Wherever you may fall on the spectrum of climate change believers, skeptics and outright deniers, it’s hard to ignore the facts presented by the insurance industry.
Insurers are closely tracking the financial impacts of climate change . . . and paying out the claims.
In late June, Natural Resources Canada released a new report that explored the economic impact of climate change. While it didn’t offer a specific number, the 734-page report did conclude there is an impact on every industry, the cost of that impact is rising and there really is no way to spin it as a good thing.
“This is not new for insurers,” Robin Edger, national director of climate change for the Insurance Bureau of Canada (IBC), told the National Post/Financial Post, “because insurers have seen climate change showing up in their models for some time now and we need to adapt now and make ourselves more resilient.”
Insurance claims rising
According to the IBC, the annual cost of climate change in Canada has surged from an average of $400 million per year in the 1980s. In 2020, we had the fourth-highest year on record, at $2.4 billion, driven by devastating weather events in Alberta.
In my last column, I also referenced recent comments from global reinsurer Swiss Re, which warned climate change is making hurricanes larger and stronger, capable of delivering more destructive force into Canada.
According to Swiss RE Canada, more than a third of such storm-related losses logged in this country since 2003 were not covered by insurance.
While insurers struggle with how to anticipate and prepare for the growing risks from climate change, the rest of us have to deal with how to abate it.
No more new roads
In the U.K., the Welsh government just announced a moratorium on all new road-building projects as part of an effort to reach net-zero emissions by 2050.
To quote Wales’ deputy minister of climate change, Lee Waters:
“In the next 10 years, we are going to need to more than double all the cuts we have managed over the last 30 years if we are going to keep temperature rises within safe limits. That means changes in all parts of our lives. Transport makes up some 17 per cent of our total emissions and so must play its part.”
Waters said spending needs to shift from projects that encourage people to drive. Instead, more money must be spent on maintaining existing transportation infrastructure and encouraging people to take alternatives such as public transit or a bicycle.
What I find interesting is that, if new road construction is at a halt, this will make driving more expensive in terms of travel time on existing roads. It may be reasonable to conclude that existing roads will get more congested.
Will this higher cost in personal time alter people’s behaviour in terms of how far they travel daily and how travel is done?
Consider, for example, what happened 60 years ago when four-lane highways were expanded across Canada and the U.S. Car travel bloomed because roads were free or mostly free to use, were relatively uncrowded at the time and were faster than public transportation.
How will people change their behaviour if roads become harder, rather than easier, to use? How too will public perception change around forms of travel that have a harsher environmental impact? For example, we are already seeing the rise of “flight shaming” in Europe.
Which brings us to how the world of work has changed with the pandemic.
Finding the safe bet in office space
Late last month, Bloomberg ran a story about how real estate titans such as Tishman Speyer Properties and Brookfield Asset Management are banking on most workers returning to a conventional office over the long term.
Maybe they will and maybe they won’t.
Some commercial real estate tenant clients with whom I have spoken have prepared for a hybrid work environment. They expect most workers will split their time between the regular office and the home office.
Even in creative areas like R&D and engineering, where in-person meetings are needed to drive creativity, it’s unlikely everyone will be in the office as much as they were before.
What will be interesting to watch is those companies that opt for a 60/40 split, with many working from home 60 per cent of the time. With less than half the people in the office at any given time, ceteris paribus, you only need half the office space. A real challenge could be how you train and mentor new employees.
On the other hand, one investor-type client I spoke with recently said he doesn’t trust video meetings in doing deals because you can’t read the body language of the other party nearly as well as you need to, and can, in person.
In other words, in those head-to-head encounters where a deal gets done, the heads need to meet in person. But, this is not a 9-to-5 job and you only need a meeting room for the time to get the deal done.
As a further footnote to this, many executives are just set in their ways and not ready for anything other than a full return to the traditional office. (Here is a great read from Fortune on the psychology of why some leaders resist the hybrid work model.)
A mixed bag most likely
So, it looks like a mixed bag of expectations about what comes next in how we work.
I had my second COVID vaccination recently, so that part is done.
Now we need to see how the world is going to work in terms of people moving around. When we consider the impacts of climate change, and how traditional rush-hour commuting and gridlock contributes to that, getting comfortable with a hybrid work model as the new status quo just makes sense.
A final thought on this also relates to the personal safety aspect of everyone mingling together once again, to go to a theatre, take a flight, board a train, hit the local gym and so on.
We have yet to understand how much of a persistent threat we will continue to face from new coronavirus variants and if the situation warrants everyone having to carry and show proof of vaccination.
This, too, will impact how we travel, if we travel, and whether any employer should attempt to dictate a return to the traditional office.
To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am always interested in your feedback and suggestions for future articles.