Mitigating climate risk impact on real estate value

As China’s Greater Bay Area (GBA) grows and develops, regional hazards such as storms, flooding, sea-level risk, extreme heat, and drought continue to worsen and become more frequent in the region as a result of climate change. Left unchecked, the frequency and intensity of extreme weather events will continue to rise, increasing claims against insurance policies, threatening loan default, and impacting real estate value across the GBA. Consequently, there is a shared desire throughout the region to identify ways of preventing long- and short-term losses, keep abreast of global environmental, social, and governance (ESG) priorities, and attain compliance with forthcoming government-imposed real estate reporting requirements as well as internal ESG requirements.

HSBC partnered with Urban Land Institute (ULI) to examine climate risk to real estate in the GBA. Drawing on interviews with leading industry professionals operating in the region – including developers, equity and debt investors, insurance companies and NGOs – the report analyzes whether climate risk is being incorporated into real estate transactions and poses recommendations for what can be done to further address the accelerating risk of climate change.

Timely recognition of climate risk in real estate valuation is important to drive the required adaptation and mitigation action, which will in turn protect the hundreds of millions of people and trillions of dollars of assets concentrated in the region. To achieve this, the report recommends for an increased collaboration between government and industry sectors, strengthened government leadership towards change – particularly to address physical risk, and consistent and robust physical assessments for assets.