What Are “Climate Risks” and Why Should You Care?

Extreme weather, net-zero goals and changing regulations around sustainability are already impacting the real estate market in the UK. Assessing how climate risks could affect your property transactions is becoming increasingly important, both legally and financially.

Here’s a quick guide to what that means for you.

What are climate risks?

Climate risks can be split into three main categories:

1. Physical Risks

These are physical impacts such as:

• Flooding (coastal, river, surface water or groundwater)
• Subsidence or ground movement
• Overheating or heat stress in buildings
• Coastal erosion or sea level rise
• Wildfires, water scarcity or storm damage

Even if a property isn’t currently affected, these risks may increase in future, and could impact insurance, finance, value or even the ability to use or occupy the site.

Many environmental reports can now cover physical risks by using climate modelling to show what may happen by 2050+. These tend to map out the consequences of different emissions scenarios known as Representative Concentration Pathways. For example, what the risk of floodin may be a mid-range scenario where the UK reduces emissions over time to some extent.

2. Transition Risks

These arise from the UK’s legal and policy shift toward net zero carbon by 2050. This includes:

• New energy efficiency standards for buildings (like EPC ratings and MEES regulations)
• Planning changes or new building regulations
• New mandatory standards (such as The Future Homes and Building Standards)

A property may currently comply with legislation but may no longer comply with future regulatory updates, which may have a detrimental impact on value, ability to finance, marketability and reputation (amongst others).

3. Legal and Liability Risks

These are legal issues that can arise from physical or transaction risks, for example:

• Financial penalties for letting out energy-inefficient buildings
• Restrictions on implementations of developments
• Disputes where a legal right cannot be exercised (e.g. a right of way)

What should you do?

Some things to consider in a property transaction are:

• The location of the property (e.g. is it near a coast), how long you intend to hold the property and what you want to do with it (occupy, let, redevelop, etc.)
• What climate risks are identified in any environmental search report and seeking specialist advice, such as from a surveyor, on those risks
• your organisation’s sustainability or net zero goals and whether you want to reflect them in the contract or lease (such as including green lease clauses)
• Speaking to us about the legal implications of climate risks and any legislative changes that may have an impact

Do I need to be an expert?

Absolutely not! There are specialist advisors that can consult on these issues.

As your lawyers, we’ll help by:

• Asking the right questions early
• Identifying climate risks set out in desktop environmental reports
• Advising you on your next steps
• Keeping you informed of relevant legal and regulatory developments
• Ensuring climate provisions you require are properly covered in your documents

Want to know more?

If you’re acquiring, leasing or developing property and want help understanding how climate risks could affect your deal, both now and in the future, get in touch with our Real Estate team.