EBA Journal – Winter 2022 Edition
An ASTM Standard for Climate Resilience – Progress Report Holly Neber, Task Group Chair, CEO of AEI Consultants Those of us in the property due diligence fields have seen firsthand how regulatory requirements and risk management needs have influenced standard property assessment and disclosure processes over the last few decades. In most US-based commercial real estate transactions, it is considered standard to conduct a Phase I Environmental Site Assessment. Other examples of standard physical risk assessments that are already included in the typical commercial real estate transaction are the Property Condition Assessment, or PCA, which is related to capital expenditures needed to maintain the condition of the building over the life of the loan or hold period and seismic risk assessments, often performed for buildings in high-risk seismic zones. These assessments are all described by an ASTM Standard, and the existence of an ASTM Standard benefits the user and provider community by providing a common language regarding the scope of these assessments, the minimum acceptable qualifications, transferability, and other benefits. We are now seeing greater pressure to evaluate and disclose climate risk at the property level and to align that with the existing due diligence processes. Real estate investment trusts (REITs) and other equity investors are already obtaining these types of assessments and embedding these considerations into their risk management processes. REITS are evaluating this information in relation to insurance costs, tenant desirability, business continuity, and property values, as well as a potential risk to exit strategies as knowledge of climate risk becomes more widespread. Lenders have begun reviewing their portfolio for climate risk or have already added a climate risk component to their ESA or PCA scope. In addition, many lenders have signed on to voluntary climate frameworks, many of which recommend evaluating the physical risk posed by climate change within their portfolios. Signaling from the Federal Reserve and other agencies suggests that some sort of disclosure may be required in the future. However, we are lacking an ASTM standard on these types of assessments. Collectively, the lending, investment, and consulting community have identified a need for a property resilience-focused standard within ASTM. Our vision is that the ASTM guide will be an umbrella to reference other climate guides outside of ASTM, as well as any resilience and climate-related guides within ASTM. We believe our efforts will identify gaps in current ASTM assessment standards related to specific hazards. We feel delivering a standard to the marketplace is urgent as we know these assessments are already occurring and pressure is growing to create a standardized approach. Our Task Group is not attempting to cover all Environmental, Social and Governance (ESG) reporting or assessment of physical climate risk across a business, community, region, or a supply chain. This is solely focused on physical climate risk to the building itself. (continued)
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