A leading property operations group was retained to manage assets for a major Canadian real estate investment trust (REIT), that was facing pressure from investors. With NOAA, the Intact Centre on Climate Adaptation, and other agencies reporting dozens of billion-dollar climate disasters annually, investors wanted evidence that the REIT was actively managing physical climate risks across its high-value portfolio. The task was clear: deliver a defensible, data-driven plan that identified risks and how they were being addressed – without undermining the owners’ long-term investment thesis for the REIT’s assets.
From Screening to System-Level Insights
The property operator began with a ClimateFirst Risk Exposure Screen on a flagship Toronto office property valued at $215 million. The screening confirmed:
- Acute risks such as flooding or wildfire were minimal given the site’s location.
- Chronic heat risk, however, stood out. The screening showed that the number of “extremely hot days” (above 31°C) is projected to rise from ~seven per year today to over 30 by 2050, with direct implications for cooling system performance.
Chronic heat risk is a hidden cost driver for many of North America’s premier office towers, including this one in Toronto. Without resiliency investments, rising capital costs can erode value.
This graphic from REALPAC’s Sustainability Industry Report for Commercial Real Estate (2024) illustrates how chronic climate hazards, like heat, accelerate infrastructure wear, requiring more frequent and costly replacements. Credible Climate Value at Risk (CVaR) analysis quantifies these risks against each building system and component to enable more accurate capital planning and long-term resilience.
To measure the financial significance of this exposure, the operator uploaded the property’s Building Condition Assessment (BCA) into the ClimateFirst platform. The automated Climate Value at Risk (CVaR) assessment quantified approximately $1 million in additional risk over the next five years. While modest relative to the building’s total value, the results pinpointed where vulnerabilities would occur: the cooling towers and in-suite terminal units that maintain occupant comfort.
The CVaR for this Toronto office tower confirmed $1 million in additional costs over the next five years, due to chronic heat impacts.
Identifying Capital-Ready Solutions
With risks quantified in dollar figures, the operator advanced into ClimateFirst’s Resiliency Planning feature, which mapped best-practice adaptation measures to the identified exposures.
One recommendation emerged as both logical and cost -effective:
- Right size the cooling system at its next replacement cycle, ensuring capacity is aligned with future climate conditions.
Because the immediate consequences of failure (warmer indoor conditions) were manageable, the operator opted against costly near-term retrofits. Instead, they incorporated the incremental cost of a larger-capacity system into the property’s long-term capital plan.
The Resiliency Plan Recommendations to reduce this chronic heat risk and increase resiliency were easy to integrate into planning and proved to be cost effective.
From Risk to Investor Confidence
By embedding climate resilience into capital planning, the operator was able to:
- Quantify and contextualize exposure (~$1M CVaR on a $215M asset).
- Identify targeted, system-level measures to mitigate risk.
- Integrate resilience investments into the 5-year capital plan.
Most importantly, the real estate investment firm could report back to investors with confidence: physical climate risks are real and measurable – but also manageable through prudent, data-backed capital planning.