As extreme weather events become more frequent and severe in Canada, Regan Smith, head of sustainable investing – real estate and infrastructure for Manulife Investment Management, says the future costs of failing to plan for climate resilience need to be considered.Getty Images
When construction company president Joshua Gaglardi watched a live tracker show a wildfire approaching a warehouse his company built, it was a wake-up call that climate change poses an urgent risk to his business.
Luckily for Mr. Gaglardi, the fire stopped short of the building in Kelowna, B.C., but it served as a stark reminder that extreme weather events are becoming more common and severe. “It really opened my eyes,” he says. “We should be doing our best as builders and developers and representatives of our clients to mitigate any unforeseen incidents like this.”
Mr. Gaglardi’s Langley, B.C.-based firm, Orion Construction, is a contractor focused on light industrial, commercial and multifamily projects – particularly in B.C.’s Okanagan and Lower Mainland regions, areas at increased risk of flooding and wildfire.
Mr. Gaglardi says Orion’s buildings are built with concrete walls that are between 12 to 14 inches thick and can withstand fire for two hours. When it comes to flooding, the company adjusts its locations so they’re built in areas that are less prone to sea level rise and floods. Mr. Gaglardi says his firm targets its work in B.C.’s Lower Mainland communities, such as Surrey, Langley and Abbotsford. However, some Lower Mainland areas are lower than the flood construction level. In these cases, Mr. Gaglardi advises clients to pay the cost of raising the site level using fill dirt or soil to mitigate flood risk.
Making commercial buildings climate-resilient may be expensive, but the long-term costs of inaction are significant. According to the Insurance Bureau of Canada, the 2023 fire season was the most destructive in B.C.’s history. Two fires in the Okanagan and the Shuswap regions resulted in $720-million in insured losses, while Canada’s total insured damages owing to serious weather events hit $3.1-billion in 2023 – the fourth-worst year to date.
Climate risk analysts say the real estate sector and regulators are moving too slow on considering measures to improve the climate resilience of Canada’s buildings. Glenn McGillivray – managing director of the Institute of Catastrophic Loss Reduction, based in Toronto and at London, Ont.’s Western University – suggests the five-year cycle to change the federal building code is too long. He says Canada should be the first country in the world to establish a building code for a wildland-urban interface, which the Canadian government describes as a zone where human developments mix with wildland vegetation, potentially resulting in extreme consequences from wildfires.
”There are 60,000 communities in Canada at risk of wildfires,” Mr. McGillivray says. “We can build quite attractively and still make the structure less flammable.”
However, Betsy Agar, buildings program director at the Pembina Institute, an environmental think tank, says building codes addressing new constructions are only part of the solution. “Our real challenge is decarbonizing and adapting existing building stock,” she says. “There’s less regulatory hold over buildings once they’re standing.”
Industry players admit it’s still not clear who will pay to adapt existing buildings to become climate-resilient and who will pay to construct new buildings to maximum safety standards. “I think people want to tackle this,” Ms. Agar says. “They’re still figuring out how they can within the funding context that they’re in.”
Institutional developers and investors haven’t solved the cost conundrum, either. However, they say they are factoring climate resilience into their investment decisions.
Rob Simpson, the senior director of sustainable investment for real estate development and investment firm Ivanhoe Cambridge, says the commercial real estate sector tries to assess where it can recover costs through measures like charging higher rents. “I think the industry is still reconciling with that a little bit. I wouldn’t say we’re at the point where a building with a higher level of resilience can immediately demand a higher rent,” he says.
New investments also factor in climate risk, meaning a higher rate of risk might require a higher rate of return, according to Mr. Simpson. “I don’t think the solution is to abandon high-risk markets. We should be working collectively with government and industry to come up with resilience measures and ways to continue to build in those markets,” he says.
Regan Smith, head of sustainable investing, real estate and infrastructure, for Manulife Investment Management, says her firm began evaluating possible climate change scenarios in 2019 to determine long-term climate risks.
She says not all mitigation measures need to be huge costs and notes the sector needs to look at the future costs associated with failing to plan for climate resilience.
However, addressing climate adaptation at just one isolated building isn’t the whole solution. “You need to integrate your approach with transportation, stormwater management and natural solutions,” Ms. Smith says. “We can have a property that is resilient to a storm or wildfire or power outage, but if our property is the only one left standing and you can’t get to the building, it doesn’t serve us very well.”