The Climate Limit for Real Estate in New Zealand

The Climate Limit for Real Estate in New Zealand

Sustainable future

As major corporations, banks and insurers adjust to the early stages of climate disclosure legislation, experts say many see this as an opportunity rather than a hindrance

The ongoing impacts of extreme natural events, the need to close climate data gaps and business response to new climate reporting rules.

These were all topics of discussion at yesterday’s climate change panel hosted by real estate data firm CoreLogic, where experts from the interfaces between climate science and finance discuss some of the meatier implications of the changing climate for the financial stability of Kiwis, businesses and the wider economy.

Belinda Storey, director of the climate risk economics research group Climate Sigma, said climate risk currently has no appreciable effect on property values, but it is only a matter of time before it does.

“The market doesn’t consider climate risks right now, and if it does, only a small part of it,” she said. “Properties that are currently exposed to extreme weather damage…rarely say flooding…those properties have a time limit and there will be a limit on how long it will be safe.”

She said this would be a very difficult message to deliver to affected homeowners, and right now the time frame before they are affected is probably much shorter than most people realize.

A problem at the forefront of the financial industry trying to respond to climate change is a mismatch between climate data and financial timelines.

This can come in the form of predictions detailing what the climate will be like in 2100 — useful in scientific terms, but less so for homeowners more interested in the decades ahead.

“The data was developed primarily to answer scientific questions, not to answer financial questions,” Storey said.

Meanwhile, Ivan Diaz-Rainey of the University of Otago and the Strand Marsden Fund Project said the increasingly precarious nature of properties on the coast or in flood plains would hit New Zealand particularly hard, as most of the country’s material wealth is tied up. in homes that have traditionally been two of our favorite places to build a house.

“We don’t know if we’re going to end up in a two-degree world or a three-degree world, and they can make a big difference in terms of how much longer a house has to go,” he said.

However, he said there is still a fair amount of uncertainty about exactly how big the effect of climate change will be here, with factors such as elevation, location and hydrogeology all potentially impacting what happens to a particular property in the coming decades.

“Looking ahead is very difficult – nobody has a crystal ball,” he said. “We’re getting to the point where we can say an area is vulnerable… [house]that is going to be a problem.”

Mark Baker-Jones, director of climate advisors Te Whakahaere, echoed this sentiment, saying there is still a lack of necessary data and tools to help the financial sector move to a lower-emission model.

He has been involved in helping businesses transition to new climate disclosure legislation, which means businesses and financial organizations must report on what they are doing to transition to a more sustainable, low-emission economy.

Baker-Jones said in the past six months he’s seen “an enormous amount of maturity” from organizations that may have initially viewed the new rules with trepidation.

“Six months ago they were a little panicked, but I’ve seen quite a shift,” he said. “Especially with the more sophisticated larger financial institutions that saw this as a risk, but now see it as an opportunity.”

He gave the example of the profit potential of investments in renewable energy or transport infrastructure.

Olaf Adam, senior sustainability manager at Westpac, said he saw the opportunity of shifting to a more carbon-friendly business that ultimately benefits business.

“The things New Zealanders have to do will make the country a lot more efficient,” he said. “It will pay for itself over time…that means to a bank it’s a bankable proposition.”

Adam said there will be two types of organizations when it comes to disclosure: those who treat it as a compliance exercise, and those who view it as an opportunity to reassess and restructure the company around lower emissions.

By 2024, about 200 entities will be required to make climate-related disclosures, including banks, investment scheme administrators, insurers and Crown financial institutions worth more than $1 billion.