Climate Change & Flood Risk: Implications for Real Estate Markets

Dr. Blair Felbamate:

There will be no new normal. There will be evolving risk. We're not going backwards on climate change. Climate change has happened, is happening, and will continue to happen. And the severity of events will be increasingly challenging, going forward.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On the show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.

Speaker 3:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.

George Sutherland,:

Hi, I'm George Sutherland, climate change and sustainability advisor in BMO's Climate Institute. I'll be hosting a series of episodes, doing a deep dive into the different physical risks of climate change, covering topics such as flooding, permafrost thaw, wildfire, drought, extreme heat, and more, and speaking with leading experts to unpack what each of these climate risks mean to our environmental, social, and economic systems.

George Sutherland,:

The first topic to discuss in this series is flooding. The Sixth Assessment Report by the United Nations Intergovernmental Panel on Climate Change, released earlier this summer, concluded with unprecedented accuracy that our climate is changing faster than previously thought, and that human emissions of greenhouse gases are driving this change. Global temperatures have increased by 1.1 degrees celsius since the pre-industrial era, with regional warming being experienced up to three-times this rate.

George Sutherland,:

This warming has caused pronounced shifts in the frequency and severity of weather, such as intense storms and rainfall. And when paired with rising sea levels, this translates to more frequent and severe flooding, which is not only an environmental issue, but a pressing economic and humanitarian issue as well.

George Sutherland,:

This was further punctuated by another report released by the World Meteorological Organization, which concluded that disasters attributed to weather, climate, and water-related hazards are estimated to have tragically accounted for more than two million deaths and economic losses of more than 3.6 trillion U.S. dollars since 1970. Of which, flooding is estimated to have cost 115 billion U.S. dollars globally. And what's more, the rate of these economic losses is accelerating, with the cost of these natural disasters having increased sevenfold over the past 50 years.

George Sutherland,:

It's clear that the physical impacts of climate change are not just an environmental concern, but also pose material impacts to our financial and social systems. And flooding is chief among these impacts, given global trends in population growth, urbanization, and settlement in areas which are increasingly exposed to flooding in a warmer climate.

George Sutherland,:

To unpack the topic of flooding in greater detail, I'm joined by Dr. Blair Felbamate, professor and Head of the Intact Centre on Climate Adaptation at the University of Waterloo, and one of Canada's leading experts in flood adaptation. Among long list of accomplishments, he's also a member of the Global Risk Institute's Sustainable Finance Advisory Council, chair of the Adaptation Committee to the Canadian Institute for Climate Choices, and was chair of the government of Canada's Expert Panel on Climate Adaptation and Resilience Results.

George Sutherland,:

Thank you, Blair, for joining me to discuss this topic.

Dr. Blair Felbamate:

Well, thank you very much for having me.

George Sutherland,:

To start with, can you unpack the science of how a changing climate is impacting flooding?

Dr. Blair Felbamate:

Over the period of the last 100 to 120 years or so, driven through the burning of fossil fuels, temperature on the planet is up about 1.1 to 1.2 degrees celsius. So warmer today than occurred pre-industrial time. So what does that mean relative to flooding or precipitation events? Two points in particular.

Dr. Blair Felbamate:

One, that warmer air, the energy that's in that warmer air when storms occur, major precipitation events occur, they happen with a greater degree of veracity, if you will. There's more energy in the storms. That heat didn't disappear. It's still there. So it comes out of the system when storm events occur. Number one.

Dr. Blair Felbamate:

And number two, for every one degree celsius increase in temperature the air holds about 7% more moisture.

George Sutherland,:

Thanks, Blair. And in terms of how that translates to flooding, what are the different types of flooding? And how do they result in different impacts to our systems?

Dr. Blair Felbamate:

Yeah. Flooding, more or less, falls into three categories. One is riverine flooding, in other words, large volumes of water come down and they fill the river systems to the point that it creates overflow, the water spills over to the banks and often into perhaps at the local level or down to the individual house level.

Dr. Blair Felbamate:

Then we can also have intense storm events whereby water may enter into a city region, this is called urban flooding, and it can overwhelm, amongst other things, sewer systems. The water can actually channel into the sewer systems. And when you have systems, particularly in older cities, with combined storm and sanitary sewer systems, that water can surge through those systems and ultimately up into people's basements through the little drain in the basement that's normally there to take water away.

Dr. Blair Felbamate:

And then the third component is coastal flooding. So through a combination of storm surge, king tides, which are the highest tides of the season, and sea level rise, those three in combination create flooding along coastal zones, and particularly on Canada's Atlantic and Pacific coast. And coastal flooding is particularly problematic. And will be more so, going forward, in Nova Scotia, PEI, Newfoundland Labrador, New Brunswick regions.

Dr. Blair Felbamate:

It's not just the amount of water that comes down. It's the intensity with which it comes down over.

Dr. Blair Felbamate:

So when people who are a little bit older, they may have the perception that the storms that are occurring today, they seem more intense than when I was a child, assuming this person is 60 or 70 years old. That general perception they have is born out, in reality, in the data. These storms actually are more intense.

George Sutherland,:

Thanks, Blair. I think that's an important point as well regarding the storm intensity and ties well back into the first question that we discussed, where warmer atmospheres hold more energy. And as a result, more water is delivered in these intense rainfall events. That reminds me of another study from the World Meteorological Organization released earlier this summer, which concluded that extreme rainfall events such as the storms which caused July as devastating flooding in Western Europe were found to be up to nine-times more likely to occur in this warmer climate that we're experiencing.

Dr. Blair Felbamate:

Yeah, for sure. Water is the culprit that you see in terms of expression of extreme weather due to climate change. Water is the culprit that shows up in most places in the world.

Dr. Blair Felbamate:

Not too long ago, maybe a year ago or something like that, I was speaking to the G20 in Argentina. And we had a large group of people from all over the world talking about climate change extreme weather events. And certainly, disproportionately, the conversation's drifted to flood risk mitigation as being problematic for so many countries around the world.

George Sutherland,:

And as we mentioned, recent assessment reports by globally authoritative scientific organizations have highlighted how these impacts of flooding on humans is becoming more common and more costly. Can you speak to what is driving this trend?

Dr. Blair Felbamate:

Yeah. I'm going to focus on Canada right now, but quite frankly, the trends we see in Canada are happening all around the world or many places in the world. So what is the manifestation of the costs of flooding look like in Canada? And probably the best way to document these costs is by referring to the catastrophic loss insurable claims data.

Dr. Blair Felbamate:

And in insurance terms, a catastrophic event is any event like a flood, fire, hail storm, windstorm, whatever it might be. If it triggers more than $25 million in claims, that's a catastrophic event. And then we have groups like, one called cat IQ, works[inaudible 00:10:13] with the insurance bureau of Canada. They add up all these numbers that were paid out in insurance claims on an annual basis and plot them out on a histogram.

Dr. Blair Felbamate:

And what we find is that in Canada, from 1983 up to 2008, the insurance industry could count on paying out between about 250 to $450 million per year in catastrophic insurable claims. A little bit of variance in the system, but on average, that's where they were. But things started to change on or of 2009 forward. The catastrophic loss in Sherbrooke claims went over a billion dollars per year, every year, for 11 out of the last 12 years, for an average cost of $1.8 billion.

Dr. Blair Felbamate:

And by the way, the numbers I've just given you for 2008 earlier versus 2009 forward, all these numbers have been corrected for inflation and for per capita wealth accumulation.

Dr. Blair Felbamate:

And for the 2009 number onward, where we see an average cost of flooding per year of about now about $1.8 billion, more than 50% of that increase, closer to 60%, is due to too much water in the wrong place, flooding. And in particular, residential basement flooding. Residential basement flooding, homes basements flooding, that's the number one cost in Canada by far due to climate change and expression of extreme risk.

Dr. Blair Felbamate:

And it's at the point where now, for example, over the last five or six years in Canada, home insurance premiums have increased by about 5% to 15%. 60% of that increase due to water basement flooding. The cap rates, the amount of coverage that the insurers are willing to, in many cases, are willing to offer depending on location for flood damage in a basement, the limit up to which they will cover is much more entering into the zone of 10 to $20,000 maximum, than higher number as would have occurred previously.

Dr. Blair Felbamate:

That is problematic because the average cost of a weather-induced flooded basement in Canada is $43,000.

Dr. Blair Felbamate:

So if you had a home that had the average cost of basement flood, let's say $43,000, and you had 10 or $20,000 of insurance cap coverage for that water damage, that would very rapidly lead that individual to be on the hook for paying out, let's say 30, 40, $50,000 in the drop of a hat of money they'd have to add to the pile to remedy their basement. Which by the way is non-negotiable, because if you have a flooded basement on a Monday morning, you have to solve the problem by Wednesday of that week, or the house is uninhabitable. Because very often we're talking about sewer water in a basement. This is really nasty stuff.

Dr. Blair Felbamate:

In many locations, the risk of flooding is now so high that it's difficult, if not impossible in cases, to get insurance coverage for your house.

Dr. Blair Felbamate:

And then just going more broadly, the numbers I just gave you were for the catastrophic loss insurable claims, but it's not like the risk is only applicable to the insurance industry. I referenced that because that's the industry sector for which we have data. But think of the escalating, the upward bend in the curve of catastrophic loss insurable claims as being a metaphor for risk that's in the system for Canada due to climate change and extreme weather risk.

Dr. Blair Felbamate:

Every one of the industry sectors out there today is being hit hard by climate change and extreme weather risk, and flooding very often when it occurs that amongst other points disrupts supply chains. So this is real stuff that's increasingly challenging. And the challenge is on an upward bend in the curve.

George Sutherland,:

And that trend of loss in the system, it sounds like extends beyond Canada's borders and is of material relevance to many countries around the world.

Dr. Blair Felbamate:

Absolutely. If you look at data from Swiss Re or Munich Re for example, the two largest global re-insurance and you'll look at the monies paid out by them as over, pretty much the 1980s onward, you see a sharp upward bend in the curve of real money being paid out, not an artifact of inflation.

George Sutherland,:

And so it sounds like when we're talking about the cost of flooding and looking at insurance totals, that this is kind of just the tip of the iceberg in terms of the overall volume of the cost that's experienced as a result of flooding damage.

Dr. Blair Felbamate:

That is correct. Very often, in the media, for example, you'll hear the expression, the new normal in the weather. This is not correct. There will be no new normal. There will be evolving risk. We're not going backwards on climate change. Climate change has happened, is happening, and will continue to happen. And the severity of events will be increasingly challenging going forward.

Dr. Blair Felbamate:

And by the way, this isn't my cavalier opinion, as you mentioned at the outset. The IPCC, the Inter-governmental Panel on Climate Change, and in Canada, for example, in 2019, we had Canada's Changing Climate Report, 2019, authored by about 10 climate scientists from Environment Canada. In both of those reports, they make the point that a climate change is now effectively irreversible. We can work to slow down the rate of change, which we should do, and I'm a big fan of, by mitigating greenhouse gas emissions, but overall, we're not going backwards on climate change.

Dr. Blair Felbamate:

And the severity of weather will get more severe going forward, the bigger storms are yet to come. And there's absolutely no reason why, in Canada, we will not see events such as we recently witnessed in Germany, France, Belgium, China, east coast of the United States, extreme, extreme flood events. Absolutely, those could come to Canada. They will come to Canada. It's just a matter of when.

George Sutherland,:

So we've clearly discussed that increasing precipitation is one of the primary causal factors of flood risk. Are there any other elements that factor into that equation?g

Dr. Blair Felbamate:

Yeah. So an excellent question. So in addition to more water coming down over shorter periods of time, that's not the only thing that's contributing to flood risk in this country, in Canada. For example, over the period of the last 100 years or so, across the southern region of the provinces right across the country, we've lost more or less about 60% to 80% of natural infrastructure that was originally here forests, fields, wetlands, a place that when big storms occur, the water can sit on the landscape and solely discharged downstream or into the groundwater system.

Dr. Blair Felbamate:

That's either been paved over or turned into some form of agricultural development, which, on average, when water hits pavement or agricultural development, it does not stay on the landscape very long. It flows off quickly to the lowest point around and ultimately that might be someone's basement.

Dr. Blair Felbamate:

In Ontario, in Southern Ontario, for example, I happen to have the number right at my fingertips, we've lost about 73% of the natural infrastructure that was here originally in Southern Ontario is now gone.

Dr. Blair Felbamate:

Also, we have aging municipal infrastructure, we have aging housing infrastructure. And with just more and more people depending on places to live, very often we're stretching the limits and building in areas that are prone to flood risks or we're building on floodplains that we should not be doing. So it's a combination of a plethora of factors that really contributes, ultimately, to the escalating flood risks we see in the country.

George Sutherland,:

And beyond the financial costs associated with all of this flooding risk, what other elements of our socio-economic systems are negatively impacted by flooding?

Dr. Blair Felbamate:

Yeah. So flood risks, we tend to think of flood risk as a problem for the property and casualty insurance sector and the financial costs associated with flooding as we've been discussing. But also, the psycho-social or the mental stress costs associated with flooding are very meaningful.

Dr. Blair Felbamate:

For example, our group, the Intact Centre, a couple of years ago, we went to Burlington, Ontario, in 2017. And we followed up to see if the residents in Burlington, three years after experiencing a major flood, how stressful do they find it every time there's a major precipitation event?

Dr. Blair Felbamate:

The 2014 flood in Burlington, that was about 3,300 homes flooded out. They had experienced about 190 millimeters of rain over a six or eight-hour period. So our real deluge that resulted in this flood phenomena. Which, by the way, ended up flooding also the mayor's house who had lived there for 30 years and never seen a drop of water in his basement and all of a sudden he had five and a half feet of water in the basement.

Dr. Blair Felbamate:

So this was a major stressful event. So we went back to Burlington three years after that flood had occurred and we pulled people in the community, literally going door to door with a survey with a bunch of questions that more or less amounted to how much stress do you feel every time there's a major precipitation event? And we went onto the streets where flooding was prominent and where people experienced basement flooding, and then other streets nearby where they weren't flooded. So an experimental group and a control group, if you will.

Dr. Blair Felbamate:

And what we found is that for people who had been flooded, on a scale of zero to five, five being the worst for stress, 48% of people polled, rank themselves as a 4.5 to five out of five every time there's a major precipitation of our major storm occurs. And what was notable here was that this wasn't three weeks later, or three months later, this was three years later. This is now how these people live. They live under stressful conditions permanently every time there's a major precipitation event, which quite frankly is a horrible way to live.

Dr. Blair Felbamate:

The survey people, the people conducting the survey, were being invited almost into every home that they went to that had experienced flooding and down into the basement. So people wanted to show them where the water went. And then they showed them on their computer pictures of what the flood damage looked like.

Dr. Blair Felbamate:

So the stress is astronomically high, that people live with to the point that the next step in the equation now is to monitor to see whether or not, in the aftermath of events such as a flood or fires that occur in other parts of the country, do we see elevations in the medications to deal with mental health stress, which puts the onus on the life and health insurers. And also we found in Burlington, for the average home that had experienced basement flooding, the average individual lost 7.1 days from work, which is a claim to put the hose back into working order. And that's a claim, again, for the life and health insurance.

Dr. Blair Felbamate:

And by the way, before we did this study, the major life and health insurers thought that, well, climate change, extreme weather risks, flooding, residential flooding, that has nothing to do with us. Well, now they found out it has a lot to do with them through mental health stress, potential escalations in medications to deal with mental health stress, counseling services and lost time from work claims.

George Sutherland,:

Well, that absolutely underscores an appreciable mental health aspect to the flooding risk conversation, which is an important part of the equation that needs to be considered. Financial markets pull forward future risk. And so as clarity grows around these socio-economic impacts of flooding that we've been discussing, how might that impact things such as home prices or insurance availability or the cost of capital?

Dr. Blair Felbamate:

Well, the manifestation of flood risk relative to the financial services sector is material. We've said a little bit already about property and casualty insurance having to raise, on average it's home insurance premiums by five to 15% to accommodate elevated basement flood risk. Also, the property and casualty insurers increasingly or so were finding that there may be parts of the country, literally in bits and pieces from towns and cities, from Halifax to Victoria, that homes may not be insurable and they have to walk away from, which is not a situation the property and casualty insurers want to be in the business walking away. That's a little bit like saying that McDonald's is not going to sell hamburgers. Their business is to provide insurance coverage.

Dr. Blair Felbamate:

In terms of the residential real estate market, we are about to release a report very shortly, where we've done a detailed examination of the impact of catastrophic flooding in communities on, amongst other points, home price. And what we have found is that if you look at a period of the average price of homes six months before a flood versus, six months after a flood, what is the change in the price of homes that sold for? And we've compared that to nearby communities that weren't flooded, as a control group, and looked at the difference in the price.

Dr. Blair Felbamate:

And it's literally the differential between those two that gives you the attribution of the impact of flooding on house price.

Dr. Blair Felbamate:

And what we found is that when we isolate, as I've just described, for the effects of flooding, the hit on housing prices, minus 7.5%, a 7.5% reduction in house price for at least up to six months after a flood. We didn't go beyond that period of time, but that would be the next step in the equation. We were first advised by real estate agents to say, look, and if there is an impact here, it should probably show up within a six_month period. And indeed, when we did the examination, that's what we found.

Dr. Blair Felbamate:

We also found that, post-flooding in blended communities, that there's a 38% reduction in the number of listings, number of homes listed on the market. In other words, people would like to list, but they don't. That's probably attributable to the fact that they're putting their house back into working order amongst other points after a flood before listing it for sale, or they're waiting for the memory of the flood, perhaps to do drop away in people's minds. And we also found that homes in flooded communities sit on the market for 20% longer.

Dr. Blair Felbamate:

So there is a material head to the residential housing market as a result of flooding.

George Sutherland,:

Thanks, Blair. So we've talked a little bit so far about how the Intergovernmental Panel on Climate Changes recent report found that due to historic and current greenhouse gas emissions, a certain amount of climate change is locked in. That is to say it's irreversible on the timescale of centuries to come. And this really highlights the need for adaptation measures to be taken to minimize exposure to flooding risk. And what does flood adaptation look like? And really how prepared are we to manage this risk?

Dr. Blair Felbamate:

Well, in Canada, I'm going to say we is Canada, we've got a bit of a good news, bad news story here. The good news is that for Canada, we have a very good idea of where various aspects of climate change, extreme weather risk, where and to what degree they will manifest themselves going forward. And this is, in fairly detailed work, developed by and presented by Environment Climate Change Canada in its 2019 report, Canada's Changing Climate Report.

Dr. Blair Felbamate:

For flooding, the general rule is that in Central to Eastern Canada, we will see an increase in precipitation events on the order of about 20%. So higher potential for flooding.

Dr. Blair Felbamate:

So the good news is we certainly have enough detail in the country as to what the manifestation of climate change, extreme weather risks will look like going forward, that we can prepare for it. That's number one.

Dr. Blair Felbamate:

Number two, the additional good news is that in Canada, we have not been just sitting on our hands for the last five or six or more years in reference to preparing for climate change extreme weather risk in knowing what to do.

Dr. Blair Felbamate:

We have developed very good guidance in Canada as to what we need to do through guidelines and standards to mitigate flood risk at a variety of levels. We know exactly what to do at the level of the house, around the outside of the property, and in the basement itself, the individual house. We have a very good idea of what to do to very much lower the probability that when a big storm occurs, that house will end up with a flooded basement.

Dr. Blair Felbamate:

For new residential community design, we have very good guidance on how to build new residential communities going forward, such that when the big storms hit, they don't all flood out, which by the way it starts with, don't build on a flood plain. We have good guidance on what to do for existing communities to identify areas within communities that have a higher probability of realizing flooding. And then in those areas, we can direct water to safe locations to keep people and infrastructure out of harm's way.

Dr. Blair Felbamate:

For commercial real estate, we know what to do to lower the probability of, A, underground parking lots for commercial real estate will fill up with water. And/or if flooding occurs in the underground areas of basements of commercial real estate buildings, and condo towers, et cetera, what measures can we take to mitigate the damage that would occur?

Dr. Blair Felbamate:

And then shortly, for Canada, and shortly means in the fall of 2021, we will release a new standard for Canada for coastline resiliency. To make it such that when we have a combination of storm surge, king tides, and sea level rise, all occurring together, by the way, at times, what do we do to minimize the risk associated with those events?

Dr. Blair Felbamate:

The only area for which we don't have a good guideline right now, that will be developed in, if I had to guess, I would say within two years, is a shoreline resiliency standard for the Great Lakes. And then additionally, we're doing quite a bit work in the country right now. And there's a lot of we's involved in this, federal, provincial, municipal governments, and NGOs, and academics and so forth, working together to look at retaining and restoring natural infrastructure across the country to help mitigate flood risk.

Dr. Blair Felbamate:

And by the way, we're also looking, within the context of natural infrastructure, at the concomitant benefits.

Dr. Blair Felbamate:

The not so good news is that we're not deploying solutions nearly fast enough to keep up with the rate at which the stress is evolving. So stress is going up on a very steep curve, relative to flood risk, our inclination to keep up using the tools we know that works are on a much lesser slope line. And the dispersion between these two lines is increasing over time. So we've got to bring those together. We've we have to deploy measures for adaptation rapidly.

Dr. Blair Felbamate:

Adapting to climate change and extreme weather arrests, that's sort of been the distant cousin that nobody talks about.

Dr. Blair Felbamate:

However, in the last 18 months to two years, with floods, fires, extreme heat manifesting itself all over the world in a very major, profound way, including in Canada, we are now realizing that, yes, we have to embrace adaptation in equal measure with mitigating greenhouse gas emissions as our co-directives to address climate change. And indeed I would argue there's even a third part to that equation, which is carbon capture and sequestration. How do we actually get carbon out of the atmosphere? This is a very much a necessary step.

Dr. Blair Felbamate:

So I think we need to think about climate change as a three-legged stool. And if we fail on any one of the legs, we fail totally. It's mitigating greenhouse gas emissions, adapting to climate change and extreme weather risk, and focusing on carbon capture and sequestration.

George Sutherland,:

Thanks, Blair. And so just to unpack that a little bit more, what are some of the challenges faced in mitigating exposure to flood risk? And is there one core limitation that's inhibiting our capacity to move forward?

Dr. Blair Felbamate:

The biggest limitation that we're realizing is self-imposed or self-induced, and it is lack of a sense of appreciation for the need to act with urgency to mitigate flood risk in the country.

Dr. Blair Felbamate:

It's almost antithetical to common sense when you've grown up in a world where there has been relatively stable climate, but people have to realize that, no, we have actually changed the chemistry of the atmosphere. And as a result of changing the chemistry of the atmosphere, the manifestation of weather has also changed. And it's changed in a direction that that is for the worse, that is more challenging, for which the infrastructure we have, built the way it is, in the locations it is, is not adapted to the new weather regime that we're realizing. And therefore we have to move with great urgency to build adaptation into the new system to address the extreme weather, that's not just on the ground today, but that which we should anticipate for the future. So in other words, even if you are building a building today somewhere, and you said, I want to look at the floodplain maps.

Dr. Blair Felbamate:

So that's a good thing to do. However, with climate change, not only do you have to think about the weather today and its potential to affect flooding in the location where you want to build that building, you have to forward-project to 25, to 52, to perhaps 75 years down the road. Because when we build infrastructure today, large infrastructure, let's say a building, it has effectively zero capital stock turnover in human terms. It's not like your cell phone that's gone in two years and you replace it with something else. When you build this stuff, you've got to make sure that you built with the future in mind.

Dr. Blair Felbamate:

And that's the new reality of thinking that we have to embrace to address climate change and extreme weather risks to mitigate those two risks that otherwise we build at our apparel.

George Sutherland,:

That's important point to highlight as the shifting predictability in weather patterns certainly has material impacts to our supply chains, ways of doing business, healthcare systems and so on, as these have all been designed to function optimally within a predictable range of weather patterns. And we're seeing fundamental shifts in those patterns, which are unprecedented in our lifetime.

Dr. Blair Felbamate:

Absolutely. And by the way, even when you were dealing with sectors of the economy that deal with the weather on a regular basis and have so for a hundred years, very often, you'll see people within those sectors make statements along the lines of, we know what extreme weather looks like and we're prepared for it.

Dr. Blair Felbamate:

And very often, the people's experience in dealing with extreme weather can work against them because they tend to think that we know what it looks like and we can deal it until all of a sudden they hit something that's unprecedented in terms of impact. And then that occurs because we literally have changed the chemistry of the atmosphere.

George Sutherland,:

And given these challenges that you've been discussing, if you have to make one recommendation to the financial sector on the topic of managing flood risk, what would it be?

Dr. Blair Felbamate:

Well, I would break it down a little bit. For example, if we were talking to institutional investors, for example, one thing every, in my opinion at least, every institutional investor should be able to do... Right now with TCFD, they have a sort of a heightened awareness around transition risk in the companies they invest, in the issuers they invest, and what are they doing to deal with their carbon footprint, and are they going to have to get off carbon.

Dr. Blair Felbamate:

So on an industry-specific basis, the institutional investors should be identifying, per industry sector, what are the climate change perils that are the most problematic that can have a negative impact on the company I'm investing in? And then under each one of those perils, whether it's flood, or fire, or wind, whatever it might be, are there one or two factors that stand out as being the most problematic that this is something that could really go wrong here that could really affect my investment?

Dr. Blair Felbamate:

And when they're meeting with issuers, they should ask the issuers about what are you doing to address this point. And to not do so means you're investing blindly.

Dr. Blair Felbamate:

Let's say in other areas. For the mortgage market.

Dr. Blair Felbamate:

One of the things that mortgage providers or lenders could bring to the equation is that when they're holding a mortgage for someone, at the time of close, and by the way, on a repeated basis, on an annual basis, they should give the homeowner guidance on fundamental measures that can be engaged around the outside of the property, in the basement itself, to lower the probability that that home will end up with a flooded basement.

Dr. Blair Felbamate:

So those are just two examples of where this stuff can enter into the capital markets, climate change extreme weather risk.

George Sutherland,:

Thanks, Blair. You've offered a lot of recommendations in our discussion so far. Are there any other practical next-steps to minimize exposure to flood risk?

Dr. Blair Felbamate:

Well, it's really... We have to look at climate change and extreme weather risk as a whole of society endeavor or problem to solve. It's not just a problem for government, federal, provincial, municipal. We've also got to think about how business should be part of the equation of the solution, how academe should be part of the equation of the solution.

Dr. Blair Felbamate:

The one area where I think we could also glean greater expertise that has been realized to date are industry associations. I think every single major industry association should be stepping up on behalf of their membership to help them to identify how particular climate perils may be problematic to their industry sector. And then within the context of those perils, what specifically are the challenges? And what solutions could be in place to address those challenges?

George Sutherland,:

Well, it certainly sounds like there's a role for everyone to play from all levels of government, to business, and down to individuals.

Dr. Blair Felbamate:

And additionally, I would like to draw attention to the fact that recently, and by recently the federal government of Canada announced the launch of the Climate Adaptation Home Reading Program. And this is a program that will compliment what is currently out there as the InnerGuide program whereby, through support from the federal government, an evaluation can be made of individual homes as to their energy efficiency. Or areas that could benefit from improvement in terms of energy efficiency.

Dr. Blair Felbamate:

Now, with this recent announcement by the federal government, we will be combining home flood risk evaluation to the InnerGuide evaluation that a homeowner may receive, all in one-stop shopping. And I believe this is a major step forward for the country.

George Sutherland,:

Thank you, Blair, for joining me to share your expertise on the drivers and challenges associated with flooding, and importantly, the practical actions that can be taken to build resiliency in our socio-economic systems and minimize exposure to flood risk.

Dr. Blair Felbamate:

Well, thank you very much. And I certainly appreciate the attention you're bringing to the adaptation file. So thank you very much.

George Sutherland,:

And thank you to our listeners. Stay tuned to learn more about how climate change intersects our social and financial systems as I continue this series of episodes offering a deep dive into topics including permafrost thaw, wildfire, extreme heat, and more.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at bmo.com/sustainabilityleaders.

Michael Torrance:

You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider. And we'll greatly appreciate a rating and review, and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torres. Have a great week.

Speaker 3:

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Speaker 3:

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