Climate risks in the real estate sector: Wüest Partner collab­o­rates with CLIMADA Technologies

Climate change poses major challenges for the real estate industry. The increasing frequency and intensity of extreme weather events can signif­i­cantly reduce property values – with serious impli­ca­tions for owners, investors, and financial insti­tu­tions alike. As these risks can also jeopardize the stability of the entire financial market, new regula­tions are raising the bar for how companies must identify and manage such risks.

To proac­tively assess the impacts of climate change on the real estate sector and develop robust management strategies, Wüest Partner has partnered with CLIMADA Technologies, a climate risk analysis spin-off from ETH Zurich. The collab­o­ration enables early identi­fi­cation of the physical risks of climate change and their potential effects, allowing stake­holders to make informed decisions on risk mitigation and regulatory compliance.

The impact of climate change on the real estate industry

The effects of climate change cannot be overlooked. Extreme weather events such as heatwaves, storms, and heavy rainfall are occurring more and more frequently, putting signif­icant strain on buildings and infra­structure. The resulting damage is often enormous: in the summer of 2024 alone, storms in the Swiss cantons Valais and Ticino caused CHF 160 to 200 million in damages. Another striking example is Germay’s Ahr Valley flood disaster in 2021, which resulted in approx­i­mately EUR 40.5 billion of damages – only about 20% of which were insured. Prolonged droughts and heat waves are also taking their toll. In 2023, wildfires burned around 1.3% of Greece’s entire land area, with devas­tating conse­quences for both the economy and the environment.

In addition to extreme weather events, climate change brings gradual, chronic changes. One example is rising temper­a­tures, which lead to heat stress (“urban heat islands”) and drive high cooling costs, partic­u­larly in cities. Likewise, thawing permafrost threatens the struc­tural integrity of buildings and increases the risk of landslides in alpine regions.

Rising climate risks: A challenge for financial markets

Climate-related risks can signif­i­cantly reduce the value of real estate. In this context, a distinction is made between “physical” and “transitory” risks. Physical risks are caused by the direct effects of climate change, i.e. expensive preventive measures, costly repairs of climate-related damages, rising insurance premiums and operating costs, declining demand, or potential rent losses.

However, physical climate risks don’t just affect property owners. They also pose increasing financial threats to banks, insurers, and investors. Declining property values directly impact the financial markets; if mortgage lending values fall, banks see a reduction in the value of the collateral backing their loans. Meanwhile, there is an increased risk that borrowers will no longer be able to make their payments, due to high renovation costs, rising insurance premiums, or higher interest rates. This can result in higher borrowing costs – and in the worst case, desta­bilize entire financial markets.

In contrast to physical risks, transitory risks arise from the economic and regulatory shifts required to mitigate climate change. For example, stricter environ­mental and climate protection regula­tions, changing market expec­ta­tions, or new investment criteria. These risks can signif­i­cantly impact properties’ financial viability and attrac­tiveness, especially if they are not taken into account at an early stage.

Stricter regulatory require­ments

In response to the financial threats posed by climate change, regulators have intro­duced stricter require­ments for the identi­fi­cation and disclosure of physical and transition risks. Companies are now expected to compre­hen­sively assess, analyze, and manage climate risks to develop appro­priate mitigation strategies. Ignoring these risks can result in signif­icant financial losses as well as regulatory penalties.

EU Taxonomy: A benchmark for sustainable investment

In the European Union, Regulation (EU) 2020/852, known as the Taxonomy Regulation, forms a central framework for sustainable invest­ments. It defines six environ­mental objec­tives to determine whether an economic activity is considered environ­men­tally sustainable. Companies obliged to provide non-financial reporting must disclose how their activ­ities align with these objec­tives.

Climate risk analysis is partic­u­larly crucial for the regulation’s “climate change adaptation” goal, which requires organi­za­tions to explain how both physical and transitory risks influence their economic activ­ities and what measures they are taking to adapt. This creates trans­parency and offers investors a solid basis for sustainable financial decisions.

Switzerland: FINMA imple­ments new require­ments

The Swiss Financial Market Super­visory Authority (FINMA) has issued new guide­lines in Circular 2026/1 “Nature-related financial risks”, which will come into force in stages from January 1, 2026. These guide­lines require banks and insurance companies to system­at­i­cally identify and assess nature-related – partic­u­larly climate-related – physical and transitory financial risks and integrate them into their risk models. Key aspects include imple­menting appro­priate gover­nance struc­tures, conducting scenario analyses, and publicly disclosing these risks, which apply to all affected insti­tu­tions. The aim is to strengthen the resilience of financial insti­tu­tions against environ­mental and climate risks and ensure the stability of the Swiss financial system.

A partnership for data-driven climate risk analysis

To support real estate players in identi­fying and managing their physical climate risks, Wüest Partner has partnered with CLIMADA Technologies, a spin-off from ETH Zurich special­izing in climate risk modeling. The company emerged from research at the university’s Chair of Weather and Climate Risks and develops climate risk models tailored to various indus­tries, including real estate and financial services.

In June 2024, CLIMADA Technologies received the »venture» Award in the Finance & Insurance category – a testament to the company’s innov­ative strength and scien­tific excel­lence. The method­ology used by CLIMADA Technologies is based on state-of-the-art climate simula­tions, which are combined with building infor­mation and financial indicators to enable precise risk assess­ments at property level.

CLIMADA Technologies’ solution offers standardized climate risk ratings, enabling objective evalu­ation and comparison of individual properties and entire portfolios – a crucial basis for investors and financial insti­tu­tions. Additionally, its models generate financial damage forecasts, quanti­fying potential value losses.
Through the collab­o­ration between CLIMADA Technologies and Wüest Partner, a compre­hensive study now offers an in-depth analysis of climate risks across the entire Swiss building stock. The findings of this study provide valuable insights into the impact of physical climate risks and will be published in April 2025’s edition of Immo-Monitoring.

A crucial step for the future

Together, CLIMADA Technologies and Wüest Partner combine state-of-the-art climate science with in-depth real estate expertise. The partnership enables property owners, investors, and financial insti­tu­tions to make data-driven decisions that strengthen the physical resilience of real estate portfolios, meet regulatory require­ments, and preserve long-term value.

This initiative goes beyond simply meeting regulatory oblig­a­tions to identify physical climate risks – it provides concrete pathways toward a more sustainable and climate-resilient real estate sector. Thus, the partnership helps the market not just react to climate change but proac­tively prepare for it, strength­ening resilience in a targeted way. By creating trans­parency and supporting forward-looking planning, it contributes to long-term economic stability. The combi­nation of advanced climate modeling and compre­hensive market knowledge is unique, offering a robust foundation for a resilient real estate strategy.

“Climate risks are a challenge, but also an oppor­tunity. Together with Wüest Partner, we create trans­parency and transform risks into knowledge that enables well-founded decisions. Thanks to this, real estate owners and investors can not only secure values in the long term but also develop resilient strategies for the future. Those who act today are actively shaping the trans­for­mation of the industry.” – Simone Thompson, CEO of CLIMADA Technologies.

“In recent years and decades, physical hazards have increas­ingly exacer­bated the risk profile of real estate – and climate change will only continue to drive this devel­opment. However, we at Wüest Partner have observed that handling physical climate risks is not yet system­at­i­cally anchored in many portfolios. For investors, it is crucial to proac­tively and thoroughly address these risks, analyze them compre­hen­sively, and implement targeted adaptation measures for both individual properties and entire portfolios.” – Christoph Axmann, Partner at Wüest Partner.

The real estate sector faces signif­icant challenges, but those who act early can ensure financial stability while also contributing to the indus­try’s sustainable trans­for­mation. This partnership is designed to do exactly that: enable informed decision-making, facil­itate proactive action, and pave the way for a more resilient and future-proof real estate industry.