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.