Navigating physical climate risk in real estate: from assessment to adaptation

Physical climate risk is increasingly shaping how real estate assets are assessed and managed. Rising temperatures and more frequent extreme weather events are already affecting building performance, operating costs and insurability. In response, physical climate risk assessments are becoming more common. 

Despite this momentum, the market remains fragmented. Different tools, assumptions and methodologies often lead to results that are difficult to compare or apply consistently. INREV’s paper on physical climate risk in real estate has been developed to bring greater clarity and structure to this process, supporting investors and investment managers in moving from assessment to adaptation in a coherent and practical way through a step-by-step approach 

A framework for physical climate risk assessment 

At the core of the paper is a structured, step‑by‑step approach that sets out how to conduct a robust physical climate risk assessment and develop an actionable adaptation plan. Rather than prescribing a single methodology or data provider, the framework is intended for flexibility. An overview of the steps is covered below. 

Step 1: Define purpose, scope and incorporate into strategy 
The process starts by clarifying why the assessment is being carried out; for example, regulatory compliance, investment prioritisation or resilience planning. This step also covers defining assets, geographies, time horizons and governance, and embedding the assessment into investment, ESG and reporting frameworks from the outset. 

Step 2: Data preparation and collection 
High‑quality, transparent data is the foundation of credible assessments. This step focuses on compiling asset‑level information alongside climate and hazard datasets, establishing clear roles and responsibilities, and ensuring traceability and consistency across assets and timeframes. 

Step 3: Select a data provider or consultant and assess climate risk, exposure and vulnerability 
This step brings together location‑based hazard and exposure analysis with asset‑level vulnerability assessment. By combining external climate data with on‑the‑ground insight, investors can better understand how specific hazards may affect individual buildings over time. 

Step 4: Prioritise risks and make an adaptation plan 
Once risks are identified, they need to be interpreted in an investment context. This step focuses on categorising and prioritising risks to determine where adaptation measures are most urgent and proportionate, aligned with holding periods and asset strategies. 

Step 5: Implement the measures 
The final step moves from insight to action. The paper outlines how adaptation measures, whether operational or structural, can be implemented at asset and portfolio level, and highlights the importance of ensuring plans are actionable and aligned with regulatory timelines where relevant. 

Additional topics covered in the paper 

Beyond the step‑by‑step framework, the paper explores several related themes, including: 

• Why physical climate risk is becoming a priority, driven by regulation, investor expectations and the need to protect asset value. 
• The importance of looking at risk over different timeframes, as climate impacts and investment decisions rarely align neatly.  
• How physical risk connects with the transition to net zero, particularly in relation to building performance and the risk of obsolescence.  
• Practical examples of how assets can be adapted to respond to different types of climate risk. 

Altogether, these topics provide a broader context and practical insight into how physical climate risk can be integrated into real estate decision‑making. 

For INREV members seeking a clear overview and a structured approach to navigating physical climate risk, the paper offers a valuable reference point. 

Read the full INREV paper to explore the framework and guidance in detail.