Resilience, the basics
Mitigating risk is not a new concept for a business, however, reevaluating, where your real risks are, may be....
With increasing frequency, we hear the term resilience being applied to real estate. This increase may make this seem like a new concept, but in reality, organizations have identified risks and implemented strategies to mitigate that risk since humans realized that they could accomplish more together than alone.
While those original risks may have centered around survival, the idea when applied to real estate is not much different. Applying that idea to a physical asset, we have to ask ourselves what could happen that could lead to that building not surviving, which includes not functioning like it was intended to function.
The insurance industry is built around this model, what is the risk and monetizing the financial requirements to return the asset to functioning. Reducing those risks is exactly what the insurance company is doing when they require you to do inspections and implement safety measures. Similarly, the fire department reduces risks by requiring sprinklers, alarms, and testing of equipment and procedures.
What has changed is understanding the risks that climate change poses to assets. This includes adapting to the wide range of impacts that could affect the property. Some of these are local while others are global. The Covid-19 pandemic has led us to include biological impacts as well, and recent civil unrest has caused us to also consider the impact of social impacts.
Understanding potential risk begins with examining the asset itself and the lifespan of the asset. This starts with the most basic question of what is the expected life of the structure and where is the building in that life expectancy. It also includes understanding what the critical components are within the asset. In other words, which systems, if they fail, result in the asset no longer being functional. Understanding these basics provides the opportunity to build resiliency into the design and development of future assets in addition to addressing vulnerabilities in existing buildings.
Previously we addressed preparing for potential health and well-being impacts, if you would like to take a look at those follow this link. Due to time and space constraints in this article, I also will not address social impacts which could include civil unrest or terrorism. Any of these could potentially disrupt business operations and should be planned for.
Instead, focusing on climate risks, after understanding the unique characteristics of the asset, the next step is to identify the climate risks at the specific location. From a global perspective, climate change is resulting in warmer temperatures. These changes have increased in extreme weather, flooding, storm surges, precipitation, and wildfires. Each particular location will have its own unique local impact that results from the global characteristics of climate change.
This means uniformly, every location has a role to play in reducing the causes of climate change. This revolves around greenhouse gas production and will require both private and public intent to implement strategies that reduce those greenhouse gasses. This blog is part of that strategy, as it focuses on addressing the 39% of greenhouse gasses that originate from the built environment. Looking more closely this means addressing both operational emissions as well as embodied emissions. The bonus is when you reduce the emissions, you reduce the amount of fuel needed that causes those emissions which results in reduced operational expense.
Operational risk reduction translates to improving energy and water efficiency. Identifying waste and eliminating provides both economic and environmental rewards. This requires data and comparing that data against a robust benchmark so that you can recognize where the opportunities for reduction are greatest. Once an energy efficiency opportunity is identified, it also requires implementing a solution that reduces the waste associated with that opportunity. Similarly, recognizing the emissions related to the full life cycle of the asset allows for better planning and developing specifications that incorporate reduced embodied emissions. This also includes managing your supply chain, working with vendors to reduce emissions related to the products and services that you purchase. Only when we reduce the intensity of the global impacts of climate change can we truly develop mitigation of the consequences of increasing global temperatures.
Understanding that reducing emissions is an important part of an overall strategy, we need to next look at how those climate impacts are playing at the local asset level. Which particular vulnerabilities are most likely? The Task Force on Climate-related Financial Disclosures (TCFD) provides a consistent approach to risk assessment and strategic planning.
Scenario analysis is the examination of the specific risks associated with each asset. What are the potential issues that may occur at this location? These are hypothetical constructs that allow your organization to play out the potential outcomes should the location experience a shock or stress. In emergency management, this may resemble a “tabletop” exercise, in which the potential of a particular impact is explored. How likely is it to happen in this location? If it does happen, how would our asset be impacted? Are there steps we can implement to reduce or mitigate the impact? What is the cost of those steps? What happens if we do nothing? Ultimately, we must decide what the risk is to both the investors and the occupants of the building and the consequences of both not taking action as well as taking action.
With a portfolio, this evaluation should include a baseline and ranking so that asset risk can be compared. At the asset level, this includes identifying strategies and improvements that could be made with the associated effectiveness and cost. This should include strategies to protect occupants, interior equipment, building systems, as well as the ability of the physical asset itself to function as designed. This is a step that can be outsourced. There are several consulting firms specializing in this step, providing consistent assessment and opportunity identification.
Whether completed in-house or through a consultant, this evaluation develops a resilience profile following the steps typically takes a path similar to this:
Additional detail into each step in developing a resilience profile can be found in the DC DOEE document “Climate Ready” by clicking on the link (contained in the graphic above).
Following the outline of TCFD, scenario planning should include both impacts under “high emission impacts” (when the global temperature exceeds 2 degrees) as well as impacts that may materialize if we remain under 2 degrees of temperature increase. It is also useful to apply these scenarios at different points on the timeline: Current Decade, 25 years out, and 50 years out, or some variation. This can be linked to the hold strategy of the asset, but even if a short term-hold, risk mitigation of longer-term impacts may enhance or retain asset value.
Through the development of a resilience profile, a checklist can be identified with short, mid, and long-term measures. This provides the ability for budget inclusion and truly developing a roadmap that ensures operational continuity for the site as well as taking into account the safety and well-being of tenants and ensuring asset value.
Just as it is economically beneficial to first adopt efficiency measures, when it comes to resilience, it is economically beneficial to take preventive measures to reduce risk then respond to a catastrophic climate event. This is why the majority of state regulators expect the insurance industry to focus more on the impacts of climate change, including a greater emphasis on medium to long term impacts according to Deloitte. With a better understanding of the impacts, we can also expect an increasing impact on coverage availability and underwriting assumptions.
Those organizations that can demonstrate active assessment and mitigation of risks posed by climate change are more likely to receive favorable treatment by the insurance industry, investors, and tenants.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry reduce energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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