A climate balance sheet is necessary for the financing of real estate

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

The document, which was made public on October 25, advocates the creation of a climate report for properties. It would take the form of a Real Estate Climate Risk Indexwhich resembles the credit score 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 study was produced by the leaders of the various links in the housing supply chain. The authors are the consultant chris chopik and Craig Stewartvice-president of the BAC.

Title Paving the way to climate compatibility: climate risk disclosure and action in the context of housing in Canadathe study aims to create a framework that will serve to inform owners, financial institutions and insurers.

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

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 objective is to help market participants acquire 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;
  • creating a single source of disclosure data that is transparent, reliable and accessible;
  • the creation of a publicly accessible database that contains information on risks and mitigation measures for each property;
  • local and regional governments must be at the forefront of risk disclosure.

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

Complex equation

The study reproduces an equation taken from another 2019 study by Mr. Chopik and titled 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 seriousness 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 site, the community and the municipality, as well as the importance of the intervention at the regional scale.

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

They add that disclosure must be universal in order 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, constraints on the side of banking institutions, etc.

“Will lenders and real estate agents indicate climate risks in the registration, sales process and obtaining mortgages? ask the authors.

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

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