Cities at Risk Extreme Weather

A robust climate risk analysis has now become part of the due diligence and other investment decision-making processes for many investors. “For physical risks, what we’re trying to do is be able to set out in our underwriting process how those physical risks might impact on liquidity, rental growth and insurability and insurance costs,” says Abigail Dean, Global Head of Strategic Insights for Nuveen Real Estate.

Extreme weather events associated with climate often result in substantial repair costs and potential for increased insurance premiums. In addition, operating costs may increase if, for example, temperatures continue to rise, and properties need to mitigate them. This can also have an impact on the attractiveness of cities for investors. Analysis from the Lloyd’s City Risk Index details those at most risk calculated by losses in gross domestic product (GDP) from 22 threats, including some climate-related areas. The results show that many cities actually face multiple risks. Tokyo appears in the top 10 for all four categories: drought, heatwaves, floods and storms. While its large GDP plays a significant part in its rankings, the city appears prone to weather-related disasters. There are also the non-weather-related threats of large earthquakes and the eruption of Mount Fuji, which are serious concerns.

Many investors have already started to extend their due diligence to the resilience of cities and how they will lead on climate change adaption. “Where we’ve identified cities that are more vulnerable, we’ve asked [our consultants] to give us an idea of what level of investment we would expect to see from the city authorities or from the federal government on protecting against those risks, says Dean. “Then, we can start to track if that money is actually being spent. If it isn’t, that would obviously then make that location riskier.” For real estate investors, factoring in physical climate risks will continue to alter the decision-making process for new investments as they need to understand the future costs – and their impact on returns – to ensure individual assets are resilient to extreme weather. This additional layer of understanding a city’s ability to cope brings further complexity and could shift capital based on a city’s ability to adapt.

28 coastal cities are frequently affected by natural disasters such as storms, floods, droughts, and saltwater intrusion. Provinces that are likely to be strongly impacted by climate change are also high urbanization locations. With eight typhoons in five weeks in the last year, the cost of climate-induced disasters has climbed rapidly, taking an increasing toll on human life, assets, and livelihoods, as well as valuable ecological systems. Ho Chi Minh City ranks in the top 10 cities globally with populations most likely to be severely affected by climate change. By 2050, there will be increased risk from regular and extreme climatic events such as floods, droughts, and tropical storms. HCMC is barely above sea level; 40% is 0–1 meter in elevation, 20% is 1–2 meter, and is therefore vulnerable to more severe storms, storm surges, and tidal flooding.

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Innovative Ideas to Mitigate Risk

• Amsterdam is using city management as a tool and has become the first city to adopt the doughnut economy, which draws upon UN Sustainable Development Goals to set out the minimum needed to live a good life in the city.
• Jakarta has postponed its $33bn relocation of the sinking capital city to the island of Borneo due to Covid-19. Originally, a state palace, government buildings and transport infrastructure were meant to be ready for 2024.
• Seville has found an innovative way to create a different kind of juice from unwanted oranges that fall in the city’s streets. It is using the methane produced as its famous oranges ferment to generate clean electricity.
• Miami, one of the most vulnerable cities to storms, flooding and seawater rise, is investing $4bn in its “Rising Above” plan to elevate roads, build new sea walls and install pump and drainage systems.
• We look at which cities have the most GDP at risk from four different climate-related natural disasters. We also give examples of how two cities are acting to mitigate each risk, one from the top 10 at risk and another with an innovative solution.

We look at which cities have the most GDP at risk from four different climate-related natural disasters. We also give examples of how two cities are acting to mitigate each risk, one from the top 10 at risk and another with an innovative solution.

Heatwaves

New York has the most GDP value to lose in terms of heatwaves. However, it is Paris, second on the list, that has been a leading city for its action to counter the risk of heatwaves after losing more than 700 Parisians to a deadly summer in 2003.

In its Resilience Strategy of 2017, the French capital set out plans to transform the city’s 761 schools into green islands that function as urban oases of cooler temperatures. By 2040, all of Paris’s schools will be refurbished with green roofs, rainwater capture facilities, cooling fountains and trees. These cool spots also have the benefit of boosting the city’s low levels of green space; currently around 10% versus some 33% in London.

Meanwhile, the city of Ahmedabad in India estimates that it has avoided more than 1,100 heat-related deaths annually since it put in place a Heat Action Plan in 2013. The plan is about adaptive efforts such as using white lime wash to provide a simple and cost-effective solution to extreme heat in the city, as well as community engagement, inter-agency coordination and having an early warning system in place.

Cities at risk - Heatwaves

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Drought

For cities in the US such as Los Angeles, which Source Savills Research, Lloyd’s and Cambridge Centre for Risk Studies (2018)*, Real Capital Analytics ranks highest on the at-risk drought rankings, adapting to water shortages has been a decades-long battle. This led to initiatives such as California’s Orange County Water District distributing treated sewage as drinking water from the mid-1970s. The state has now also passed a law to protect its aquifers; an attempt to reverse groundwater deficits by allowing rain to refill aquifers but also by shrinking demand. California will fund better data and look to identify the best places to replenish aquifers by, for example, flooding farm fields.

In Phoenix, water security is high on the agenda as drought could cause part of the state to lose its Colorado River supply in the next five years. The city’s plan is to decouple water use with growth by setting long-term goals, finding opportunities in wastewater management and looking to nature-based solutions. It will fund these ambitions by issuing bonds for municipal water infrastructure

Cities at Risk - Drought

Floods

Shanghai, ranking ninth in the flood risk rankings and one of the most flood-prone cities in the world, is part of a wider adaptation policy by China called the sponge city strategy. Initiated in 2014, it requires that 80% of urban land is able to absorb or reuse 70% of storm water. Shanghai is also reducing its exposure to rising seas through an ambitious 520km of protective seawalls that stretch across the Hangzhou Bay and encircle the islands of Chongming, Hengsha and Changxing.

Rotterdam does not feature in the top 10 for good reason: the Dutch have made it a resilient delta city through learning to live with the water. It erected its first dam in the 13th century, and new canals were built in the 1850s to improve water quality and reduce epidemic outbreaks of cholera. Today, it protects the city’s population from floods with no impediments to sea traffic. The city is also contending with excessive rainwater and has created water squares which have alternative uses in drier times. At Benthemplein, three such squares can collect rainwater when needed but can also be used as amphitheatres, basketball and volleyball courts and skateboarding rinks.

Cities at Risk - Floods

Storms

With Tokyo at risk from all four types of extreme weather featured, it is no surprise that it has led in innovative solutions for climate adaption – in this case excess water from typhonic rains and rising rivers. Its flagship defence is a ‘floodwater cathedral’ 22m below ground as part of a $2 billion Metropolitan Area Outer Underground Discharge Channel (MAOUDC) with 6.3km of tunnels and chambers.

Across the world in Dominica, the Caribbean island is attempting to make itself hurricane-proof after the devastation caused by Hurricane Maria in 2017. The island’s approach was not just to build back hurricane-proof buildings, but also to diversify the tourism and agricultural economy; for example, expanding the goods it grows from its primary export of bananas. Its efforts are governed by the Climate Resilience Execution Agency for Dominica (CREAD), which spans the initiatives from building codes to new geothermal energy plans and transportation infrastructure.

Cities at Risk - Storms