag says. “Not all assets will decline in value. The outcomes can be scary or they can be promising.”

See for yourself — visit www.climatealpha.ai and sign up for a free account, whether you’re an investor, public official, or homeowner and discover where your future lies.

#climaterisks #climateadaptation #flooding #rainfall #extremeheat #realestate

Dr. Michael Ferrari has spent the last two decades working with — and in one notable instance, against — some of the world’s largest organizations to better understand the intersection of climate science and the economy. Reflecting his unique ability to see both sides of this particular equation, Dr. Ferrari joined Climate Alpha in January as both its Chief Scientific Officer and Chief Commercial Officer, in addition to his prior seat on the company’s board of directors.

In these roles, he works closely with Climate Alpha’s technology and growth teams to further refine how state-of-the-art climate models inform the risk-adjusted valuations of its Climate Price™, the scenarios of its patent-pending Scenario Forecaster™, and Alpha Finder™ location analysis tool.

Prior to joining Climate Alpha, Dr. Ferrari was the Chief Science Officer and Chief Data Scientist at Engine No. 1, the activist investment firm best known for successfully campaigning to elect three new members to Exxon-Mobil’s board of directors in 2021.

Before that, he had built and led data science teams at multiple companies, including Syngenta, Point72 Asset Management, IBM, Mars, and the Coca-Cola Company, as well as with several startups in the technology, fintech, and commodity sectors. He has also been an affiliate scientist at the National Center for Atmospheric Research and the MIT Media Lab, and is currently senior fellow at The Wharton School.

We sat down with Michael to ask why this is the year adaptation takes center stage in climate efforts, how both climate models and Climate Alpha’s models are constantly improving, and what a mature version of the firm looks like under his watch.

Why join Climate Alpha now? And why is 2023 the year adaptation comes to the fore in the climate conversation? 

Honestly, every year is the year. Climate Alpha is built around issues I’ve been working on for 20 years — and for 19 of them, I’ve pushed this idea just based on conversations with prospects and partners and clients; only now is the market ready for adaptation, both from a physical readiness perspective and potential financial opportunities. We’re finally at a point where we have enough data and a few cases to demonstrate there’s a way to do this and still generate returns for investors whether they have a short-, medium-, or long-term horizon.

Look at California, where they recently received a year’s worth of rainfall in only a few days. Every time we have an episode like this, it’s just further confirmation that we need to adapt and evolve — otherwise, we’re going to keep having billion-dollar disasters. If you look at the charts of these disasters, the slope just keeps going up to the right. Regardless of what’s happening on the climate side, there’s a human component to infrastructure, and if we can help provide some insight on where to deploy capital, we might be able to put a lid on the number of billion-dollar disasters, and that’s a step in the right direction.

Q: How do you frame the climate change argument to clients in hopes of steering them away from multi-billion dollar unforced errors?

It doesn’t necessarily have to be a climate argument. A lot of these things just make good financial sense. Obviously, if you buy into the idea that climate will continue to be volatile and unpredictable, scenarios help us understand the range of possibilities and entire distribution. But we’re not insisting every event is a climate change trigger. What’s driving valuations on a day-to-day basis are the factors that have always driven valuations, which is why this platform makes sense for anyone who considers themselves patient capital.

Q. What are the biggest shortcomings in the scientific field when it comes to tying climate models back to physical risk?

The market hasn’t cared about these things in the past. If you consider traditional risk modeling, they’re looking at what’s happened over decades — cycles of 10, 20, 30 years — and try to tie the climate trigger to the response, typically damages or losses associated with those events. And what happens is you have an event, the market reacts, and then they move on. But the broader financial trigger isn’t rooted in these singular events. They might be correlated, but there’s no causal link. If you build your approach based on misconstrued data, you’re going to over-fit models, make false assumptions, and have “right” answers for the wrong reasons. And that’s dangerous.

Our approach is to take the baseline valuations based on everything else we know is important — job growth, quality-of-living, things that matter on a day-to-day basis — and then layering in the climate. We’re not building climate models; we’re building future scenarios in which climate is an amplifier. That really resonates with our customers, and I think it’s the most exciting thing about our platform.

Q. If Climate Alpha isn’t building its own models, then what does it contribute in terms of understanding geographic and economic risks?

Think of a hurricane — when one starts rolling across the Atlantic, it has what’s called the “cone of uncertainty.” At the start, it could make landfall anywhere from South Carolina to the Gulf of Mexico. But after each run of each model, those error bands start to decrease and the cone gets a little tighter. So, within 48- or 72 hours, we have a very good idea of where it’s going to go — maybe not down to the house where the eye is going to make landfall, but close.

We look at climate models the same way. There’s no need to build our own — there are groups that all they do all day, every day, is build and refine biophysical climate models. We’ll take them as an ensemble and use them as our guide. Then, we can start to ask, “Which patterns in this region are repeatable?” and weight them accordingly. No one who builds climate models will tell you their model is perfect; they’re guides, and as they improve in accuracy, we can start to zero in on what’s happening in two-to-three years instead of decades-long scales.

Q. And how does Climate Alpha improve in turn?

It’s a never-ending cycle of iteration, data acquisition, and evaluation. As long as we ingest data in the right formats, these simulations can run on their own in the background, and eventually we’ll start to refine and focus on areas where they’re performing well and worse. Then we’ll know which data sets need improvement, where the gaps are, and what methods are appropriate. The more data we can ingest, cleanse, refine, and incorporate into our platform, the more it will increase our confidence in the models. But we’ll still need human eyes to check it. AI can help synthesize and distill these volumes of data, but ultimately we’ll still need to have a combination of human and machine.

Q. Climate Alpha is a startup; how do you envision a fully mature version of both the company and platform?

Whenever you have a new product or business, everyone wants to know what your TAM [Total Addressable Market] is right away. And I think we’re in an area where we don’t even know what the TAM is, because it’s so vast. After all, the total value of global land, property, and real estate assets is estimated to be more than $350 trillion. Climate Alpha can be one thing for investors, but it can also be a tool for governments, or a tool for homebuyers looking for a climate component alongside schools, walkability, and quality of life. We shouldn’t discount the importance of this for governments or NGOs when they’re making policy decisions on where to deploy capital over 10-, 20-, 30-, or even 40-year time horizon. We may have started with climate — it’s in the name — but this could ultimately become a guide for almost any financial decision someone could make.

Climate Alpha was founded to answer these questions and more. To do so, we’ve developed a suite of technologies to more accurately gauge the risks, vulnerabilities, and readiness of American communities for disruptions of all kinds from rising interests to rising sea levels – and to sift for opportunities to maintain the American Dream of appreciating home values in the years ahead. 

Inspired by Renaissance Technologies’ pioneering machine learning techniques that power its world-beating Medallion fund, our models identify signals pointing to investable assets that will outperform today’s real estate portfolios. And just as companies such as Palantir have become known for harnessing the widening ocean of unstructured data, our ‘wide data’ approach integrates thousands of datasets to establish correlations that give us greater confidence in our property market forecasts. 

Homebuilders, real estate managers, and financial investors are using Climate Alpha to determine where to build, which assets to hold or dispose, what REITs to invest in, and many other uses you read about on our customer case study page.

At the core of our platform is a patent-pending Scenario Forecaster™ using neural networks to discover hidden correlations between range of socio-economic and market indicators before blending them with climate-related variables to generate our unique Climate Price™ valuation forecasts covering all property types (residential, commercial, industrial, and agricultural) across 40,000 US Zip codes and Canada. 

Given the complex and uncertain interplay of factors such as interest rates, tax policies, infrastructure spending, and migration patterns —not to mention climate disasters — our tools enable customers to test their assumptions under multiple scenarios such as the UN IPCC’s main RCP/SSP pathways), as well user-generated scenarios you can construct live on the Scenario Forecaster. Each location is also assigned a unique Resilience Index™ score that can be used by companies reporting their ESG metrics as well as towns and cities as a dashboard to prioritize their climate adaptation investments. 

And for those seeking to compare markets and invest in land or property, our easy-to-use Alpha Finder™ platform allows you to screen and compare every US zip code according to nearly one hundred filters ranging from wage growth to clean air and crime rates to fresh water supply to find and rank the locations that best meet your criteria. 

Climate Alpha’s suite of tools co-exist and work together on a single integrated cloud-based SaaS platform available anywhere, anytime – serving the world’s largest financial institutions as well as individuals and families. We’re here to help you move from climate risk to climate opportunity.

Want to see the software in action? Create a free account which includes sample properties and the ability to upload your own!

The story of climate change is how the once-inconceivable  imperceptibly becomes inevitable. Ten or twenty years from now, extreme heat and flooding might reverse decades of Americans migrating from north to south. In the meantime, residents of Seattle might be forced to adopt antiquated technology to cope with increasing rainfall: umbrellas.

Axios reports that hotter average temperatures and heavier rainfalls have Pacific Northwest residents rethinking their hooded parkas. “It’s a double hazard to use an umbrella and look at your phone,” says local television host Knute “Mossback” Berger. “Maybe we need to license people to carry.”

Jokes aside (along with mixed metaphors), Seattle’s climbing umbrella population is another canary in the coal mine of climate change, underscoring how seemingly unbreakable social norms might flip in an instant. Will you be prepared when they do?

Visit www.climatealpha.ai to learn more about our patent-pending scenario forecaster, which offers customers glimpses of potential futures and tipping points along the way. Don’t get caught in a storm without your umbrella.

#climateadaptation #flooding #rainfall #extremeheat #climatemigration

The Federal Reserve’s mandate for America’s largest financial institutions to submit their plans for addressing climate risks now has a deadline: July 31. Six banks — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo — are required by then to disclose how climate disasters such as floods, droughts, heatwaves, and other extreme weather will impact portfolios.

Banks have always stress-tested their assets to determine how financial shocks might ripple through their holdings. The Fed’s new “pilot climate scenario analysis exercise” takes this a step further with a specific climate wargaming exercise set in the northeastern United States, and a more general analysis of how the unfolding energy transition to renewables might leave their balance sheets full of stranded assets such as coal mines or natural gas plants.

These disclosures address both sides of the risk coin: “physical risks” — climate risks tied directly to property, assets, and people — and “transition risks” arising from increasingly rapid decarbonization and the sunsetting of formerly lucrative fossil fuel infrastructure. The latter sends the signal that despite Chairman Jerome Powell’s insistence that “We are not, and will not be, a ‘climate policymaker,’” the Fed is serious about parsing the implications of 2021’s Bipartisan Infrastructure Law and last year’s Inflation Reduction Act.  

“This requirement is notable for several reasons, most specifically through the inclusion of transition risk,” says Michael Ferrari, chief scientific officer and chief commercial officer of Climate Alpha. “Addressing climate-related risks requires both mitigation and adaptation. With transition risks in the conversation, we can start to have serious discussions about the adaptation measures,” he adds.

Also notable is the Fed’s decision to model physical risks in a specific region prone to sea-level rise, hurricanes, and other disasters. Understanding how a singular event — such as a Category 5 hurricane landfall in lower Manhattan — might unfold in terms of immediate damage to infrastructure and real estate, followed by longer-term outward migration and declines in both economic growth and tax revenues, requires new tools combining both climate- and socio-economic variables.

“Modelling scenarios through 2050 is necessary, and mitigation measures need to increase, but these do not go far enough,” says Ferrari. “As we watch the frequency and severity of climate disruptions mount in real time, investors and regulators need new and better tools to understand consequences. This is why the adaptation requirement, which is so important, is starting to get the attention it deserves.”

As the first company of its kind to employ machine-learning techniques to combine hundreds of socioeconomic, demographic and market indicators with multiple climate scenarios, Climate Alpha stands alone in offering both the Fed and America’s biggest banks sufficiently complex forecasts of our climate-driven future.

“Climate Alpha is uniquely positioned to not only help large institutions, but all lenders, investors, risk managers, and property owners and buyers prepare for – and sensibly deploy capital under – the backdrop of future climate driven volatility,” Ferrari adds.

After the hottest year on a record — a year in which heat waves scorched Europe and rivers evaporated; a year in which once again shattered the record for insurable losses due to natural catastrophes — what if the worst is still to come?

That’s because we’ve had it easy the last few years, with cool Pacific waters (“La Niña”) moderating global temperature rise by a crucial few tenths of a degree. But with ocean currents set to flip back to the better-known El Niño, we could see heat records shattered once again, argues Bill McGuire, author of “Hothouse Earth: An Inhabitant’s Guide.”

The result? Renewed droughts, falling crop yields, and higher food prices — which in turn fuel political unrest. Falling lake- and river levels in the American West threaten the hydro-electric dams California’s grid depends on. And warmer waters mean bigger hurricanes.

How these developments play out remains to be seen. But we can start to strategize now. Climate Alpha’s patent-pending scenario forecaster offers clients the ability to stress-test regions and real estate portfolios under conditions worse than even the most extreme effects modeled by the IPCC.

Visit www.climatealpha.ai to learn more about how our AI-driven suite of tools is uniquely prepared to map the complexity of a climate-stressed future — and the opportunities others may miss.

#lanina #elnino #extremeheat #climaterisks #climateadaptation

Start the new year right with a jawdropping dispatch from our #climateadaptation future:

An Israeli-led group of private investors has made an unsolicited offer to build the world’s largest desalination plant on the Gulf of California to supply south- and central Arizona with 1 million acre-feet of water — an amount roughly equal to what the regions drew from the parched Colorado River last year.

The catch? Transporting the water would require 200-mile pipelines across an international border, through a U.S. national monument (and international biosphere reserve), and disrupt the salinity of one of the world’s most diverse aquatic ecosystems.

The other catch? The group — which is backed in part by Goldman Sachs — wants a pledge from the state of Arizona to buy the water at an unspecified price, which could run to billions of dollars per year. Despite this uncertainty, the state’s Water Infrastructure Finance Authority unanimously voted in December to approve a non-binding resolution to continue studying the proposal, which would be financed entirely with private money.

The lesson? No matter how severe the heat and drought gripping the southwest United States, climate science isn’t destiny. Novel combinations of technology, finance, private investment, and public infrastructure will emerge in response to the pressures facing the region — some more effective than others.

That’s where Climate Alpha comes in. While others focus purely on climate risks, our Resilience Index™ incorporates infrastructure, public spending, and other socio-economic factors for every Zip code in the country — underscoring the uneven geography of the future.

Visit www.climatealpha.ai to learn more about the index, our patent-pending scenario forecaster, and other tools for exploring how, say, the sudden appearance of the world’s largest desalination plant might alter your real estate’s future.

 #climaterisks #extremeheat #heatwaves #megadrought 

Yahoo News’ David Knowles explores the best and worst places to live in the American Southeast — “one of the most-threatened regions of the country” due to climate change. Drawing on data provided by the Rhodium Group, the site unsurprisingly ranks Louisiana coastal counties among the most vulnerable, and the mountainous southwest corner of Virginia as the most resilient.

The fact a mainstream news organization is framing the issue this way is to testament to how quickly the once-verboten conversation around climate migration is changing. “With Hurricane Ian, I think we’ve seen a conversation at a much more acute pitch and much more rapidly moving in the direction of ‘Do not rebuild here. Do not come back here. We should not be putting taxpayer money into this.’ And those families should not be putting their entire net worth into that place again,” Climate Alpha’s CEO Parag Khanna told Knowles. “The accelerating frequency of these disasters is contributing to that change in mood which is reinforcing what policymakers know they must do.”

At Climate Alpha, we’re building tools to identify climate risks and opportunities that go far beyond top ten lists. Our Resilience Index™ calculates comprehensive risk scores for every county in the country, while our Alpha Finder™ scours 40,000 ZIP codes for the highest-performing communities and properties. Visit www.climatealpha.ai to learn more about how our tools can help you identify where the world is heading — and get there first.

#climaterisks #climateadaptation #climatemigration #realestate #flooding

LINK: https://news.yahoo.com/finding-safe-haven-in-the-climate-change-future-the-southeast-090054441.html

Southeast and West are at higher risk of disruptions due to changing weather patterns, futurist says

People who relocated during the pandemic favored areas at higher risk of disruption due to climate change, but they may come to regret those moves over the long term, futurist Greg Lindsay told a gathering of the Denver Metro Commercial Association of Realtors on Thursday morning.

“Americans are moving in the wrong direction,” Lindsay said of migration patterns during the pandemic, and even before. “Markets are underpricing climate risk.”

Wrong as in moving from cooler northern coastal areas and the upper Midwest to the Sunbelt. Wrong as in moving to Arizona and Nevada, popular states that suffer from ever-increasing temperatures and worsening drought. Wrong as in flocking in large numbers to coastal Florida and Miami, where rising water levels could submerge vast swaths of land in coming decades if powerful hurricanes don’t scrape them first.

Texas and Florida were the top inbound states for those relocating during the pandemic, according to the Federal Reserve Bank of Chicago. Speaking generally, the southeast and the western U.S., including Colorado, are much more vulnerable to the impacts of climate change than other parts of the country, according to Climate Alpha, a startup where Lindsay is chief communications officer.

But climate impacts can be very specific. Climate Alpha uses artificial intelligence to determine a “climate resilience” score for more than 40,000 ZIP codes. It then applies those risk scores to determine future real estate values under different scenarios.

Custer County, for example, was a popular landing spot during the pandemic in Colorado. But it also has one of the highest drought risk scores in the country, Lindsay said.

A higher altitude shields Colorado from the extreme temperatures seen in states further south, but not from drought. The northern Front Range will likely struggle with water shortages that limit future growth as the region dries out, he said.

“Even in Colorado, things are getting strange,” Lindsay said. Strange as in the Marshall fire, where 100-mph-plus winds fanned flames in late December that quickly destroyed more than 1,000 homes deep in the populated suburbs of Boulder County, including homes of climate scientists working at the National Oceanic and Atmospheric Administration.

Where should people who want to provide their children and grandchildren with a more secure future look to move?

Lindsay suggests that the great migration to the Sunbelt may reverse, replaced by a migration to the Great Lakes region. Buffalo, New York, could become the new “cool” place. Some investors are buying up land in Ohio and others are targeting purchases in Canada. Lindsay told the audience he relocated to Montreal.

The Great Lakes region has developed infrastructure, lower real estate prices and the potential to provide a strong return for those who get in early, he said. Bonus points if more manufacturing comes back to U.S. shores.

But there are a lot of other factors that go into the decision to move, such as quality of life and connectivity, or the ability to travel to other areas. Part of the problem is that people relocating often don’t have a good grasp of the climate risks involved in a new place. Redfin, the real estate brokerage, found that when people are provided with flood risk scores, they were much more likely to choose safer areas.

“We now have definitive evidence that the risks posed by climate change are affecting where Americans choose to live. Before Redfin’s experiment, that was just a hypothesis,” said Redfin chief economist Daryl Fairweather in a news release earlier this month. “Equipping people with flood-risk information helps them make more informed decisions. Some will opt to move out of risky areas altogether, while others will stay put but invest in making their homes more resilient to disaster.”

Companies around the world are increasingly committing to climate change mitigation, pledging to reduce carbon emissions and water consumption across their operations and supply chains in an effort to slow the pace of global warming and better protect environmental ecosystems. However, while essential, these efforts merely prevent a worse future rather than addressing the inevitable consequences of the damage already baked in. Carbon offsets, for example, have yet to demonstrate meaningful impact on the atmosphere, and, at present, worldwide carbon sequestration efforts reportedly only remove 1% of annual global emissions.

We therefore believe that climate adaptation — helping people, animals, and plants to survive despite rising climate volatility — should be an equally urgent priority. According to a 2021 report from the Climate Policy Initiative, these types of initiatives receive only 7% of climate-related investment, allocated across a vast spectrum of needs such as flood and wildfire prevention, resilient agriculture, clean water supply, infrastructure modification, and population resettlement. They deserve far greater business investment, especially because they represent near-term opportunities at lower capital expenditures that offer faster paybacks. Indeed, according to this Bloomberg report, Bank of America analysts estimate that the climate adaptation market could be worth $2 trillion a year within the next five years.

Fundamentally, climate adaptation is about evolving organizational and institutional practices and infrastructures and technologies in places that most need them — which is everywhere that faces risks such as floods and rising sea levels, droughts, and heat waves. We advocate for solutions that are low cost, proven to be effective, and have immediate impact, such as early warning systems for extreme weather events, coastal barriers, water desalination and wastewater treatment, vertical farming and hydroponic agriculture, improved cooling and insulation systems, 3D printed and modular housing, and many other measures.

The insurance conglomerate SwissRe warns that a global temperature rise of 3.2°C by 2050 would wipe 18% from global GDP. But, as a pair of OECD studies point out, widespread climate adaptation measures can have a positive impact on growth, especially in G-20 economies.

When governments, capital market investors, commercial lenders, and businesses from multinational corporations to small enterprises work together toward climate resilience, as well as mitigation, the result will be a stronger world economy. Some are already stepping up to do so. For example, the Coalition for Climate Resilient Investment (CCRI), an umbrella organization of more than 120 companies and other stakeholders representing more than $20 trillion in assets, have launched pilot projects focused on reinforcing infrastructure to withstand anticipated climate effects. We see notable positive developments in other areas as well. Here, we’ll explore projects in water and agriculture and in construction and real estate.

Water and Agriculture

Water scarcity is already a short-term crisis and an even greater long-term challenge that even the most robust mitigation initiatives cannot immediately address. Water is the biggest and most important input for human life and global agriculture and is thus essential for our health, sustenance, and productivity, and yet many heavily populated geographies are already stricken by shortages.

Some of the most affordable water-related adaptation interventions involve rainwater harvesting and more efficient irrigation techniques. As countries invest in cloud seeding to spur rainfall, plant drought-resistant seeds, and deploy atmospheric water capture systems, conserving water for agriculture is an obvious complementary effort. London-based engineering consultancy Arup (which reports nearly $2 billion in annual revenue) has been ahead of the curve in carrying out flood control projects that increase natural water retention in Poland and flood alleviation schemes in England. Rainwater harvesting projects now represent a 5% and growing share of the portfolio of Kingspan, a leading Irish construction company whose low-energy insulation systems are featured in Bloomberg’s London headquarters and Singapore’s Changi airport. The city of Sydney, which has suffered consistent droughts with dams falling to record low capacity, has commissioned Kingspan to audit all 48 of the city’s rainwater management systems.

There are also signs of progress in developing countries. Israeli firm Netafim (a $1 billion revenue company) has installed irrigation systems across more than 100 villages in India, using soil and plant data to direct measured doses of water to optimize yield while bringing down water consumption and fertilizer usage by 40%. Olam, one of the world’s largest agri-business producers of rice, cotton, cocoa beans, and coffee that operates in 60 countries, is committing to reduce wastewater in the 30% of its upstream farms and plantations that are in water-stressed regions.

The economic benefits of water conservation include saving money on water purchases, storage, and maintenance, all of which accrue to corporations and villagers alike. Particularly in regions such as India, where only 10% of potential water-saving measures have been implemented, these kind of adaptation efforts deserve significantly greater investment and scaling.

Clean water generation is another essential and growing business opportunity. Existing desalination systems are often oil- or gas-powered and use a lot of energy. By contrast, Elemental Watermakers’ solar-powered reverse osmosis system uses the natural force of gravity to receive and clean pressurized seawater and is compact and mobile enough to be deployed in industrial sites and residential communities. One of its customers in Aruba has reduced water costs by 67% and carbon emissions by 180 tons per year. Another company, Terraformation, meanwhile operates what might be the largest full-scale, purely solar-powered water desalination plant on a 45-acre reforestation project site in Hawaii. However, similar ventures remain woefully underfunded despite their regenerative potential for ecosystems and local economies. Perhaps the most high-potential innovation would be nuclear-powered desalination, which would have enormous applications worldwide.

A steady and efficiently managed water supply would also support more environmentally friendly agriculture such as hydro- and aquaponic food production. China’s Sananbio, for example, operates large indoor farms in Beijing that can produce about six tons of leafy greens daily using only 5,000 square meters of space. Its plants absorb 60% of the water used, while the remaining 40% is recycled. Small and strategically vulnerable countries such as Israel, the United Arab Emirates, and Singapore have become leaders in this kind of food production, and it could greatly benefit many other water-stressed geographies.

Construction and Real Estate

Our built environment is a major driver of climate change and must also be a key front in adaptation. Because of their fixed location, real estate assets — valued at $200 trillion worldwide — are uniquely vulnerable to natural disasters and resource shortages. And many opportunities lie at the intersection of geography and technology. For example, from the Netherlands to Denmark and the Maldives to Singapore, developers and localities are planning or building floating cities that can rise with the tides and desalinate and recycle water for hydroponic agriculture.

Astro Teller, director of the Google X Lab, suggests that we might also one day need “movable cities” to cope with climate effects. As a first step, companies like ICON are creating 3D-printed houses. Its Vulcan construction system can deliver homes and structures up to 3,000 square ft that meet the requirements of the International Building Code (IBC) and are expected to last as long or longer than standard Concrete Masonry Unit (CMU), making them more resilient to extreme weather. They’re the first of their kind to be sold in the United States and the firm, currently valued at around $2 billion, is working with leading U.S. home-builder Lennar to construct a community of entirely 3D-printed homes in Austin. In both Mexico and the United States, ICON is also building entire communities of 3D-printed homes, barracks for those who serve, and a simulated Martian habitat for NASA.

Similarly, Boklok produces flat-pack homes designed and built by Skanska and sold at Ikea. The houses are primarily made of wood sustainably sourced from Scandinavia because of its relatively lower climate impact, and about 14,000 of them have been erected across Sweden, Finland, Norway, and the United Kingdom, generating $250 million in revenue for the adaptation-focused manufacturer.

According to UN Habitat, at least three billion people will require better housing by the end of this decade, which means that 96,000 new homes need to be built each day between now and then. Eventually, rather than building these habitats where people are, we will need to start moving certain populations to geographies less damaged by climate change, at lower risk of future effects, and with better resources and technology. Rising fire and flood insurance premiums, as well as chronic droughts and heatwaves, make this all but inevitable.

Our own Climate Alpha research suggests that investing early in climate-resilient geographies will generate more than 70% higher returns on real estate portfolios by 2030 alone. Property developers, asset managers, and insurers should take heed, accelerating the acquisition of land, construction of affordable housing, and adjustment of premiums to anticipate, encourage, and profit from climate-induced migrations. New technologies should help us to do this with speed. Consider the U.S.-based company Alquist, which can now print a three-bedroom home in just over 24 hours versus the typical four weeks that the volunteer-powered nonprofit Habitat for Humanity takes to construct one.

Addressing climate change requires both mitigation and adaptation, and we believe the latter represents an even better business opportunity. As we learned from Charles Darwin, those who adapt are the most likely to survive and thrive. Small investments result in significant preparation for an unpredictable future.

At the same time, President Biden — home from COP26, the United Nations climate summit — claimed victory with the passage of the bipartisan Infrastructure Investment and Jobs Act, which promises more than $1 trillion in funding for renewing transportation and utilities, and enhancing broadband Internet access.

But as weather events like that in the Pacific Northwest show, the president’s Build Back Better agenda is already deeply at risk from climate change. So it’s crucial, as the United States deploys tremendous new spending to rehabilitate infrastructure, that its leaders think much harder about where the funds are spent to avoid throwing good money after bad.

Six of the United States’s wealthiest cities — Boston, New York, Miami, Houston, Los Angeles and San Francisco — are heavily exposed to climate change. Frequent storms, rising sea levels, forest fires and droughts will plague these great cities more and more. Their budgets will be strained by the billions to be spent on adapting infrastructure and moving people farther inland. For now, they can afford to.

Other cities can’t. Climate models make clear, for instance, that New Orleans is going the way of Venice. In 2005, Hurricane Katrina destroyed thousands of miles of power lines and caused $161 billion in damage in Louisiana and Mississippi. Last year, Hurricane Laura brought Category 4 winds and destroyed nearly 2,000 transmission structures.

Residents need their electricity. But spending billions to reinforce or rebuild power lines isn’t a good investment when they’re sure to be destroyed again.

Not every place stricken by natural disaster should be abandoned. Where populations continue to grow, or where there is indigenous will and investment to rebuild, there is hope for recovery. That is not the case for places such as New Orleans, where populations are declining and no new job opportunities are emerging.

The country must realistically assess which geographies are becoming unlivable and which are well suited to larger population settlement. It should then offer incentives for migration toward the latter and away from the former — and direct infrastructure spending accordingly.

Climate models tell us that states such as South Dakota, Missouri and Pennsylvania are becoming more livable over time and ought to gain in population. It makes sense to spend more on roads and renewable energy in those states and others with a similarly stable climate outlook.

Cities such as Atlanta, Dallas and Charlotte are already gaining climate migrants from elsewhere in the South. Millennials and Gen Z-ers have been snapping up houses in New Hampshire and Idaho, and fueling the buzzing tech scenes in Salt Lake City and Indianapolis. They’ve poured into so-called 18-hour cities such as Denver and Nashville that have lively after-work cultures in their downtowns.

A coalition of agencies, including the Federal Emergency Management Agency, the Department of Housing and Urban Development and the Army Corps of Engineers, is pushing an agenda of “large-scale migration or relocation.” The many distressed communities that qualify for the government’s Opportunity Zones, which are eligible for tax-free investment, should be filtered for climate resilience. This would create new jobs in places that need them.

Property developers should lure displaced Americans to gentrify the Rust Belt along the Great Lakes. The people of New Orleans should be given one-way tickets to Detroit, where they can contribute to the city’s nascent postindustrial revival.

A sensible plan to promote migration to climate oases could also ameliorate some of our bitter immigration and trade debates.

The country could import workers with the skills it needs and issue them “place-based” visas, directing them to areas with labor shortages. It could encourage the building of more eco-friendly, multifamily and multigenerational homes, which would hog less space than single-family plots. With more relatives under one roof, there would be greater freedom for working parents and less need for imported labor — which, granted, would mean a cultural shift for many Americans, though one whose appeal might have become clearer during the covid-19 pandemic.

Land not eaten up by sprawling cities and suburbs could be repurposed for agriculture and industry, as well as to fortify the country’s irrigation, energy and transportation networks to achieve greater self-sufficiency.

Mammals are wired with a fight-or-flight instinct, and the residents of devastated coastal areas should heed that instinct’s call to move to safer ground. It would be far wiser to encourage the next great migration than the next climate disaster. This is the way — and the where — to build back better.

This decade marks the beginning of climate change taking a permanent place in our headlines — and humanity taking seriously the need to adapt to it. While climate consciousness has risen over the past 20 years and more, concerted diplomatic and industry efforts to reduce greenhouse gas emissions and other damage to our vital ecosystems are phenomena of the past decade only. Climate mitigation now dominates the international agenda. Indeed, an overwhelming 95% of total climate-related spending is focused on reducing the carbon intensity of industry, greening supply chains, and other measures.

The onus to adapt to climate change is on us

Yet the blunt reality is that global warming and sea level rise continue apace, and even the most ambitious geo-engineering schemes will not return our climate to the familiar conditions of 1990, 1900, or 1800. Our environment is a complex system undergoing modification and lurching in new directions. It will not adapt to us — we must adapt to it.

That is why, as existentially vital as mitigation investments are, an equivalent emphasis is needed on climate adaptation. Adaptation measures include building coastal defenses and flood control measures, retrofitting buildings with more passive heating and cooling technologies, relocating critical infrastructure to less volatile geographies, and large-scale population resettlement. As I explain in my new book MOVE, the number of climate migrants may exceed one billion in the coming decades as the ‘climate niche’ of locations for optimal human habitation shifts.

Multiple factors at play when considering where to invest

Climate adaptation is made even more complicated by the fact that it is not the only variable shaping our future geography. Covid and the search for quality healthcare it provoked, remote work and the desire for a better work-life balance, economic shocks, supply chain vulnerabilities, and political risks such as domestic and international conflicts — all of these factors must also be weighed when considering where to invest in personal property and commercial real estate assets.

Given the illiquid nature of real estate, this USD 200 trillion markets is relatively unprepared to adapt to such rising complexity. Indeed, the Bank of International Settlements warns of “green swan” events, namely, unexpected environmental catastrophes linked to global warming, that would cause a financial crisis with worldwide consequences, and Canadian economist and former Bank of England governor Mark Carney fear that a “climate Minsky moment” — a sudden change in investor expectations about future climate policies and the resulting fire sale of affected assets — is coming that portends a significant reckoning for today’s assets. New regulations around both transitional and physical risk are raising compliance costs and forcing the industry to adjust. Recently, a bevy of climate risk related companies have made clear which geographies are most vulnerable and should not be held for too much longer, but this is insufficient for a constructive asset allocation strategy.

Climate Alpha identifies future ‘climate oases’

At FutureMap, we launched Climate Alpha to provide the marketplace of asset managers, insurance firms, real estate developers, and others — whether pension funds or family offices — with a data-driven approach to navigating property markets in light of the unpredictable future that lies ahead. Rather than merely telling you where to sell, Climate Alpha guides you on where to buy, based on geographies that are relatively less affected by — or even benefit from — climate change, as well as demographic, fiscal, and other key trends.

Climate Alpha thus identifies the ‘climate oases’ of the future — and luckily there are many, whether in North America, Europe, or Asia, the epicenters of the world economy and real estate markets. Fortunately, some of the more climate resilient states also offer investment migration programs, whereby investors can acquire and secure an alternative residence or second citizenship in a different jurisdiction in return for investing in a host country, including Canada, Switzerland, the UK, and the USA.

The ingredients in our AI-powered formula are hundreds of datasets covering all the variables that have historically shaped property prices, melded together with geolocated climate models. We calibrate future price forecasts according to the risk, vulnerability, and readiness characteristics of each location. Machine learning is essential for this task because of the large number of indicators and the relative nature of outcomes. For example, four cities in close proximity may have similar climate profiles, but the one with higher preparedness will gain population and thus appreciate in value at the expense of others.

Investors should use this data to consider which assets to dispose of, which geographies to increase exposure in, and what time horizon to invest for. Furthermore, they should look closely at the immigration policies, investment regulations, and other characteristics of potential destinations for themselves and for their capital. These strategies together are the playbook to generate higher real estate yield despite the many potential climate, political, and economic scenarios with which we must grapple.

Climate adaptation should not be a matter of emergency response

Our vision goes far deeper than returns, however. We believe that big data can enable a gradual and peaceful new map of human geography. We have the geospatial tools, technical foresight, financial instruments, and logistical capacity to empower the world population to be both more mobile and more sustainable at the same time. We therefore believe in a world order beyond today’s sovereignty. While the globe will always be divided among sovereign nations, our geography can be programmed to optimize resources, industry, and demographics. This is the kind of thinking the world needs if we wish not only to mitigate climate change, but to successfully adapt to it as well.

Last month, President Biden issued an executive order directing government agencies to assess the risks climate change poses to federal assets, budgets, and investments. Presumably, this order also applies to the American Jobs Act, Biden’s $2.25 trillion plan to electrify transportation, build millions of energy-efficient homes, and upgrade to a more renewable and resilient power grid. Together with the proposed $1 trillion Green New Deal—which is aimed at creating new, green jobs and investments in frontline communities bearing the brunt of environmental injustice—they offer a blueprint for both cutting U.S. carbon emissions in half by 2030 and doing so equitably.

But neither plan explicitly grapples with the politically thorny question of where to invest. Should the money follow the people, who have flocked for decades to the Sun Belt, where homes are cheap and jobs are plentiful but climate risks mount by the day? Or, following the logic of Biden’s own order, should funds be directed to more resilient regions where people might move someday? If it’s indeed the latter, let’s make the Great Lakes great again. Not only is the region projected to avoid the most egregious climate impacts, but it also possesses an abundance of affordable housing, room to grow, and a commitment to equity and sustainability. Funneling growth there would not only address the legacies of disinvestment but create new opportunities for those who will need to move by providing dedicated resources for climate migrants relocating from other parts of the country.

The decisions can no longer be put off until the future. New data from the EPA reveals temperatures are rising, precipitation patterns are changing, and abnormal weather is the new normal. The problem is that development is still booming in some of the areas of the country most at risk.

Extreme heat is the number-one weather-related killer, but many of the country’s fastest-growing cities—Miami, Phoenix, and Austin among them—are already hot, and getting hotter. But Phoenix still grew by an average of 200 people per day for the last decade, despite breaking its own heat-related records in repeated succession in 2020, including number of days over 110 degrees. To save lives during extreme weather, we need air-conditioning, and lots of it. But abnormal weather, which is becoming the new normal, puts tremendous strain on electrical systems, as seen during Texas’s deadly winter storm. Summer blackouts may become even more common, and deadlier, as temperatures soar. The energy required to save lives during these events directly threatens emissions-reduction targets, and makes our planet even hotter.

Things aren’t much better along the coasts. Around the country, more than 300,000 homes (worth $117.5 billion) will be at risk of chronic inundation from rising sea levels by 2045. But despite the increasing availability of flood-risk data, homes are still being built two to three times faster in the riskiest areas of Florida, North Carolina, and New Jersey. The most vulnerable homes in California are appreciating the fastest.

The bipartisan Flood Resiliency and Taxpayer Savings Act would require federally funded projects to incorporate climate projections into their design, so vulnerable municipalities may struggle to win increasingly competitive national competitions for resilience dollars or borrow money as their credit ratings fall. Coupled with rising flood insurance premiums and stringent building code updates, these market shifts could result in budget cuts and housing price drops that could create a positive feedback loop of decline. As far back as 2016, Freddie Mac’s chief economist warned that losses from flooding coupled with panic selling are “likely to be greater in total than those experienced in the housing crisis and the Great Recession.”

The federal government’s strategy for permanently mitigating flood losses happens primarily through post-disaster buyout programs, which suffer from inconsistency, inequity, inefficiency, and a failure to address more systemic needs. That’s why, in 2020, the Government Accountability Office recommended Congress take action to develop an interagency climate migration pilot program “to enhance the nation’s resilience and reduce federal fiscal exposure.”

But climate migration—when people move due to experienced or expected climate impacts—is already taking place. An April survey by Redfin found nearly half of Americans planning to move this year factored natural disasters in their decision, bolstering a previous study indicating buyers will incorporate climate considerations when moving in the decade ahead. So where will people go?

This is where the Great Lakes and Green New Deal come in.

Some are already calling the Great Lakes the country’s climate refuge, thanks to mild weather and an abundance of natural resources, including an estimated 20% of the world’s surface freshwater resources. Buffalo has already proclaimed itself a “climate refuge city,” resettling hundreds of Puerto Rican families after 2017’s Hurricane Maria. These so-called receiving cities are the places where people will relocate to escape intolerable environmental hazards in their own communities.

Once the nation’s economic engines and manufacturing hubs, Great Lakes “legacy cities” such as Detroit, Cleveland, and Buffalo have suffered from decades of redlining, segregation, and political negligence. White flight and disinvestment led directly to years of contaminated water in Flint and similar crises. But these cities never abandoned their hopes for a renaissance, still possessing anchor institutions such as universities and hospitals, not to mention the capacity to house populations twice as large as today’s residents.

Forced to grapple with a shrinking tax base, they’ve also became leaders in sustainability. For example, Flint, Michigan; Worcester, Massachusetts; and Rochester, New York, are remediating contaminated land to create new amenities. In Ohio, Akron, Cincinnati, and Cleveland have focused their efforts on racial equity and resilience. Dayton, Toledo, and Detroit welcome refugees and immigrants to cope with population loss.

No place is immune to climate change, but these cities offer a solid foundation for investing in hard infrastructure and providing frontline communities with green jobs, affordable housing, and freedom from egregious climate risks.

What about people living along the coasts and in flood plains? Don’t they deserve green jobs, too? How do we ensure communities on the literal front lines—the ones who can’t move—aren’t left behind? And how can we ensure Great Lakes communities aren’t gentrified by wealthy climate migrants or barricaded by NIMBY homeowners already present?

The trick is to link the two: earmarking $500 billion for climate mitigation to frontline communities, as the Green New Deal for Cities would do, but also to make robust infrastructural investments in areas like the Great Lakes that are destined to be a refuge for people seeking relief from climate change. A robust federal climate migration pilot program must identify places where relocates will move to, including by leveraging other federal resources to cities and states that build resilient housing and economic opportunities in safe locations.

One tool legacy cities have wielded to preserve future affordability is land banks and land trusts, using public money to acquire and insulate properties against market appreciation. The American Jobs Act will reportedly include $318 billion to preserve or produce 2 million units of housing, including $45 billion for the National Housing Trust Fund established under President Obama to subsidize shelter for the poorest Americans.

Once again, it’s not only a question of how much, but where and for whom. The Biden administration should ensure those funds are steered toward land banks and land trusts in more resilient areas, using the EPA’s indicators as guides, and offer green jobs recipients in frontline communities priority access to affordable housing under these plans.

The federal government has the power to persuade with its dollars, by directing targeted investments to cities and regions where people could or even should move, with a once-in-a-generation opportunity to steer Americans to safety on higher ground. Funneling targeted infrastructure spending toward regions with fewer climate risks and providing dedicated resources to help climate-affected communities relocate can reap the benefits of mitigation and adaptation simultaneously. It can also ensure the longevity of these programs, providing a new legacy for the rest of the world to live up to.