BUILDING RESILIENCE Physical Risk Type Primary Risk Driver Potential Impacts Timeline Potential Mitigation Measures Chronic Risks Water Scarcity Changes in precipitation patterns such as longer dry spells, more intense but less frequent rainfalls • Increase in operation costs (e.g. higher water utility bills, increased costs for waterefficient retrofits) Short- to long- term • Maximise operational efficiencies while minimising consumption through practices such as water audits and installing low-flow appliances and faucets, and minimising landscaping water requirements, where applicable Fire Weather Stress Atmospheric conditions (e.g. temperature, wind, precipitation, and relative humidity) may worsen the effects of wildfires • Increase in asset structural damage • Reduce air quality, affecting occupants' health • Increase in operation costs (e.g. business interruptions) Short- to long- term • Fire-resistant building materials • On-site emergency water supply • High-efficiency air filters to protect indoor air quality Drought Stress Long periods of no to low rainfall • Increase in operation costs (e.g. increased costs due to reduced water supply) Short- to long- term • Maximise operational efficiencies while minimising consumption through practices such as water audits and installing low-flow appliances and faucets, and minimising landscaping water requirements, where applicable Cold Stress Extreme cold weather • Reduce employee and tenant productivity (e.g. cold-related health illnesses) • Increase in operation costs (e.g. business interruptions) Short- to long- term • Regular risk assessments focused on cold weather vulnerabilities • On-site backup power generators • Emergency management planning Sea Level Rise Melting ice and the expansion of seawater as it warms • Increase in asset structural damage • Increase in insurance premiums and deductibles • Increase in operation (e.g. business interruption) and repair costs (e.g. saltwater intrusion) • Increase in the risk of failed development approvals and “stranded” assets in vulnerable areas Long- term • Invest in preventative infrastructure and consider underwriting, where applicable • Regular site assessments completed by our insurer, and/or building condition assessment • Where applicable, recommendations for protection measures are implemented The portfolio risk study in 2020 also used a third-party tool to evaluate and determine our portfolio’s exposure to climate-related transition risks. The study identified risks and associated business implications from future climate impacts and assessed current and potential preparedness strategies to address climate risks. The results of the study were presented to senior leadership which were used to inform internal processes. We regularly assess and analyse our portfolio’s exposure to climate-related risks, which allows us to identify the risk of future climate change using projections of future risk and IPCC and IEA NZE scenarios. In addition to identifying climate-related risks, the studies also enabled us to identify climate-related opportunities, thereby assisting us in planning strategies to strengthen the climate resilience of our properties. The Manager is exploring the application of a scenario-based financial approach for assessing climaterelated risks and opportunities. 80 | MANULIFE US REIT
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