The First Step Toward Building Resilience is Assessing Hazards

14 Jan 2025

As climate disasters increase and regulations tighten, the Property Resilience Assessment (PRA) is the key to protecting assets, reducing risks, and ensuring long-term business stability

Hurricanes Helene and Milton caused more than $100 billion in combined losses in the U.S., most of it uninsured. These storms led to hundreds of fatalities and left millions without power and water for weeks. Beyond the tragic losses for families, the businesses and institutions that form the backbone of communities were also severely disrupted.

According to the National Oceanic and Atmospheric Administration (NOAA), the U.S. set a record for natural hazard events in 2023, with 28 separate disasters causing $1 billion or more losses. This surpassed the previous record of 22 in 2020. Unfortunately, 2024 challenged this record.

Implications for Commercial Real Estate

These increasing climate-related impacts pose significant risks for commercial real estate investors, building owners, and lenders. Owners face rising insurance costs and potential capital expenses for repairs or losses. Tenants also risk extended disruptions if power outages or repairs make workspaces unusable. With insurance companies pulling back and investors seeking transparency, new regulations require disclosures of climate-related financial risks.

Double Materiality Disclosures

Many of these regulations now address double materiality, including both transitional risks (e.g., regulatory changes like carbon pricing) and physical risks (e.g., hazards like hurricanes, floods, or extreme heat). The European Union and other countries are beginning to require companies to disclose these risks to investors, usually focused on greenhouse gas (GHG) emissions and climate-related financial risks. Similarly, the State of California has adopted new regulations that will phase in over the next few years and require disclosures aligned with European requirements. Several other states including New York and Illinois have similar legislation pending. The U.S. Securities and Exchange Commission (SEC) adopted similar disclosures, but these were challenged in court and may be significantly delayed, but application of EU and state rules will eclipse the impact the SEC would have had.

Conducting Property Resilience Assessments (PRA)

To comply, companies will need to conduct resilience assessments of their assets. The recently released ASTM E3429-14 Standard Guide for Property Resilience Assessment (PRA) offers a structured three-stage process for these evaluations.

Stage 1: Hazard Screening

The first stage is hazard screening, identifying current and future climate-related threats to a property or asset. Since risks are often highly localized, site-specific assessments are crucial. A small difference in topography or location can alter impacts from hazards like flooding, storm surge, or wildfires. Comprehensive hazard screening draws from multiple data sources; for instance, the U.S. Federal Emergency Management Agency (FEMA) flood maps address riverine flooding but omit other risks. Tools like Fathom's global flood maps cover fluvial, pluvial (heavy rainfall runoff), and coastal flooding.

Stage 2: Vulnerability Assessment

The second stage evaluates the property's vulnerability based on exposure, sensitivity, and adaptive capacity. Factors include building location, design, infrastructure, and occupant needs. For example, an oceanfront tower faces higher wind and storm surge risks than a low-profile building inland. A building with electrical equipment in a basement has increased flood vulnerability compared to one with elevated systems. A flexible office environment with remote work options and critical digital files stored in the cloud may be less sensitive to disruption. At the same time, an assisted living facility with vulnerable residents in ground-floor rooms may be highly sensitive and have low adaptive capacity.

Stage 3: Risk Mitigation Strategies

The third stage identifies feasible capital improvements and operational changes to reduce risks. This may involve:

• Wet or dry floodproofing with deployable barriers
• Wind-resilient roofing systems and impact-resistant glass
• High-efficiency filters and ventilation modes for wildfire smoke
• On-site renewable energy with backup storage

Benefits of Resilience Assessments

The PRA helps guide resilient design and engineering requirements for new construction or major renovations. Implementing risk mitigation measures may also lead to better insurance rates or attract buyers and renters. Measures like on-site energy generation and thermal enclosure improvements can reduce utility costs and greenhouse gas emissions, offering sustainability benefits as well as increased resilience. The upcoming LEED v5 will require a PRA to inform sustainable and resilient building design and operations.

Moving Forward

With limited budgets, Property Resilience Assessments (PRA) help building teams prioritize investments where they're most needed and assist building owners to develop long-term capital improvement plans. Businesses, institutions, and governments must address climate impact mitigation and hazard adaptation. Assessing and addressing climate-related financial risks is becoming a legal requirement and an expectation of investors, insurers, and regulators. Resilience starts with understanding hazards and taking informed steps to lessen their impacts.