"The first step for many financial firms, lenders in particular, will be to identify which risks could impact property in their portfolio as we experience greater weather extremes in the future."
Storm Christoph, one of the wettest storms on record, has served as a stark reminder of the devastating impact flooding can have on people’s lives, land and infrastructure.
To make matters worse, major weather events like Storm Christoph are only set to increase in frequency as our climate changes. According to the Environment Agency, of the 17 'record-breaking' UK floods since 1910, well more than half have occurred after the year 2000. Moreover, the Climate Change Committee, the UK’s independent adviser on tackling climate change, predicts that if current global emission outputs remain constant, we could see a 10% increase in heavy rainfall events by 2050.
The combined cost of damage as a result of Storms Desmond, Ciara, Dennis, Jorge and Christoph – all of which have occurred since 2015 – comes to over £2.2 billion. Storm Christoph, while certainly destructive to property and detrimental to the 400 owners of the homes that flooded, had a relatively small impact when compared to the 16,000 homes flooded as a result of Storms Desmond and Eva in 2016, and the 4,000 to 5,000 homes flooded due to Storms Ciara, Dennis and Jorge in 2020.
With future weather extremes likely to break new records, we are beginning to see a trend of more intense, more damaging winter storms, and Storm Christoph serves as the most recent reminder of this reality.
These climate-induced events present significant challenges for financial services firms invested in the property, infrastructure and land at risk to extreme weather, including insurers paying out sums to repair properties or mortgage lenders that have lent funds to homeowners and landlords.
A glimpse into the future
So, how can financial services firms best prepare against these events and understand the impact associated with the physical risks of our changing climate?
The first step for many financial firms, lenders in particular, will be to identify which risks could impact property in their portfolio as we experience greater weather extremes in the future.
Mortgage lenders, insurers and other financial services firms are already familiar with the damage caused by flooding, but heavy rainfall also acts as the trigger for other physical hazards in the landscape, namely ground instability. Sinkholes can form as subsurface erosion and dissolution intensifies, while saturation of the ground can lead to landslides that have the potential to cause significant damage to property and infrastructure.
The intense rainfall in such a short period brought by Storm Christoph caused a series of damaging events – three separate landslips in Slaithwaite in Yorkshire, Ventnor on the Isle of Wight, and Sneinton in Nottinghamshire. This was in addition to a sinkhole in Manchester that swallowed several homes, and a mineshaft ‘blow-out’ in Skewen, Wales that caused significant flooding in the area.
With storms like Christoph set to increase in frequency and severity over the long-term, other challenges will also be posed to Britain’s financial ecosystem. High outputs of wind and wave energy during storms can accelerate coastal cliff collapse and increase the number of large erosion events, further threatening valuable land and property in coastal areas included in the portfolios of lenders and insurers.
Seeking expertise
To better prepare for the short and long-term impact of climate-related physical risks like ground instability, firms must also source hazard-specific climate data and implement this successfully into their financial decision-making processes.
New services and models can play a vital role, helping businesses to gain a perspective on the hazards posed by climate change to their assets including property, land and infrastructure.
The announcement by the UK government last month that it intends to fund a new £10m green finance research centre in partnership with the University of Oxford is certainly a step in the right direction. The initiative, which aims to produce publicly available data for financial institutions to be able to better map their climate risk, is recognition of the value that data can bring to firms looking to manage the impact of a changing climate against their portfolios.
The availability of specific climate data has historically been limited for financial services firms, and what’s needed is more granular datasets that are specific to property, land and infrastructure - data which can be tailored to individual firms’ balance sheets and risks and produce more effective insights.
Models including Terrafirma’s National Ground Risk Model (NGRM): Climate are helping in this area, and are focused on helping financial institutions to identify current and future ground hazards like subsidence, coastal erosion and landslides, so they can quantify how these changing risks could impact their and their customers’ investments.
From an increase in slope stability issues to accelerating coastal erosion, the effects of a changing climate on ground conditions in certain areas will be wide-ranging and financial services firms will have assets exposed to physical hazards in the landscape. Most of all, events like Storm Christoph show us that like flood, ground instability hazards events are inextricably linked to the weather and our changing climate. With the impact of this year’s first major storm event still fresh in our minds, I would encourage financial firms to seek the expertise of geologists, scientists and engineers and implement the knowledge and tools that will enable them to make smarter decisions on their investments today and as our climate shifts towards greater weather extremes.
