Why the geospatial industry is missing a trick on climate risk
Sonny Masero, Chief Strategy Officer, EVORA Global, with David Jones, Ordnance Survey
ENVIRONMENTAL, social and governance (ESG) has risen to prominence across the financial world in the last three years. This article looks at the reasons why it’s changed for fund managers and real estate portfolio holders and how geospatial data is being underutilised in helping them.
Climate risk
Climate risk is going to change the value of assets and how easy they are to buy and sell. If you are not thinking about that now, particularly when you are buying or selling properties, you leave yourself at risk of exposure, because nobody knows quite how fast this is going to move. If you are not aware of it, you can’t make informed decisions.
ESG – and climate risk in particular – have been big growth areas. That has been largely driven by the financial regulations coming from Europe. The Taskforce for Climate-related Financial Disclosure, through the Central Bank, has set out a framework for companies to disclose what their climate risks are. That means companies must be forward-looking.
They can’t just worry about what has happened in the past, they have to think about how the climate is changing, what physical damage might be done by extreme weather events, how regulations might change to reduce emissions and what the costs might place on companies for buildings. This has led to a real shift in mentality.
Geospatial data
Fund managers, heads of real-estate funds, or investment portfolio managers looking at their next acquisitions all want due diligence in place so that they are not acquiring climate change risks. When they buy an asset, they are trying to get information about how energy efficient it is today, but also whether there are physical climate risks there in the next period of time. What this means in terms of geospatial data is a model for how the world is going to change.
The geospatial world tends to get very excited about maps and dynamic maps, but then doesn’t necessarily distil from that the key information investors need to see.Geospatial data provides information on recent flood damage, its scale, and where wildfires are happening in real-time. You can start to get a richer picture of how those changes are already starting to happen. It gives a platform of prediction on if the world warms by 2°C-3 °C. Informed decisions can then be made about property investment.
For example, whether to invest in sunny Miami Beach where flooding is happening on a regular basis. City authorities are putting in water pumps around Miami Beach and are raising street levels to be able to cope with that.
Underutilised
Geospatial data makes scenarios, like those discussed, and their impacts, much more visible. Particularly for physical assets like real estate or infrastructure such as transport or power. However, there’s a gap. The geospatial world tends to get very excited about maps and dynamic maps, but then doesn’t necessarily distil from that the key information investors need to see.
So, what is the risk for that particular asset and how might that change over time and what might be the financial implications? I think that step is still required for it to become much more widely used than it is today.
OS data’s future impact
Environmental impact assessments today look, historically, at whether there has been flooding. However, the use of live data in a model for the future, hasn’t been done. Models for investment assessments need to be as up-to-date as the latest data. This is where OS can help. OS can source geospatial data such as that caused by last year’s heatwave and see how frequently those temperatures are occurring.
People are jaded about COP27, because since the big Paris Agreement in 2015, it’s quite clear we’re nowhere near where we should be.What would this mean if you are investing in an office portfolio across Europe, or somewhere more extreme like India? If you are seeing frequent heatwaves, does the building have enough air conditioning to cope with 40°C on a consistent basis? Is the office going to be shut down more over the summer months, and become disused for the tenant?
Those are the kind of questions which will be asked more frequently, particularly when you have that data to say there was much more heat here, or much more flooding or fires there, instead of just basing it on a 100-year model or similar. This is where OS can help.
Climate change today
People are jaded about COP27, because since the big Paris Agreement in 2015, it’s quite clear we’re nowhere near where we should be. The Paris Agreement said we need to keep below 2°C of global warming, ideally 1.5°C – but we are on course for 2.5°C. While half a degree doesn’t sound so much, it is hugely significant when you realise that some of this change is permanent.
The action we take between now and 2030 is what our kids will experience in 2040 and 2050. This will be more heatwaves, storms, and flooding. So, I realise we are not changing course fast enough and that makes me anxious, not just for me, but for my kids, and the investments our clients are making because some of them are locked in for the long term, particularly on the infrastructure side. It’s not easy to sell a road or a power station and they are permanent, as are 80% of the properties in the world, come 2050.
There is a growing realisation about sustainability. It’s more and more in the public consciousness, which is partly down to the fascinating role of geospatial data in making the kind of impact discussed within this article much more visible.
Not everyone is looking yet, but if you go onto the NASA’s FIRMS fire map website, you can see where there are wildfires around the world. In summer, there are red dots everywhere. I’m hoping seeing this will eventually seep into the mind of the public imagination and show this is real. It’s not something that is going to happen in 30 years. It’s happening already and the action has to be now. We can no longer wait.
Sonny Masero, Chief Strategy Officer, EVORA Global, with David Jones, Ordnance Survey