Risk vs Events: Why Should I Care About a 1-in-100-Year Event?

Written by James Evans

Let’s talk about risk. Specifically, the kind of risk that should give asset managers pause, not just because it’s in the job description but because ignoring it could turn carefully balanced portfolios into a cautionary tale. 

Now, I know what you’re thinking: “A 1-in-100-year event? That’s statistically insignificant during my tenure.” But therein lies the fallacy: it’s not the event itself that’s the problem. It’s the increasing likelihood of it happening - and the repercussions of perceived risk - that deserve your full attention.

NaFRA’s Updated Risk Profile: A Reality Check for the Overly Optimistic

The National Flood Risk Assessment (NaFRA) has recently updated its risk profile, and the results are sobering. A significant number of assets have been reclassified into the high-risk category. This isn’t merely a bureaucratic reshuffling; it’s a material shift that can send ripples - or tsunamis - through investment portfolios.

One of our asset manager clients shared a telling insight with us at Climate X: assets that migrate into the “high risk” category can see their value plummet by up to 30%. That’s not just a gentle market correction; that’s the kind of drop that makes headlines and has stakeholders asking tough questions.

Here’s the nuance: it doesn’t take an actual flood to erode asset value. The perception of increased risk alone can have a chilling effect on valuations, investor confidence, and insurability. In a world where reputation and financial stability are paramount, the implications are crystal clear: risk perception is as powerful as the risk itself.

Risk: The Invisible Hand Steering Asset Values

The danger isn’t just the 1-in-100-year flood, it’s the gradual accumulation of risk that goes unnoticed until it’s too late.

Consider this: the phrase “1-in-100-year event” might sound reassuringly rare. But in the context of climate change, urban expansion, and aging infrastructure, those odds start to compress. That once-in-a-century flood begins to look more like an every-decade problem, and the market doesn’t wait politely for the next deluge to adjust its expectations.

In short, waiting for the event itself to manifest isn’t risk management; it’s wishful thinking. The smart play is to anticipate the shift in risk profile before it translates into financial loss. 

This is where foresight meets strategy, and where Climate X can make all the difference.

How Climate X Turns Uncertainty into Clarity

At Climate X, we specialise in quantifying and visualising risk so that you’re never left guessing. 

Our highly innovative solutions designed for asset managers enable them to not only understand today’s risk landscape but to anticipate tomorrow’s challenges with precision. 

Here’s what we bring to the table:

1. Granular Risk Intelligence: Climate X provides asset-specific insights that go beyond broad-brush assessments. Whether it’s flood risk, heat stress, or wildfires, we’ll help you pinpoint vulnerabilities down to the individual property.
2. Proactive Investment Strategies: By identifying high-risk assets before their value erodes, we help you safeguard your portfolio and ensure sustainable returns. It’s about staying ahead of the curve, not scrambling to catch up.
3. Adaptation Potential and Risk Mitigation: Climate risk isn’t just about exposure, it’s about opportunity. Our unique solution Adapt provides insights into the return on investment (ROI) of adaptation measures, allowing asset managers to integrate climate resilience into due diligence processes. Whether used to inform new acquisitions or to mitigate risk within existing portfolios, adaptation strategies can turn climate threats into value-preserving actions.
4. Scenario Modelling: What happens if flood defences are degraded? How might a 2°C temperature rise affect asset resilience? Our platform allows you to model these scenarios with precision, giving you the tools to plan for a range of outcomes and mitigate potential losses.

The Financial Imperative

Risk isn’t a theoretical construct; it’s a measurable force with tangible impacts. Left unmanaged, it can erode value, disrupt portfolios, and undermine confidence. The updated NaFRA risk profile is a wake-up call to asset managers: the time to act is now.

By working with Climate X, you gain access to data-driven insights that help you quantify, understand, and proactively manage risk. Our tools support better decision-making, ensuring that your portfolio remains resilient in an evolving climate landscape.

Ignoring climate risk is no longer an option. The question is no longer if these risks will impact your assets, but when. Taking action now means securing a more stable and profitable future.
 

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James Evans is Commercial Lead - Banking & Asset Management at Climate X