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How to Model Climate Risk in Cash Flow Analysis

There’s likely more CRE damage coming and a need to face financial realities.

By Erik Sherman | December 23, 2024 at 06:36 AM

The year that’s closing is expected to be the first year in which average surface temperatures will top the 1.5°C goal set during the 2015 Paris Agreement. That’s the point at which irreparable damage is expected to begin setting in and greater physical damage will affect everything, including commercial real estate.

One difficulty has been how to model and integrate climate risk in cash flow analysis and credit risk calculations, says Moody’s. The firm looked at the latest report — Physical Climate Risk Divergence: PCRAM for Investors — from the Institutional Investors Group on Climate Change (IIGCC) for possible answers.

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