REITs & Climate Risk
Understanding physical risk exposure in real estate investment trusts
Real Estate Investment Trusts (REITs) own, operate, or finance income-producing real estate. They are the backbone of modern real estate investing, collectively owning trillions of dollars in income-producing assets—from apartment buildings and hospitals to data centers, retail centers, and more.
When it comes to climate and catastrophe risk, equity REITs are on the front lines.
REITs provide an easy way for investors to get exposure to hard assets—but that also means they face physical climate and catastrophe risks as real factors that can drive up insurance costs, operating expenses, capital expenditures, and even impact financing and valuation.
What Are REITs?
REITs provide an accessible way for investors to gain exposure to real estate assets through publicly traded securities. The U.S. REIT market includes:
$1.4TEquity market capitalization of U.S. REITs [1] |
$4.5TGross assets owned by REITs across U.S. [1] |
REIT property types span industrial facilities, office buildings, retail centers, residential apartments, data centers, healthcare properties, hotels, self-storage, and more.
Physical Risk Is Location-Specific
Physical risk is NOT evenly distributed. Two REITs in the same sector can face vastly different exposures depending on property location and construction.
| Industrial REITs near coastal ports | Hurricane and flood risk |
| Inland logistics REITs | Severe storms or heat stress |
| Residential REITs in wildfire zones | Unique insurance challenges |
| Hospitality REITs in resort markets | Hurricane and flood exposure |
This geographic dimension is critical. Physical risk must be assessed at the property and portfolio level —not just by sector label.
Multi-Hazard Climate Exposure
Climate risk is not a single variable. Properties across the United States face different combinations of perils—and many face multiple hazards simultaneously. We believe understanding this multi-hazard exposure is essential for accurate risk assessment.
Insurance: Where Climate Risk Hits the Bottom Line
Insurance is the main way physical risk becomes a financial variable for REITs. In recent years, property insurance premiums have outpaced general inflation, especially in regions exposed to hurricanes, wildfires, and flooding.
What Insurers Are Doing
• Raising premiums
• Increasing deductibles
• Narrowing coverage
• Refusing new business in high-risk areas
For REITs, these changes show up directly in operating costs and can affect earnings volatility, property valuations, and financing terms.
Why REITs Need Climate-Resilient Strategies
Real estate assets are long-lived, but insurance and financing terms reset frequently. This mismatch means changes in physical risk or insurance conditions can surface quickly, altering a property’s economics without any change in location or use.
Regardless of beliefs about causes, the severity and frequency of extreme weather events are dramatically increasing.
For REITs with large, geographically diverse portfolios, understanding and managing these dynamics is now essential. Regardless of beliefs about causes, the severity and frequency of extreme weather events are dramatically increasing. Insurers are feeling the impact, and the financial consequences flow through to underlying properties.
Why Climate Risk Matters for Real Estate Investing
1. Extreme weather is becoming more common and more damaging
Floods, hurricanes, wildfires, heat waves, and other extreme weather events are happening more often and causing extensive damage to buildings and communities. These risks can affect property values, insurance costs, operational efficiencies, and long-term returns.
2. Forward-looking risk differentiation within a diversified REIT allocation
Climate-aware investing goes beyond traditional REIT indexes by evaluating climate and extreme-weather risk at the underlying property level and portfolio level, rather than relying solely on sector or geographic exposure. We believe this provides risk differentiation while maintaining diversified, passive exposure.
3. Insurance-grade analytics in a transparent, rules-based structure
Using the same climate and extreme- weather models that insurers use— calibrated using decades of actual insurance claims and loss data. These models are built with extremely economically aligned incentives: the costs of getting them wrong are potentially existential to insurers.
The Case for CLIM: Climate Global - Climate Resilient REIT Index ETF
As climate risks become more visible and financially material, investors need tools to identify REITs that are better positioned to withstand and adapt to these challenges. A climate-resilient REIT index ETF seeks to offer investors:
• Target portfolios with lower exposure to physical risk
• Identify REITs with better insurance coverage positioning
• Find more robust risk management practices
• Align investments with long-term durability
Learn how CLIM ETF uses insurance-grade analytics to identify climate-resilient REITs. View Fund Summary >
Sources:
[1] NAREIT - https://www.reit.com/what-reit, captured 2/18/2025
Carefully consider the Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s Prospectus and Summary Prospectus, which may be obtained by visiting www.climateglobaletf.com. Read the Prospectus and Summary Prospectus carefully before investing.
The Fund is distributed by Foreside Fund Services, LLC. Exchange Traded Concepts, LLC serves as the investment advisor. The Fund is distributed by Foreside Fund Services, LLC., which is not affiliated with Climate Global, Exchange Traded Concepts, LLC, or any of its affiliates.
Investing involves risk, including possible loss of principal. The Fund’s return may not match or achieve a high degree of correlation with the return of the Index. To the extent the Fund’s investments are concentrated in or have significant exposure to a particular issuer, industry or group of industries, or asset class, the Fund may be more vulnerable to adverse events affecting such issuer, industry or group of industries, or asset class than if the Fund’s investments were more broadly diversified. Issuer-specific events, including changes in the financial condition of an issuer, can have a negative impact on the value of the Fund.
A new or smaller fund is subject to the risk that its performance may not represent how the fund is expected to or may perform in the long term. In addition, new funds have limited operating histories for investors to evaluate and new and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies.
Shares are bought and sold at market price (closing price) not net asset value (NAV) and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined) and do not represent the return you would receive if you traded at other times. Brokerage commissions will reduce returns.
