Climate-related risks are increasingly reshaping real estate investments, according to a new report from the Organisation for Economic Co-operation and Development.
It found buildings account for 37 per cent of global energy-related emissions and property assets across 34 OECD countries, valued at about US$111 trillion in 2022. The report noted while real estate is a critical store of household and institutional wealth, it’s highly vulnerable to climate-related physical risks, such as floods, wildfires and heatwaves, as well as transition risks stemming from regulatory, technological and market changes tied to decarbonization.
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The report found climate-related risks are primarily location-specific, yet they aren’t systematically embedded in land-use planning, zoning or investment frameworks, even as urban development continues to expand into hazard-prone areas. Across Europe and Central Asia, urban development between 1985 and 2020 increasingly occurred in flood zones, driven by land scarcity and weak zoning enforcement.
Climate-related hazards are already affecting the usability, valuation and affordability of real estate assets, particularly in highly exposed areas, the OECD said, with severe shocks generating financial risks through changes in property values, property lending and investment flows, as well as impacts on the cost and availability of insurance coverage. Global climate-related economic losses were estimated to range between US$50 billion and US$430 billion annually.
The report also found climate-risk assessment and disclosure remain constrained by data gaps, inconsistent methodologies and unclear regulatory requirements, with 58 per cent of institutional investors citing a lack of granular property-level data, 49 per cent citing unreliable methodologies and 28 per cent pointing to insufficient hazard data and unclear reporting standards.
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The OECD also found climate-related risk assessment and disclosure practices remain fragmented across jurisdictions, limiting transparency and comparability, with 44 per cent of institutional investors identifying misalignment between frameworks as a key barrier and 35 per cent citing insufficient data at appropriate geographic scales.
Resilience is emerging as a value driver for real estate assets, the report said, warning that physical damage from climate hazards can quickly lead to asset devaluation, loan defaults and market disruption, while growing climate-related losses are placing increasing pressure on insurance markets and challenging affordability.