While investors increasingly recognise the urgency that climate change poses through both physical and transitional risks, and are beginning to factor climate risk into decision-making processes, climate migration is an emerging facet not yet fully considered in the investment landscape.

Climate migration represents the relocation of people due to environmental change and the social and economic disruption it causes. Naturally it causes profound societal challenges that are directly relevant for real estate investors for two core reasons.

Climate migration is already happening around the world – gradually in some places, and rapidly in others. Extreme heat and wildfires are catastrophically becoming more frequent and severe and likely to lead to significant shifts in demand for real estate, as individuals and communities seek more climate resilient locations in which to live and work. Climate hazards, which are exacerbated by climate change, will also drive migration patterns through making places unliveable both from a physical perspective but also a financial perspective. In the US, one the country’s largest insurance firms, State Farm, recently announced that it will halt the sale of new home insurance policies in California, citing wildfire risk.

From an additional real estate investor perspective, climate migration points to the urgent need for proactive real estate investment approaches.

Sustained investment activity in high-risk areas that are likely to see population decline poses investment risk. More broadly, real estate investment and development strategies that are not sensitised to climate risks may diminish societal adaptive capacity, meaning governments and taxpayers could be forced into costly and inefficient forms of infrastructure and service provision at precisely the time when fiscal resources will be needed to reduce carbon emissions and to shift people out of harm’s way. Failure to advance integrated, forward-looking public and private investments that reduce climate-risk exposure represents a significant social equity and stability concern.

At ULI we have worked with global real estate investment management firm Heitman to underscore two key ways for investors to deepen their engagement with climate migration.

Firstly, real estate investors should continue to build their capacity to assess and manage migration-related and broader market-level investment risks. We have developed a two-step framework to assess these complexities, prioritise key factors, and pinpoint crucial data and methodological gaps.

Investors must continue to develop new approaches to understand and manage these interconnected financial, physical, and social risks— and can do so through sustained collaboration across the real estate value chain, in the highest-risk communities in which they invest, and with broader professional and scientific communities.

Secondly, real estate investors should actively understand climate change adaptation needs for key markets. This requires investors to shift from an asset-centric view to a market-level appraisal of risk and resilience drivers. Investors should consider ways to leverage technical expertise to build the capacity of communities to absorb climate shocks and stressors. To these ends, investors can support the creation of robust community resilience and recovery plans, and should direct their investment to infrastructure and real estate asset classes that are climate responsive, adaptable to changing environmental conditions, and enhance the overall social and ecological resilience of communities.

We must bring climate migration into the broader array of climate risk and investment management strategy so that our industry will become a proactive leader in making places and people more resilient to the impacts of climate change.