The highest echelons of government have taken an interest in climate change and its effects. Variations in weather patterns are having an increasing impact on socioeconomic dynamics, ranging from stress in the home insurance markets in the U.S. to drought conditions affecting cargo shipping and infrastructure planning. This is according to a new CoreLogic report.
Indeed, climate change is a “emerging and increasing threat to the global financial system and economy,” according to a public declaration made by the U.S. government. The International Monetary Fund (IMF) conducted a study that found that between 1963 and 2016, the contiguous 48 states of the United States warmed more than the world average. This finding lends credence to the assertion.
The White House held a Climate-Energy-Macroeconomic Modeling Meeting and invited a small group of knowledgeable experts, including Pete Carroll, EVP of Public Policy and Industry Relations at CoreLogic, and Chief Scientist Dr. Howard Botts. The objective was to gain a better understanding of how to use data related to climate change to predict the financial repercussions of our changing climate, map infrastructure resilience more effectively, and detect and account for data gaps.
What can be done about it is the question at hand.
The U.S. government has spent the last three years developing techniques to include climate concerns into macroeconomic forecasting. However, reliable, consistent, and repeatable data is crucial in order to appropriately account for how the macroeconomy and policy decisions are impacted by climate change.
Data Gaps Cause Difficulties in Accurate Assessments
A significant and imminent challenge is creating a more robust and safe financial base that takes climate risk into account. The efforts of federal ministries to create proactive responses to this catastrophe require data-driven insights and a comprehensive understanding of climate risk. Nevertheless, getting such knowledge hasn’t always been easy.
Large volumes of data must be integrated, examined, and applied in a comprehensive manner to strengthen natural disaster response, evaluate the resilience of infrastructure, and improve macroeconomic models in order to help close current data gaps and minimize vulnerability.
Incorporating Property Data Into Future-Focused Models
Nobody is certain how the climate will change in the future. Because of this, it’s critical to take into account a variety of events over a long period of time rather than depending just on past connections. Access to reliable, detailed data that can estimate losses for a range of climate-related risks under different climate scenarios is the first step toward building resilience.
Dr. Botts gave White House policymakers a thorough overview of CoreLogic’s modeling capabilities in order to assist them in understanding the complexities of physical risk modeling that incorporate data best practices, such as updating dynamic downscaling to comply with the IPCC AR6 at the property level.
“We at CoreLogic build structure-level climate change risk models to support federal and private sector initiatives seeking to manage and remediate climate risk in the property ecosystem,” Dr. Botts said. “It was a real honor to be the only climate risk modeling company invited to the White House meeting focused on identifying systemic risks to the U.S. economy by incorporating climate risk impacts into macroeconomic forecasts.”
Nobody is certain how the climate will change in the future. Because of this, it’s critical to take into account a variety of events over a long period of time rather than depending just on past connections. Access to reliable, detailed data that can estimate losses for a range of climate-related risks under different climate scenarios is the first step toward building resilience.
Dr. Botts gave White House policymakers a thorough overview of CoreLogic’s modeling capabilities in order to assist them in understanding the complexities of physical risk modeling that incorporate data best practices, such as updating dynamic downscaling to comply with the IPCC AR6 at the property level.
Assessing the Impacts of Climate Change on Macroeconomics
Using models to create the insights that will shape this nation’s financial destiny involves making sure they are connected with extensive property data archives and constructed with an appreciation for the significance of accurate, consistent, complete, and reliable data. However, when creating trustworthy property-level loss models, up-to-date, detailed data is only one component of the picture.
Both the county’s interior and its beaches are susceptible to flooding. When it happens, the effects could be extensive. For instance, CoreLogic research has calculated that, in the event of a severe climate scenario, homeowners in Miami might lose $7.9 billion in property value owing to flood risk.
In addition to its ability to restrict property values, climate risk exerts pressure on governments and financial institutions when credit risk is minimized for both banks and borrowers as a result of the diminished value of the collateral used as security for a loan.
Because of this, the Federal Reserve Bank recently inquired about the readiness of six of the largest American banks to deal with the effects of physical climate risk. The study brought to light the difficulties that participants had when measuring the effects of climate change, especially the gaps that still remain in banks’ knowledge of insurance risk management and real estate exposure.
Improving Future Outcomes for Everyone
Climate risk is not just pervasive but also disproportionate. Researchers came to the conclusion that there is now an uneven distribution of climate risk along many dimensions at the property level across the entire continental United States based on a joint study conducted by CoreLogic and the Office of Financial Research of the U.S. Department of the Treasury.
Given the significant risk that climate change poses to both the US real estate market and the overall economy, it is imperative that the US government keep working together and promoting creative solutions to promote a more safe and sustainable future.
“The Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) included funding for climate adaption to strengthen the existing built environment across the U.S.,” Carroll said. “Optimal stewardship of these taxpayer funds requires the right modeling and data to identify risks and recommend tailored actions for geographies that have high concentrations of natural hazard risks, coupled with underinsured municipalities, homes, and businesses, now and into the future.”
To read the full report, including more data, charts, and methodology, click here.
