PIC at REiiF: Building climate resilience before the storm

Climate resilience of infrastructure and housing gives confidence to residents and asset owners alike – ensuring the asset is fit for purpose in an uncertain future. Investing in this today may reduce future operating costs by reducing future maintenance. Also, lower energy bills are an attractive proposition for tenants. Resilient buildings also have lower insurance premiums.

PIC has developed a Flood Risk Framework which we use to assess the risks associated with flooding to the assets already in our portfolio or being considered for new investment. The framework allows PIC, at due diligence stage, to identify the acceptable flood risk levels for different asset types, outline steps to consider and specify if further modelling and development mitigations are required. We identify if local flood defences are being maintained and the likelihood this will continue.

If the risk is too high, we don’t invest. PIC considers granular risk factors at the early stages of due diligence.

In one case we rejected an otherwise attractive investment opportunity because nearby flood defences needed significant investment, and we could not be confident this investment would be made by the third parties responsible. So, the investment was judged too risky for PIC. The Environment Agency does not currently consider the presence of local flood defences in its assessment of flood risk because the funding and maintenance of such defences is not certain, we will be saying more about this in our upcoming report which will be released at UK REiiF.  

The global insurance market assesses the cover they provide with a climate resilience lens. Real asset investors ask whether insurance will be available for the lifetime of the asset? Will that insurance be cost effective?

Another potential investment we recently rejected was a multi-family apartment rental scheme within a zone 1 category flood risk area which had planning approval. After a site visit and review of local maps we found that zones 2 and 3 were only 25-75 metres away. With historic flooding in parts of these areas, this was close enough to impact the development over the decades-long investment hold period.

PIC commissioned site-specific climate change modelling and secured advice from a climate change specialist. They advised that the insurance cover on the asset would be compromised after 20-25 years. Access routes could be at risk, leading to fewer providers willing to offer property insurance coverage. This would lead to increased premiums and impact the overall value of the asset.

PIC believes that in cases such as the above the way flooding is currently being managed disincentivises investors such as PIC to invest. This is damaging because with the right mitigation such developments could be delivered in a way that helps reduce flooding risk in the wider area. Rather than allow private investment to go elsewhere government should boost public support available for flood defence, stimulating economic growth.

The alternative is to allow a growing proportion of the country to become un-investable. Many of these sites are in highly productive areas where every pound of investment has outsized returns to the economy. Also, given the increasing risks posed by a changing climate, action now is the most prudent time to ensure we are not building substantial remediation costs into new developments. Long-term investors such as PIC are ready to work with government and wider partners to help unlock the investment needed to ensure more of the country becomes climate resilient.