Understanding the impacts and solutions of climate change on the U.S. economy
Climate change — and its consequences — has attracted attention from the highest levels of government. From stress in U.S. home insurance markets to drought conditions affecting infrastructure planning and cargo shipping, changing weather patterns are increasingly influencing macroeconomic dynamics.
In fact, the U.S. government has publicly declared that climate change is an “emerging and increasing threat to the global financial system and economy.” This declaration is supported by a study from the International Monetary Fund (IMF), which concluded that the contiguous 48 states of the U.S. warmed more than the global average between 1963 and 2016.
As a result, the White House invited a select set of expert advisors, including CoreLogic’s Chief Scientist Dr. Howard Botts and EVP of Public Policy and Industry Relations, Pete Carroll, to its Climate-Energy-Macroeconomic Modeling Meeting. The goal was to better understand how to use climate-related data to identify and account for data gaps, track the effects of policy adjustments on climate resiliency, better map infrastructure resiliency, and forecast the financial implications of our changing climate.
Understand the Future of Physical Risk
Now the question is, what can be done.
The past three years have seen the U.S. government work to develop methods to account for climate risks in macroeconomic forecasting. However, to accurately account for climate’s influence on the macroeconomy and policy decisions, accurate, consistent, and repeatable data is of the utmost importance.
“It was a real honor to be the only climate risk modeling company invited to the White House meeting focused on identifying systemic risks to the U.S. economy by incorporating climate risk impacts into macro-economic forecasts.”
CoreLogic’s Chief Scientist Dr. Howard Botts
Data Gaps Cause Difficulties in Accurate Assessments
Building a more secure and resilient financial foundation that considers the impacts of climate risk is a serious, impending challenge. Data-driven insights and a thorough analysis of climate risk are needed to support the efforts of federal departments to develop forward-looking solutions to combat this crisis. Acquiring that information, however, has not always proved straightforward.
To help close existing data gaps and reduce exposure, vast amounts of data need to be incorporated, analyzed, and implemented into a holistic effort to improve macroeconomic models, assess infrastructure resiliency, and enhance natural disaster response.
Incorporating Property Data Into Future-Focused Models
No one knows exactly how the climate will evolve. That is why it is essential to consider multiple scenarios across an extended timeframe rather than rely on historical relationships. Resilience begins with access to consistent, granular data that can quantify losses for multiple climate-driven perils across a variety of climate scenarios.
To help White House policymakers contextualize the complexities of physical risk modeling that incorporate data best practices — such as revising dynamic downscaling to adhere to the IPCC AR6 at the property level — Dr. Botts provided policymakers with an in-depth look into CoreLogic’s modeling capabilities.
“We at CoreLogic build structure-level climate change risk models to support federal and private sector initiatives seeking to manage and remediate climate risk in the property ecosystem,” Dr. Botts said. “It was a real honor to be the only climate risk modeling company invited to the White House meeting focused on identifying systemic risks to the U.S. economy by incorporating climate risk impacts into macroeconomic forecasts.”
Part of employing models to develop the insights that will define the financial future of this country is ensuring that they are integrated with deep property data archives and built with an understanding of the importance of complete, reliable, consistent, and accurate data.
However, current, granular data is only part of the equation when developing reliable property-level loss models.
To understand the true impact of climate change, models need to look forward.
That is why CoreLogic integrates best-in-class climate models with our third-generation, high-definition Climate-Coupled-Catastrophe Models™ (C3 Models™). The inclusion of these models into Climate Risk Analytics covers comprehensive climate change physical risk measures for wildfire, hurricane, storm surge, inland flood, severe convective storm, winter storm, and earthquake.
Assessing the Impacts of Climate Change on Macroeconomics— Today, Tomorrow, and in 30 Years
It is clear that hurricanes, wildfire, severe convective storms, and even extreme heat are becoming more frequent and more severe. Among these natural perils, one key manifestation of extreme weather and its implications on the U.S. economy is flooding.
48
The number of U.S. states that warmed more than the global average between 1963 and 2016.
Flooding can occur along coastlines as well as in the interior of the county. When it occurs, its consequences can be far-reaching. For example, CoreLogic research has estimated a potential loss of $7.9 billion in property value for Miami homeowners due to flood risk under a severe climate scenario.
Climate risk not only has the potential to limit home values, but it also puts pressure on governments and financial institutions when credit risk — both for banks and borrowers — is lowered due to the reduced value of the collateral underwritten into a loan.
This reality is why the Federal Reserve Bank recently asked six of the top U.S. banks if they were prepared for the consequences of physical climate risk. The study highlighted participants’ challenges surrounding the measurement of climate-related impacts, particularly the existing gaps in banks’ ability to quantify real estate exposure and insurance risk management information.
Improving Future Outcomes for Everyone — One Data Point at a Time
Not only is climate risk widespread but it is disproportional. In a joint study between CoreLogic and the U.S. Department of the Treasury, Office of Financial Research, researchers concluded that there is currently an uneven distribution of climate risk along multiple dimensions at the property level for the entire continental U.S.
With the U.S. property market and the larger economy at such risk of climate change, it is essential that the U.S. government continues to collaborate and drive innovative solutions to foster a more secure and sustainable future.
“The Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) included funding for climate adaption to strengthen the existing built environment across the U.S.,” Carroll said. “Optimal stewardship of these taxpayer funds requires the right modeling and data to identify risks and recommend tailored actions for geographies that have high concentrations of natural hazard risks, coupled with underinsured municipalities, homes, and businesses, now and into the future.”
As a key provider of data-driven insights and climate risk analytics, CoreLogic is committed to supporting initiatives that bolster our collective understanding and management of climate-related risks in the property ecosystem. We are grateful for our opportunity to participate in the discussion with federal policymakers and economic advisors, and we will continue to partner with the government, businesses, and communities to build resilience and mitigate the growing threats posed by climate change.
Understand the Future of Physical Risk
©2024 CoreLogic, Inc. All rights reserved. While all of the content and information is believed to be accurate, CoreLogic makes no guarantee, representation, or warranty, express or implied, including but not limited to as to the completeness, accuracy, applicability, or fitness, in connection with the content or information or the products referenced herein and assumes no responsibility or liability whatsoever for the content or information or products referenced herein or any reliance thereon. CoreLogic®, Climate-Coupled-Catastrophe Models™, and C3 Models™ are the trademarks of CoreLogic, Inc. or its affiliates or subsidiaries.
