Climate Risk Assessments
Climate risk considerations are front and center in commercial real estate transactions. Millions of U.S. properties are at risk, and many more will face increased vulnerability from climate-related hazards and extreme weather events. As a result, property owners, environmental professionals, developers, lenders, and investors must increasingly evaluate, quantify, and disclose physical climate risks for individual properties and more extensive portfolios.
Critical to the evaluation of these growing climate risks is reliable climate data. For example, heavy precipitation, drought, and extreme heat are chronic hazards that affect a business’s operating expenses and overall quality of life, said Cal Inman, CEO and founder of ClimateCheck, during a recent ERIS webinar, Integrating Climate Risk Assessment with Environmental Due Diligence. And acute hazards like wildfires, extreme wind, and flooding can cause total property loss.
Inman explained that data analysis can support future extreme weather projections based on multiple greenhouse gas emission scenarios. For example, ClimateCheck's flood models examine how a specific property has been affected by flooding in the past and look at relevant data like sea level rise, storm surge, and how porous the area is to rate the property for future risk based on potential emissions outlooks. Inman said that by looking at the comprehensive data compilations, environmental and real estate professionals can better understand how vulnerable a property is to climate risk.
This physical climate risk analysis is now more frequently integrated into environmental due diligence. ASTM International is working on the New Guide for Property Resilience Assessment (WK62996) to provide guidance on this process. Property resilience means the ability of a building to withstand natural hazard impacts like flooding and wildfires.
It’s better for everyone involved when a building can survive natural disasters. And it’s also best to know that information before purchasing or developing the property, said Holly Neber, Chair of Task Group WK62996 and CEO of AEI Consultants. Neber also participated in the ERIS webinar.
The standard will outline best practices for the climate risk assessment process and include a standardized way of communicating how specific hazards and vulnerabilities may affect a building and how to identify resilience measures to improve the building’s performance.
The new ASTM standard will align with other standards that typically accompany CRE decision-making, including the E1527 Standard Guide for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E2018 Standard Guide for Property Condition Assessment: Baseline Property Condition Assessment Process, and E2026 Standard Guide for Seismic Risk Assessment of Buildings. More information about the status of WK62996 can be found in the ASTM Developments’ section below.
Environmental justice (EJ) continues to be a hot topic at the state and federal level, with emerging policies affecting everything from permitting decisions to real estate transactions and specific projects. During the first quarter of 2023, the federal government announced new EJ initiatives that fit within their Justice40 framework, which mandates that 40% of the benefits of certain agency programs go to EJ communities.
In January, EPA released updated guidance on incorporating environmental justice into cumulative impact assessments when making permitting decisions. This update is part of a broader array of legal tools compiled by EPA to advance environmental justice. EPA has noted that it will use rules and regulations that don’t specifically mention EJ to address EJ issues.
Within the past year, both EPA and the DOJ have launched specific offices to spearhead their EJ efforts. Environmental justice has also become a factor driving enforcement decisions. Both agencies have provided guidance that says they will prioritize enforcement in EJ areas and include EJ in their decision-making and spending, including for Superfund cleanups and brownfields redevelopment.
On the state level, EJ legislative and regulatory efforts also continue to push forward. In January, New York enacted the “Cumulative Impacts Bill,” which requires EJ considerations to be part of the permit approval process. New York is the second state to incorporate EJ into environmental permitting decisions, following New Jersey. In February, Minnesota enacted a clean energy bill that specifically prioritizes EJ communities, stating the Public Utilities Commission must ensure the reduction of harmful emissions.
You can listen to our recent EJ podcast covering these and other developments here.
EPA is moving full steam ahead to implement its PFAS Strategic Roadmap, helped by the $1.2 trillion Infrastructure Investment and Jobs Act, which includes $10 billion to remediate per- and polyfluoroalkyl (PFAS) substances.
In September 2022, EPA proposed a rule designating two PFAS substances – PFOA (perfluorooctanoic acid) and PFOS (perfluorooctanoic sulfonate) – as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Thousands of stakeholders expressed liability concerns during the public comment period. In March, EPA hosted two public listening sessions seeking input on a CERCLA PFAS enforcement discretion policy. Officials announced they will not enforce against passive PFAS receivers like municipal wastewater and drinking treatment facilities, farms, municipally owned airports, and publicly owned and operated landfills. However, concerns about third-party liability for owners and operators loom large. During the listening sessions, many stakeholders called on EPA to provide stronger assurance through formal statutory liability protections. The final rule is expected in August 2023.
On March 14, EPA proposed its national drinking water standards setting maximum contaminant levels (MCLs) for six PFAS. The threshold for PFOA and PFOS would be 4 parts per trillion. Four other PFAS – PFNA (perfluorononanoic acid), PFHxS (perfluorohexane sulfonate), PFBS (perfluorobutane sulfonic acid), and GenX Chemicals – would be regulated as a mixture and assessed using a health index calculator. The proposed rule was published in the Federal Register on March 29. Public comments are due by May 30; the final rule is expected by the end of 2023.
There are continuous regulatory developments at the state level as well. In January, Pennsylvania adopted regulations setting new limits on PFAS in drinking water. The rule sets an MCL for PFOA at 14 ppt and 18 ppt for PFOS. On March 15, New York’s Department of Environmental Conservation issued new water quality guidance for PFOS, proposing that levels not exceed 2.7 ppt – less than EPA’s recently proposed 4 ppt.
This topic continues to garner much interest and attention. ERIS held a webinar, “The Dirty Side of Dry Cleaning: Liabilities and Transaction Considerations,” on March 28, which covered the regulatory frameworks that apply to these sites, potential liability implications, programs that support the cleanup and redevelopment of dry-cleaning sites, as well as important transactional considerations.
Highlights and News from Committee E50
ASTM Committee E50 on Environmental Assessment, Risk Management, and Corrective Action develops important voluntary industry standards and best practices that play a critical role in commercial real estate transactions and pollution prevention. ERIS sat down with committee chair Tim Haley to discuss the committee’s priority areas and what to expect in 2023. You can read the interview here.
EPA Officially Recognizes E1527-21, Prior Version Will Sunset in 2024
On Dec.15, 2022, EPA published a long-awaited final rule officially recognizing that ASTM’s E1527-21 Standard Practice for Phase I Environmental Site Assessments: Phase I Environmental Site Assessment Process can be used to satisfy the “All Appropriate Inquiries” (AAI) requirements under the Comprehensive Environmental Response, Compensation, and Liability Act (40 CFR Part 312). The rule went into effect Feb. 13, 2023, and allows for use of the prior version of the standard (ASTM E1527-13) until Feb. 13, 2024, at which time the earlier version will no longer satisfy the AAI rule. More information about the substantive changes reflected in the latest standard is available here.
Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property (E2247)
ASTM is currently working on updates to its Phase I Environmental Site Assessment for Forestland and Rural Property standard practice. The standard provides an alternative to ASTM E1527 for good commercial and customary practice in the United States for conducting a Phase I environmental site assessment of forestland or rural property. It’s intended to guide users looking to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser protections under CERCLA, although it is not limited to that use.
The E2247 Task Group currently is considering two negatives received during the December/January ballot. The Task Group Chair hopes to wrap this up at the upcoming Denver meeting April 17-20. There will likely be substantive revisions that will require a reballot before the standard can be approved. More on the ASTM standard development and balloting process is available here.
New Guide for Property Resilience Assessment (WK62996)
ASTM International’s E06.25 Subcommittee for Whole Buildings & Facilities is working to finalize its New Guide for Property Resilience Assessment (WK62996), which will provide best practices for the climate risk assessment process and include a standardized way of communicating how specific hazards and vulnerabilities may affect a building and how to identify resilience measures to improve the building’s performance. (See In Focus section above for more information.)
According to Holly Neber, Committee Chair, the draft reflects two years of effort on the part of over 170 task group members coming from a variety of perspectives including A&E design firms, climate risk modeling organizations and nonprofits, lending institutions, government agencies and GSEs, insurers, property due diligence consultants, natural hazard mitigation professionals, resilience and adaptation experts, property owners and institutional investors, and commercial real estate developers. The balloting process is expected to kick off in April. More information on the ASTM standard development and balloting process is available here.
Silicon Valley Bank Collapse: Impact on Commercial Real Estate
The collapse of Silicon Valley Bank profoundly impacted the start-up world and sent waves throughout the lending landscape. It’s been reported that nearly 190 other institutions would be insolvent were they to experience a similar bank run and their uninsured deposits were withdrawn.
Unlike the 2008 financial crisis, real estate did not cause this meltdown. SVB was unique in that almost 97% of their deposits were uninsured. Also, it focused primarily on providing banking services to technology companies and start-ups along with the venture capitalists who support them. When news broke that SVB would sell some of its fixed-income portfolios and issue new stock, many investors became nervous and began withdrawing their uninsured deposits. With an increasing number of clients requesting withdrawals, the bank's only option was to try to sell more securities at a loss. The result was a depleted capital position, and with no buyer in sight, the regulators had no choice but to close SVB's doors.
While SVB was not a traditional lender in the commercial real estate space, an impact will be felt . As we saw in 2008, when banks fail, the likely result will be increased scrutiny on new and existing loans, making borrowing more difficult. Tighter lending conditions coupled with the uncertainty surrounding the interest rate environment could further exacerbate the already rocky state of the CRE markets. Time will tell.
Featured ERIS Data Set
ERIS Database Reports Include PFAS Records
ERIS has been at the forefront of PFAS data research since autumn 2019, identifying and including in our reports new federal and state-level data sets as they become available.
Many state-level environmental protection agencies have compiled information for sites where PFAS have been released, have contaminated, or are suspected of having contaminated properties or groundwater, or where these chemicals were or may have been manufactured or used.
Given the importance of information about PFAS detections within the industry and the potential for PFAS contamination to spread, these PFAS data are searched out to a 0.5 mi radius in ERIS database reports, broader than the typical 0.125 for incidents data. Filtering and loading these PFAS incidents records means that the practitioner using ERIS data can quickly ascertain that PFAS is present without reading through multiple record details. Using this innovative approach, clients can more quickly and reliably identify PFAS detections, even when there is little other indication of contamination or risk.
For more information, please reach out to your Regional Account Manager.
Special News in the ERIS Community
This quarter, we aim the spotlight on Amanda Sugg, Regional Account Manager for Texas and the most recent addition to the ERIS sales team. Amanda began her association with the environmental industry in 2017 in customer service at GeoSearch. Amanda joined ERIS as a client service manager when the two companies merged in 2020, and then moved into her current role in February 2023. She excels in serving a diverse client base and has a deep knowledge of ERIS' products, services, and digital solutions.
Amanda is driven by her passion for exceptional customer service and is always eager to expand her knowledge base. Her commitment to client satisfaction is evident in her approach to customers, which she considers an integral part of her role. Amanda has been inducted into our company’s 2022 President’s Club, recognized with an award by her colleagues for providing outstanding service and always going above and beyond.
Beyond her professional accomplishments, Amanda lives in Austin, Texas, with her husband Tyler, daughter Stella, and her two small (but big personality) pups, Chuck Norris and Madeline. When not working, she indulges her interest in local breweries and spends quality time with family and friends. She also loves to support her alma mater during University of Texas football games in the fall, proudly cheering for the Longhorns, shouting, “hook’em!”
Amanda Sugg, Regional Account Manager, ERIS