How Climate Risk Is Reshaping Real Estate, Mortgages & Investing

Hi and welcome to the Impact on FinTech TV.

I'm your host, Jeff Gitterman.

I'm joined this morning on the floor of the New York Stock Exchange by Larry Lawrence.

He's the head of ICE Climate and a good friend and colleague.

Larry, welcome to the show.

Thank you, Jeff.

Great to be here.

So for those of our audience that aren't fully aware, let us know what ICE Climate is working on these days and what your focus is.

Yeah, so ICE Climate is the Climate Risk and geospatial intelligence division of ICE.

Our goal is to sort of bring transparency.

To climate risk analytics and data similar to what ICE has done over the years in bringing transparency to different markets whether it's the bond market, whether it's the environmental market so so that's our goal we are a group of geospatial engineers, climate scientists, data scientists that.

Sort of collect and compile large data sets of geospatial data that are very location specific and what that means is we are identifying where assets are located on the ground, whether those assets are, you know, a municipal bond issuer, a home, residential home, a commercial property, a manufacturing facility, and then we link that back to the assets and securities that our clients manage, um, and we give them the analytics and data to help them identify risk and, uh, manage exposures.

So one of the biggest questions I get, I speak at lots of different places on climate regularly.

Obviously, we cover it on the show all the time, is, talk to me about how extreme weather is impacting mortgage risk, and you guys just published a great report on that subject.

Specifically, talk to us a little bit about what their findings were in the report.

Yeah, yeah, great question.

So, over the, since 1980, I think there's been over $2 trillion in damages from extreme weather events in the United States alone.

Um, I think in 2024 there were over $300 billion in damages globally in that year alone, and you're seeing multi-billion dollar events happen every single year.

Last year's hurricane season was a bit muted, um, but what we did, we did some pretty comprehensive analysis.

We went back about 14 years and looked at hundreds of different extreme weather events.

So think of wildfires.

Think of hurricanes, think of flood events, tropical storms, um, and we analyze the impact those wildfires, those events had on mortgage delinquency, and what we found was pretty interesting.

So we see in the near, in the short term, say 1 to 3 months, we see an immediate, a pretty significant spike in delinquency in homes following those events, uh, and that's been pretty consistent.

And what you also see is for properties where flood risk is elevated or you're in a flood risk zone.

Over the long period of time, you see pretty elevated delinquency risk as well, and what that means is investors should be aware of this, and you may sort of, you know, go around thinking this is not an immediate issue, but climate risk is happening now.

These extreme weather events are impacting delinquency post-e event in the, in the short term and also in the medium to long term.

I don't know if you saw recently, but Nevada is now allowing homeowners insurance companies to not cover fire risk, which is mind boggling to me because the banks, which require you to have insurance if you have a mortgage, now all of a sudden they'll have insurance but not for fire risk, which in Nevada is.

Large and what happens that on top of what you're already seeing on delinquencies, now you could have a whole entire community which has no insurance backing up the risk that you're, you know, highlighting.

Yeah, I mean, it's, it's a pretty significant issue.

One of the other areas we look at pretty deeply is insurance.

We have insurance data and Ken map insurance premiums to about, um, over 100 million properties in the US, nearly 99% of the market.

And what we found, we did a study recently, what we found in the last sort of 8 to 10 years, insurance premiums have spiked 90% across the country.

Um, that's pretty significant to the point where it's becoming more and more of the calculus of when you buy a home.

You need to understand your insurance cost because these variable costs, whether they're insurance, whether they're property taxes, even utility costs, we're starting to see spikes in depending on the changes in weather and that's sort of a trend that's also going up.

So it's pretty, it's a pretty important topic for investors.

It's a pretty important topic for homeowners.

Um, so yeah, we're absolutely paying attention to that as well.

And just to add fuel to that fire, you've got data centers which are driving crazy costs for utilities for people wherever they're being built, and oddly they're being built in a lot of areas that are higher, high fire risk and high storm risk.

So we've got a compounding impacts affecting the homeowner, yeah.

Very scary.

Yeah, I'm glad you mentioned data centers because as you said, one of our main goals is to sort of map assets on the ground and data centers are not only in size, scope, but dependency.

Now they're so critical, especially with the trends we're seeing with AI and the need for compute, um, and what we've, we've been engaging with clients on data centers and we thought, hey, let's give them access to data that will enable them to sort of assess the exposure to these same risks that we've been talking about.

What we've also found is in addition to that, those clients and these investors are very interested in not just sort of what is your risk from extreme weather event, but what is the risk from community sort of.

Sort of pushback, um, how, what is the proximity to electrical lines, what is the proximity to water systems, um, what is the proximity to biodiversity sensitive areas?

So all of these inputs are now part of the calculus if you're a data center investor, if you're a data center builder, like these are things that are being considered now.

So like looking at all the data around the community, uh, looking at data around, um, policies or, or these are things that they're digging into and they're digging into it quite comprehensively.

Yeah, it's amazing how the consumer is starting to have an impact on where data centers can complete their projects, but I think in 25 we saw the first year where data center buildouts can't meet the projected buildout specs that were being projected by these companies.

So yeah, yeah, absolutely.

I think it's, it's going to be a pretty important topic, especially as we see.

Uh, companies across the world and employees start to ramp up in their use of AI like many others are doing right now.

I was just curious, the one storm you didn't mention was hail, and what we've heard a lot from insurance companies we've talked to them is that hailstorm could be the most devastating short-term quick hit.

To a region possible.

We just saw in Texas last week they recorded the largest piece of hail that have ever hit Earth since records have been kept.

Is that factor into the reports that you were working on?

We, we factor it into some of the research that we do.

It is a peril that we're working to sort of on board.

We don't have it yet, but I agree it is something that clients are asking us for.

And I used to live in the Midwest and I have been subject to a hailstorm, and I have gone outside of my house and picked up a rock the size of my, um, the size of my fist, so it's been pretty interesting.

To experience that in, in, uh, uh, in real time, in real life.

So we're talking about all this.

How is it impacting the consumer?

Is the consumer starting to change patterns or behaviors because of this risk, or are they not yet up to responding and shifting to it?

What do you, I think it, it, it depends on, on where you are.

I think if you're in sort of like, you know, Florida, even middle part of the country where, where hail can be a problem or water stress or, or heat, heat, extreme heat can be an issue.

Um, I think you're starting to see consumers pay more attention to that because you can see, for example, on the East Coast, you can see, you know, upwards of $400 a month in electricity costs per year because of sort of the fluctuations of weather, um, and, and that could happen in different parts of the country as, as, as well.

Um, the way we see consumers thinking about it, insurance is top of mind for sure, given the spike of insurance we've seen, that's, that's been pretty important.

The way we think about it.

The whole affordability topic is something that every single partner we engage with is thinking about.

We think about affordability.

Like most homes in the country are, you know, 30-year fixed mortgage, like 95% plus of the homes are 90 year fixed, fixed rate mortgages.

But what people don't always consider in the acquisition of a home or even in the maintenance of cost of a home going forward, are these variable costs.

These variable costs have an enormous and outsized impact on.

The overall affordability profile again, property taxes, insurance costs, as well as utility costs, these combined can make up 50% of what you pay for your home in a given year and in some regions it can go up to 70%.

So it's becoming a pretty big, uh, I would say consideration for homeowners who are beginning to think about this.

Um, there are home, um, uh, servicers.

Um, lenders who are beginning to think about this quite significantly, whole loan investors, people who are buying these mortgages, this is something they use as part of their calculus as well, and then sort of broadly investors in sort of securitized MBS who own these pools, they're asking for just more awareness about how much exposure.

Do we have to these high risk areas, these high risk homes, and the way we love to do it is we, we go, we start from as, as granular as you can, the property level, and we work our way up, and I can describe that some more as well.

No, please do give us a little insight into how that process from the ground up.

Yeah, yeah.

So we, as you know, ICE is a pretty large, um, mortgage technology business where We have 99% of the entire US housing market, um, so we have awareness about over 150 million homes, um, what year they were built, what material they were built with, wow, what's the, the, the parcel size versus the structure, information about the insurance premium cost of every single one of those homes, um, and fluctuations and appreciation in the price of those homes.

Um, so what we do is we take.

Using our geospatial intelligence and technology, we map our climate risk data to every single one of those properties and then we aggregate up.

Most investors, what they tell us is they usually use sort of zip code level sort of averages and as you know in a.

Single zip code, there could be areas of a, of a zip code that is pretty, pretty significant exposure to a flood versus those that are just none, where it's a non-issue.

So that's, it's pretty important to have that granular data and then build, build up from there and that's where we're pretty focused to, to help our clients get the insight.

I'm just curious.

I know this kind of goes beyond the spectrum of climate, but you would think that if an employer who's looking to build like a warehouse or a factory was looking at all of these increases in certain regions, that getting affordable workers because of the costs in those areas might be a problem.

Are you starting to see companies make those links?

Absolutely.

And we've, I mean, companies have been making those links for a while now.

I mean, in addition to Climate, all this economic demographic data around trends with sort of job attainment, affordability of a particular area, uh, the cost of a particular area and the trajectory of that cost potentially, these are all things that are factoring into sort of if you wanna build a data center, you may wanna calculate that may be an input into your calculus of how you make a decision about what site to place that in.

If you're building a factory, um, even if you're looking at sort of, uh, you know.

Thinking about where municipal bonds or municipals in general invest in, right?

Because we have all of the data about the funds they're raising, the capital they're raising, you can use it as an input into helping you decide, well, where may we see some economic activity over the next 12 to 18 months that could potentially influence.

Where we invest as a as a business.

So I think all of these things are important.

So we're talking a lot from your focus of how employers who can afford this data and access this data are utilizing it.

Talk about, are you going to make this data available to investors or homeowners at the end of the day?

I mean, Again, if we, if we go back to sort of our goal here, which is to improve transparency across every aspect of the market, that is the goal.

We'll, we'll find a way to get it out there.

Our core market and audience, 70% of our clients are, you know, asset managers, banks, uh, investors.

And sort of real estate and properties, um, but we're also actively working with, you know, the retail community to sort of explore how to get this in, in their hands.

We recently, um, I mean, and we'll announce this soon, um, we recently sort of we're, we're working with a few sort of, uh, small startups and firms, um, that are providing consumers tools to help them report on the, uh, um.

And you know, Upgrades they're making in their home.

Hey, I've got a new furnace that is, you know, energy efficient.

I've got a new roof.

Like these are things that they're able to manage on their own now and report back so that if they do want to sell it, they can see some appreciation from that, um, or if they do want to insure it, they can, they, they can serve that information to to insurance companies.

So we're working with a number of, uh, uh, um, participant.

In the in the in the ecosystem to help bring this data to more people and it's interesting too because in Nevada while they said you can run without fire insurance in California, what they started doing is giving people credit for work that they were doing to improve the risk of their homes so that data would be really important helping the insurance companies assess where they can give cuts and discounts to certain homeowners.

So, we work also on Climate and Capital, the conference that we have each year, but I know you have one coming up in London, and you recently also had a sustainability conference in the US.

Just talk to me a little bit about how you're seeing employers in the US think about adaptation and resilience first.

This is what maybe was the focus a couple of years ago, which was more around net zero.

So we held our New York Stock Exchange sustainability of leaders summit a few weeks ago, April April 9th just upstairs with over 100 participants of listed companies, heads of sustainability, um, and, and, and other investors joined as well.

And what we found was a few, a few things sort of that, that, that, that really came out from that.

One was.

People are still focused on achieving their sustainability goals.

They see it as a value add, not a cost center, and they're trying to find ways to sort of link that more closely.

Um, they're a lot more focused on what's material to their organization.

They're not going to solve for everything under the sun.

Every query may not get an in-depth response, um, but for something that is material to their business, they'll provide more information and they'll absolutely articulate a strategy and a vision there.

Um, when it comes to adaptation and resiliency, more than I've seen in the last 10 years.

Physical risk in your exposure to physical risk and how the firms that you're invested in are hardening their assets against these physical risks are part of the conversation like I've never seen before.

Every single person is investing in capabilities, bringing on data to help them uh better measure what their exposure is, but also give them a platform to engage their portfolio companies on the topic as well.

So we're talking about a lot of different things, but when it gets to the heart of the matter for the homeowner, what are you seeing around homeowner depreciation?

What are you seeing about credit risk?

Talk to us about kind of the details that really matter to that end investor.

Yeah, so what our research suggests is that Flood risk areas or flood flood prone areas are experiencing a 0.2 to 0.4% in depreciation in terms of home price value.

So we looked at home prices, um, from 2012 to present day, and what we found was that because the flood risk prone areas saw a $31 billion less appreciation than their non-flood risk homes.

Um, so like the 0.2 to 0.4% may not sound great in the grand scheme of things, but $31 billion in appreciation just left on the table is a huge risk.

And what that really means is that if you look at a home that's a $250,000 you know, back in 2012, 2013, um, today that home would be worth $15,000 less because of that, um, flood risk that's currently not being considered as part of that, um, appreciation.

So, so there's a huge.

I would say a missed opportunity here um in terms of appreciation of those homes.

So homeowners especially should be aware, investors should be aware that they may see some pretty significant drawdowns or at least um um a lack of appreciation from, from flood risk.

It's interesting because what we're hearing is that in flood prone areas, people are still moving there, but they're actually starting to look at the elevation within those areas.

So you're seeing the lowest elevation homes within Miami, let's say, have a significant discount to your point, to maybe the highest elevation homes.

Miami, but I think we're probably going to see that start to track even more deeply where flood prone areas or hurricane prone areas start to see more discounts as the information becomes more readily available.

Absolutely.

Hey, listen, like again, since 2012, I think we're, you know, flood risk has been shaven 0.2 to 0.4% of home appreciation.

That's $31 billion of.

You know, and that's in a time where the information wasn't that readily available.

So now make it readily available to everyone.

What does it do going forward?

Absolutely.

I think it's, I think it's an important thing to consider.

What are you hopeful for going forward and maybe just tie in a little bit because we've talked about kind of the negative risks of AI or data centers, how bad it's affecting the climate, but obviously you guys are using AI and providing an incredible amount of rich detail.

So what are you most optimistic about within the climate space, right?

I think, again, just getting our data in more in the hands of more investors who can make decision useful.

Second, we've seen the capabilities of what we can do with this data change so much in the last 18 months.

We went from sort of thinking about, hey, how do we do climate risk for a corporate issuer and looking at where.

Um, their, uh, you know, headquarters are located to now we have 13 million corporate asset locations in our database helping understand where, where does, where does the company have, you know, their factories, where do they have their manufacturing facilities, their retail locations, um, and where all their offices are, and if they're in sort of the.

Sort of hard to abate sectors like oil and gas, like where are the LNG plants?

Where are the mines, and how do you identify all of the different components?

If you look at a mine from a satellite, it's like a little community because you've got the pit, but you also have the crushers and you get all these different offices and these different facilities that are processing.

Um, um, um, content from that mind.

So how do you properly identify where things are and how susceptible they are to these different risks, but also what are firms doing about it to help hard to harden themselves.

So I think the adaptation theme is a huge one.

Everyone tells us that they're interested in allocating capital to adaptation and resiliency, so we're helping our clients identify where those opportunities are, um, in both trying to help, you know, avoiding emissions long term, but also thinking about, um, you know, where to invest as well.

Awesome.

Thanks, awesome.

Thank you.

That's it for the impact on FinTech TV.

I'm your host, Jeff Guderman.

Until next time.