Behind the Build: How CLIM’s Index Methodology Shapes REIT Holdings

Real estate investing has traditionally been viewed through a financial lens: market capitalization, sector exposure, balance sheet strength. But climate risk introduces a different dimension - one rooted not in spreadsheets, but in the physical reality of properties themselves.

The Climate Global Climate-Resilient REIT Index ETF (CLIM) was built around a simple premise:

 

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If climate risk lives at the property level, portfolio construction should start there.

 

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Step 1: Defining the Investment Universe

The index begins with all publicly listed U.S. Real Estate Investment Trusts (REITs). From this broad universe, mortgage REITs are excluded, focusing the portfolio on companies with direct ownership of physical properties.

Eligible operating sectors include: Industrial, Office, Retail, Residential, Self-Storage, Lodging/Resorts, Health Care, Data Centers, Timber, Specialty, Infrastructure, and Diversified.

To maintain meaningful exposure to tangible assets, REITs classified as Specialty, Infrastructure, or Diversified are further filtered if a majority of their assets do not fall within eligible operating sectors.

 

Step 2: Measuring Climate Risk Where It Actually Occurs

Each eligible REIT is assigned a Climate Robustness & Durability Score (CRDS) - a forward-looking measure derived from evaluating every individual property as well as the portfolio as a whole. CRDS is a proprietary, quantitative score that measures how resilient a REIT's real estate portfolio is to climate and extreme weather risks such as floods, hurricanes, wildfires, hail, wind, heat stress, and sea level rise.

The score is built using the same types of catastrophe models and property-level data that insurance and reinsurance companies use to price policies and evaluate risk. Each property in a REIT's portfolio is individually assessed, and those property-level results are then aggregated into a single portfolio-level score that accounts for geographic concentration - similar to how an insurer would evaluate the overall risk of its book of business. A higher CRDS indicates greater climate resilience across the portfolio.

This multi-peril approach recognizes that property risk is not a single variable. It is a mosaic of exposures shaped by geography, building characteristics, and environmental dynamics. By using economic loss projections based on decades historical claims data, we can directly compare the impact of the various perils.

 

Step 3: Property-Level Risk Analytics

At the core of the methodology are stochastic hazard simulations* which are the same probabilistic modeling frameworks used by insurers and reinsurers.

These models do not attempt to predict a single outcome. Instead, they evaluate thousands of potential scenarios, estimating probabilistic loss distributions under varying climate and catastrophe conditions. Importantly, loss factors are calibrated to dollar-based outcomes derived from historical insurance claims data.

In other words: These are frameworks built to measure financial damage, not theoretical sensitivity. They are the same class of tools insurers use to price policies, manage catastrophic risk, and evaluate portfolio exposure concentrations.

 

Step 4: Portfolio-Level Risk Matters Too

Climate risk rarely impacts properties in isolation.

A single hurricane, wildfire, or severe storm can affect multiple assets simultaneously. CLIM’s index methodology explicitly models these correlated and spatial risks, capturing how properties in geographic proximity may share vulnerability to the same catastrophic events.

This mirrors how insurance markets assess concentration risk across portfolios, capturing vulnerabilities that traditional diversification metrics may overlook.

 

Step 5: Data Integrity as a Discipline

REITs lacking sufficient asset-level data required for robust climate risk assessment are excluded. This ensures that index inclusion is grounded in measurable property-level analytics rather than incomplete information. When evaluating physical risk, incomplete data means incomplete insight.

 

Step 6: Climate-Driven Selection

A threshold is applied to CRDS values. The resulting index includes:

• At least 30 constituents
• No more than 40% of the eligible REIT universe
• A nominal target range of 30–80 holdings

This structure balance seeks to maintain invest-ability while systematically incorporating climate robustness.

 

Step 7: Weighting for Resilience and Invest-ability

Constituent weights combine traditional market capitalization with CRDS. The methodology seeks to avoid overconcentration while integrating climate resilience directly into portfolio construction.

Conceptually, the result resembles a CRDS-weighted net present value of discounted cash flows - aligning portfolio weights with both financial scale and physical durability.

 

Why This Approach Matters

Real estate risk is increasingly shaped by factors that exist outside financial statements.

By applying insurance-industry climate analytics at the property level, CLIM’s index methodology reflects an evolution in portfolio design: from company size → to asset durability.

 

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Because ultimately, buildings, not tickers, bear the impact of climate risk.

 

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* Stochastic hazard simulations are computational modeling techniques that incorporate random, probabilistic variables to predict the frequency, intensity, and impact of uncertain events (e.g., natural disasters, financial risks). By running numerous simulations grounded in historical weather & climate data, these models generate a spectrum of possible outcomes rather than a single deterministic result, allowing for robust risk assessment.