Edwin Anderson, partner at Oliver Wyman, sat down for a video interview at Nareit’s REITworks: 2024 Sustainability & Social Responsibility Conference, held in McLean, Virginia from Sept. 10-12.
Anderson discussed the evolving landscape of climate scenario analysis in the commercial real estate sector. He noted a shift from merely considering operational impacts of climate events to a deeper focus on long-term financial implications. Investors and lenders are increasingly factoring in climate scenarios when making decisions, recognizing that secondary effects—such as rising insurance costs and changing property desirability—can significantly affect financial outcomes.
Anderson highlighted key challenges for companies implementing climate scenario analysis, particularly for smaller organizations that may lack the resources to develop sophisticated models like larger entities can. These smaller firms must adapt their approaches, finding efficient ways to leverage available data.
He also pointed out broader trends influenced by climate scenario analysis, notably a shift in development planning. As large real estate players begin to avoid high-risk areas, this has implications for where properties are developed and how portfolios are managed. Ultimately, these changes may lead to significant demographic shifts as market dynamics respond to climate-related concerns.