Ignore the risk, pay the price: what climate inaction is really costing real estate

Climate change isn’t tomorrow’s problem for real estate — it’s a current and accelerating disruptor. From intensifying extreme hazards to higher insurance premiums and shifting regulatory expectations, climate risks are rapidly reshaping the fundamentals of property investment, lending, and ownership.

Insurers are responding by pulling out of high-risk areas, raising premiums, and tightening underwriting standards. Asset managers, investors, and developers now face a sobering reality: properties that were once lucrative can quickly become uninsurable—and soon after, unrentable, unfinanceable, and unsellable.

This is the cost of inaction.

But there is another side to this equation. Proactive risk management, enabled by high-resolution data and smart analytics, offers a path not only to reduce losses but to build climate resilience, win back investor confidence, and protect ROI and value. As the real estate sector stands at the crossroads of escalating climate threats and emerging resilience solutions, the message is clear: what you don’t know—and don’t act on—can cost you dearly.

Real estate’s insurance crisis: a market on the brink

In 2024 alone, the U.S. faced 27 billion-dollar climate events, with damages totaling $182 billion, according to NOAA data. And these numbers are far from an outlier. Across the EU, weather-related extremes have caused over €162 billion in losses between 2021 and 2023 alone, according to the European Environment Agency.

Here’s how property owners can leverage technology to minimize risk.

Insurers are reacting. In places like California and Florida, major players such as State Farm and Allstate have exited local markets, citing wildfire and flood risks. Even before disasters strike, premiums are climbing. In the U.S., insurance has become the fastest-growing expense line item for commercial property owners, directly eroding their net operating income.

In high-risk zones, insurers no longer offer coverage for some properties at any viable cost. Without insurance, mortgages and renting become impossible. No insurance, no financing—no transaction. This chain reaction can quickly turn once-valuable properties into stranded assets.

As Roger Baumann of Zurich Insurance put it, the industry is pivoting from historical pricing (+1.5°C models) to future risk projections aligned with +4°C scenarios. Buildings that fail to adapt will not only become more expensive to operate—they may soon become uninvestable.

The financial risk of climate inaction

Beyond insurance premiums, the financial toll of climate inaction spreads across multiple value levers:

1. Valuation risk

Extreme events reduce asset attractiveness, depress income, and lower long-term asset value. Think about assets that are suddenly in a new flood zone, or an area where flooding has significantly worsened due to climate change – the value of that asset is decreasing, presenting a real risk. In the U.S., many buyers remain unaware of this danger, as federal flood maps are often outdated and burdensome to access. State laws also differ on how much flood risk must be disclosed when selling property. As a result, U.S. homes in flood-prone areas may currently be overvalued by between US$121 billion and US$237 billion. If property values were adjusted to reflect actual flood risk, homeowners could see up to a 10% drop in value. These are real-world impacts and risks that Deepki’s clients are currently managing.

2. Liquidity risk

Illiquid, non-resilient assets struggle to attract investors or buyers.

3. Capital access risk

Access to capital is also becoming an issue, as well as an opportunity. Institutional investors that are allocating their capital have strict criteria that they have to meet as part of their broader corporate strategies. And if assets don’t live up to that strategy, then there is a real risk that could be limited or even cut off.

4. Operational cost risk

Energy-inefficient, vulnerable properties face rising costs across maintenance, retrofits, and downtime. But the financial risks go far beyond operating expenses. Extreme climate events cause billions of dollars in physical damage every year, driving sudden, massive repair and reconstruction costs for property owners. Even if a hazard doesn’t directly damage an asset, interdependencies can still cause serious financial losses. When surrounding infrastructure—such as roads, public transport, or utilities—is disrupted, tenants, employees, and customers may no longer be able to access the property, leading to business interruption, lost income, and long-term occupancy risks.

Operational costs and ROI

Regarding the return on investment (ROI) for proactive climate mitigation and adaptation efforts, the World Resources Institute (WRI) has estimated that every dollar invested in climate resilience can result in savings of between $2 and $10 in avoided losses in the future. Additionally, the World Bank has found that investments in climate-resilient infrastructure can yield a return of $4 for every $1 spent, by avoiding the need for continual repairs and rebuilding.

This is the growing business case for climate resilience—not just as a compliance exercise, but as a strategic, risk-adjusted investment.

Regulatory and investor pressure are rising

Frameworks such as the EU Taxonomy and ARESI (Aligning Real Estate Sustainability Indicators) are accelerating this shift. These policies now mandate robust climate risk assessments, scenario analysis, and disclosure for real estate portfolios, with expectations aligned to 10–30 year time horizons and state-of-the-art climate projections.

Companies are not just required to report—they must demonstrate that risks are being actively managed. Investors are following suit, prioritizing portfolios that align with science-based targets and show credible risk mitigation plans. Properties that fail to meet these benchmarks face not only financial penalties but also reputational damage and market exclusion. The European Union (EU) Taxonomy is a cornerstone of the EU’s sustainable finance framework, guiding investment toward economic activities aligned with the European Green Deal and a net-zero trajectory by 2050. It sets clear criteria to help investors avoid greenwashing and assess climate-related risks. Companies must now disclose physical risk information using high-quality climate projections, in accordance with supporting regulations and delegated acts.

The good news: while the risks are real, so are the solutions

With a higher frequency of weather-related incidents, for investors to successfully maintain portfolio resilience, it’s clear that insurance alone can no longer provide the sole approach to managing risk: a strategic, blended approach to physical climate risk must be part of the solution.

Deepki’s complete sustainability platform helps real estate asset owners manage risk through data-driven insights, improve the financial performance of assets, and comply with sustainability regulations and investor requirements. Deepki is ISAE 3000 Type 2 certified, guaranteeing the credibility and accuracy of its data collection process, making it fully auditable and providing the same high-quality standards as financial reporting.

A key component of the platform, Deepki’s Climate Resilience solution, helps mitigate physical climate risks through advanced analysis of exposure and vulnerability. This feature simplifies the process of assessing both the exposure and vulnerability of extensive portfolios to climate-related and physical risks. It enables Asset and Risk Management teams to better identify climate-related change risks and opportunities, while meeting the expectations and requirements of the EU Taxonomy. 

By combining geospatial hazard data, AI analytics, and deep sustainability expertise, the platform provides actionable insights across three pillars:

1. Exposure: Where are your assets most at risk? Deepki maps exposure to climate hazards such as floods, heatwaves, droughts, and wildfires, using high-resolution location data.
2. Vulnerability: How susceptible is each building to damage? By assessing the physical characteristics, construction materials, age, and maintenance status of each asset, Deepki models vulnerability to climate impacts.
3. Resilience planning: What actions will deliver the best return? Deepki’s experts recommend adaptation strategies—from structural upgrades to energy retrofits—and allows users to track impact and ROI over time.

Real-world impact: Ream SGR’s story

This challenge becomes even more complex for clients with large portfolios, where tracking and assessing risks across multiple assets is significantly harder. That’s where Deepki comes in.

Typically, Deepki brings all the information about all of the risks associated with their assets to the forefront. We then propose a number of actions to mitigate these risks and hold firms accountable for implementing them. Being able to reassess as quickly as possible puts you in the best possible position, as things change quickly, and market sentiment is constantly developing.

For example, Ream SGR, a leading investment management firm, uses Deepki to monitor climate risks and improve sustainability scores. Since adopting the platform, they’ve automated data collection across their portfolio, improved GRESB ratings, and implemented targeted risk mitigation—protecting long-term asset value and investor trust.

“With the Deepki platform, we have the possibility to capture and digitise all the data from our assets, in terms of e.g. energy performance or climate gas emissions, but also to assess physical and transition risks” –  Head of Compliance & Risk Management and Anti Money Laundering, Ream SGR

Making resilience business-as-usual

What’s clear is that climate risk is no longer “non-financial.” It is a financial risk, and must be treated as such. For real estate stakeholders, that means embedding climate resilience into day-to-day decision-making, capital allocation, and governance structures.

It also means shifting the mindset: from reacting to disasters, to anticipating and preventing them. From short-term fixes to long-term value creation. From guesswork to data-driven strategy.

At Deepki, we believe in empowering the real estate sector with the tools it needs to build resilience—because buildings don’t adapt on their own, people do. And in a market where inaction carries rising costs, action is the only safe investment.

Read more on adaptation: building climate-resilient real estate.

Our action plans include a wide range of steps—from installing flood barriers and using heat-resistant materials, to improving drainage systems and reducing operational carbon. Clients can also prioritize more straightforward measures, such as switching to LED lighting or adding solar panels.

A key challenge is for portfolio owners to focus their time and energy on higher-risk assets. Being intentional about this is critical. They should understand how to align certain insurance premiums with actual risk data and collaborate with insurers to clarify their mitigation strategies.

While building resilience to today’s physical risks is essential, investing in mitigation is equally crucial. Adaptation and mitigation must go hand-in-hand: protecting assets today, while reducing the severity of tomorrow’s climate impacts.

The time to act is now

Real estate sits at the intersection of two powerful forces: climate change and capital markets. The first is accelerating. The second is watching.

Whether you’re managing a €10B portfolio or a single building, the stakes are the same: protect your assets, or risk losing them. With insurance costs climbing, regulatory scrutiny intensifying, and investor expectations rising, now is the time to move from awareness to action.

The question isn’t whether climate risk affects your portfolio—it’s how ready you are to adapt, protect value, and seize new opportunities.