Understanding Sustainability Risk

Climate risk refers to the physical, transition, biodiversity, and liability risks associated with climate change. These risks affect businesses, investors, and real estate portfolios worldwide. The main categories include:

1. Physical Risks: Events like coastal flooding, rising sea levels, increased rainfall, frost-thaw cycles, and extreme wind events can damage assets and disrupt operations.
2. Transition Risks: As decarbonization accelerates, policies like the Energy Performance of Buildings Directive (EPBD) pressure lagging assets and increase exposure to sustainability regulations.
3. Biodiversity Risks: Development near sensitive ecosystems can trigger restrictions, reputational damage, or legal action — especially in areas protected by EU nature laws.
4. Liability Risks: Companies may be held accountable for climate-related damages, facing lawsuits, stakeholder pressure, and reputational fallout.

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The Financial Impact of Climate and Biodiversity Risk

Climate and biodiversity risks are now influencing asset values, operational costs, insurance premiums, and investment flows.

• Asset Devaluation: Properties in vulnerable zones (e.g., low-lying coastal areas) are already losing value. The De Nederlandsche Bank (DNB) has warned that real estate failing to meet sustainability expectations may become stranded.
• Insurance Pressures: In Sweden alone, over 200,000 buildings face sea level rise, driving up premiums or limiting access to coverage.
• Regulatory Costs: EU frameworks like CSRD, the EU Taxonomy, and TCFD require companies to disclose environmental risks — and adapt accordingly.
• Lender & Investor Expectations: Financial institutions are embedding ESG into credit and investment decisions. ING Bank, for instance, plans to cut ties with high-emitting clients by 2026.
• Operational Disruptions: Biodiversity loss and extreme weather are increasingly disrupting supply chains and property management.
• Land Use Restrictions: Protected area regulations are tightening, particularly in Nordic and EU biodiversity zones, limiting development potential.

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Why Ignoring Climate and Biodiversity Risk Is a Financial Mistake

Some companies still view climate risk as an issue for future reporting cycles. But in reality, it’s a current driver of cost, disruption, and financial instability.

Examples include:

• The 2021 European floods caused an estimated €46 billion in damage.
• Between 2021 and 2023, weather and climate-related events led to over €162 billion in economic losses across the EU.
• The May 2023 Emilia-Romagna floods displaced over 50,000 people and caused more than €8.8 billion in damage.
• Global biodiversity loss could shrink GDP by $2.7 trillion annually by 2030.
• Poor land use and ecosystem degradation are already triggering lawsuits, penalties, and project delays.

Proactively managing these risks isn’t just a sustainability move — it’s a financial necessity.

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How Real Estate Companies Can Actually Manage Climate and Biodiversity Risk

You don’t need a 100-point action plan. You need to understand where the risk is, take smart action, and communicate it effectively. Here’s how:

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Step 1: Find Out Where You’re Exposed

Use a tool like Telescope to quickly assess risks across your property portfolio — no deep climate expertise needed.

• Physical Risks: such as sea level rise, increased rainfall, flooding, frost-thaw cycles, and wind damage.
• Biodiversity Risks: including overlap with protected areas or red-listed nature types.
• Transition Risks: tied to regulatory goals like the EPBD, local climate policies, and EU emissions targets.

Telescope automates this analysis and turns climate data into clear portfolio insights — helping companies prioritize faster.

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Step 2: Once You’ve Identified the Risks, Act Where It Counts

Not all assets carry equal risk. Focus on the places where smart interventions can meaningfully reduce exposure and preserve value.

• Reinforce flood-prone properties with stormwater management or elevation strategies.
• Rethink developments near sensitive ecosystems to avoid regulatory delays or project rejection.
• Target high-cost vulnerabilities — such as properties with insurance issues, poor energy performance, or nature conflict risks.
• Integrate adaptation into planned renovations, making buildings more resilient to future climate scenarios.

These are practical, asset-level decisions — not just compliance exercises, but ways to protect your portfolio and maintain flexibility as the landscape evolves.

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Step 3: Show Your Work to Stay Competitive

While the Omnibus Directive has eased short-term ESG reporting burdens, the market still demands transparency.

Investors, banks, and public stakeholders expect clear answers about how you manage risk. Use your sustainability data to:

• Align with CSRD, EU Taxonomy, and TCFD frameworks.
• Demonstrate to insurers and lenders that your portfolio is resilient.
• Avoid reputational damage and remain eligible for green capital and incentives.

In short: regulation may slow, but expectations haven’t. Companies that can prove proactive risk management will stay more competitive — and more investable.

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The Bottom Line

Climate and biodiversity risk don’t disappear just because rules shift.

Delaying action leads to higher exposure, higher costs, and weaker positioning.

Companies that take real, measurable action now will lead the market — not just survive it.

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