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HomeInsuranceA climate balance is necessary for the financing of real estate

A climate balance is necessary for the financing of real estate

Disclosure of natural hazards and threats from climate events is an urgent need for the housing market in Canada. This result comes from a study published by Insurance Agency of Canada (BAC) and Canada Mortgage and Housing Corporation (CMHC).

The document, which was published on October 25, advocates that a climate report be made for properties. It would take the form of a Property climate risk indexwhich is similar to the credit rating given to a debtor’s file.

The index will indicate a home’s risk of catastrophic loss, based on recognized factors, and will allow households, communities and municipalities to mitigate their risks.

The survey was made by the managers of the various links in the housing supply chain. The authors are the consultant Chris Chopik and Craig Stewartdeputy chairman of the BAC.

Title Paving the way for climate resilience: climate risk disclosure and action for housing in Canadathe study aims to create a framework that will serve to inform owners, financial institutions and insurance companies.

According to Mr. Stewart Canada needs to create this climate risk disclosure system by 2025, and the study suggests the way to get there. “We simply cannot wait until 2050 to achieve climate compatibility in the housing sector,” he said in the statement issued on 25 October.

In Mr. Stewart’s opinion, these measures are necessary because there are indications that the frequency of catastrophic losses will increase, which will increase their severity and cost.

In addition to the index, the study proposes the creation of an operational matrix. The goal is to help market participants gain a universal view of the risks associated with a location and choose mitigation methods.

Lenders, insurers and levels of government have a responsibility to help owners understand their building’s risk assessment, it adds.


In addition to the creation of the index and the operational matrix, the study recommends the establishment of several short-term measures:

  • updating flood zone maps;
  • create a single source of data publication that is transparent, reliable and accessible;
  • creation of a publicly accessible database containing information on risks and mitigation measures for each property;
  • local and regional authorities must be at the forefront of risk information.

Craig Stewart adds that having timely access to this reliable climate data will “help property owners, developers, the financial industry and governments invest in property resilience and prioritize community adaptation projects.”

Complex equation

The study replicates an equation taken from another 2019 study by Mr. Chopik with the title Property Value in an Era of Climate Change. To determine the climate risk index for real estate, the following elements are combined: the probability of the risk, its severity and the frequency of the risks, as well as the aggravating factors.

We use this result, from which we divide the following combination: the resilience at the scale of the place, the community and the municipality, as well as the importance of the intervention at the regional scale.

Among the guiding principles expressed during the index and matrix design workshop, the authors recall that natural infrastructure should be included in investments that promote resilience.

They add that disclosure must be universal to eliminate moral hazard and predatory behavior. This is achieved through the use of a common language by all actors in the supply chain.


The study also notes the existence of certain barriers to disclosure, including privacy laws, restrictions on the part of banking institutions, etc.

“Will lenders and estate agents indicate climate risks in connection with the registration, sale and obtaining of mortgage loans? ask the authors.

They also recommend evaluating any incentives or regulations that have not been widely tested and their impact on other neighborhoods. For example, we want to avoid contributing to the decline in value of properties and stigmatizing them.



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