Alongside the evolution of listed real estate and infrastructure, and the data centre opportunity – two examples of resilient growth – it is also important to consider resilient risk management. Specifically, physical climate risk – something that is no longer a future scenario for investors but a growing threat to cashflows, balance sheets and portfolios.
Mis-priced climate risk
A white paper last month from Intercontinental Exchange (ICE) detailed how climate risk is already reshaping the world's largest housing market[1]. Drawing on data from over 110 million US home loans and extreme weather events, the study found three distinct effects operating across different timescales. Short-term mortgage delinquency probabilities in hurricane, flood and wildfire exposed areas increase by an average of 21%, 18% and 250%, respectively. Longer-term, properties in high hurricane and flood risk zones showed more than a 30% higher rate of prolonged (3+ months) nonpayment over five years or more. Meanwhile, those in US zip codes with high flood risk have appreciated 0.2-0.4 percentage points less per year than otherwise comparable areas — an estimated $31 billion of residential real estate value foregone between 2013 and 2024.
From an investor perspective, the most striking finding is the risk to valuations. Studies suggest that incorporating US flood risk into house prices would imply a downward correction of $121-$237 billion – meaning the $31 billion observed to date is only ~15-25% of the actual cost. This shows how incomplete the repricing of climate risk remains and highlights the need for careful investor consideration about how exposure is constructed.
These risks also extend far beyond the US. European floods have caused more than €100 billion of damage in the past five years, while Southern Europe regularly experiences summer wildfire seasons that have repriced insurance in parts of Greece, Spain and Portugal. Across Asia, typhoon frequency and intensity continue to climb, while in many emerging markets, fast-growing coastal cities concentrate residential and commercial real estate value in locations exposed to rising sea levels, storms and floods.
The listed advantage
These issues also underscore the structural advantages of listed real estate over direct property investment. The latter is typically illiquid, geographically concentrated by necessity and often subject to dated valuations. Real assets are difficult to exit if their climate exposure deteriorates and repositioning a portfolio takes years with significant transaction costs. Disclosure is also often limited to energy performance and resource efficiency rather than physical climate risks.
REITs, in contrast, increasingly publish portfolio-wide threat analysis under TCFD-aligned frameworks, with methodologies that can be scrutinised, compared, and challenged. As well as climate-related risks, listed real estate investors can also see what management is doing to mitigate them – and hold them accountable. Liquidity allows rapid repositioning if the risk-reward is unfavourable and a global fund like SKAGEN m2 can diversify across sectors and geographies.
Portfolio protection
At a portfolio level, the best way to protect against re-pricing from climate events is valuation. Our portfolio trades at a discount to the broader index on all common metrics – this should provide both greater upside potential and a margin of safety against downside risks from climate-related and any other threats.
Another key defence against climate-related stress is financial solidity. Climate shocks – whether physical, asset / insurance re-pricing or regulatory tightening – ultimately test a company’s balance sheet. Those with stretched leverage, short debt maturities and floating-rate exposure are far more vulnerable to these shocks (and likelier to default) than those with conservative capital structures.
REITs generally have steadily de-risked balance sheets since the global financial crisis and SKAGEN m2's portfolio holdings are conservatively financed on every measure that matters. The current weighted average loan-to-value is 42% – well below the level at which most lenders begin to apply pressure – net gearing is 77% and the average debt maturity 4 years, providing meaningful refinancing breathing room. Around four-fifths (79%) of debt is also fixed-rate, insulating earnings from the possible return of rising interest rates that we have seen since the Iran war stated. Finally, the weighted average interest coverage ratio of 4.4x leaves substantial headroom even in a stress scenario[2].
As well as having conservative valuations and capital structures, several of our holdings are at the forefront of climate mitigation within their sectors. Prologis, the world's largest logistics real estate company and a top-ten holding, recently surpassed its target of one gigawatt of installed solar and battery storage across its global portfolio and is now extending the platform into geothermal, fuel cells and linear generators, en route to achieving net-zero emissions from its operations and value chain by 2040. Equinix, a top-five position, has long been one of the largest corporate purchasers of renewable power globally and continues to strive for data centre water and energy efficiency.
European logistics names CTP and Catena develop almost exclusively to excellent or very good BREEAM standards. Helios Towers, the fund's largest position, is progressively replacing diesel generation with hybrid solar and battery systems across its African tower portfolio. This also makes commercial sense in the form of lower energy costs, longer asset lives and better tenant retention – as we have written about previously, there is wide-ranging research that green buildings command premium prices and we believe they will continue to do so.
The resilience road ahead
Looking forward, resilience is likely to be an increasingly important theme for investors. As conflict, energy insecurity and extreme weather become more common, allocating capital to companies that can navigate the stresses and opportunities they create will be key. Real estate and its role in meeting new power needs, digital developments and supply chain adaptations will remain at the forefront of this changing investment landscape.
Over its near 14-year history, SKAGEN m2 has evolved beyond traditional listed real estate into a fund that provides exposure to infrastructure, climate adaptation, digital reliability, demographic support and technology. Selecting companies with attractive valuations and strong balance sheets will remain constant but the search for those providing durability and resilience will also continue to evolve in our changing world.
[1] Climate risk is already reshaping the US housing market, ICE Climate, April 2026.
[2] As at 30/04/2026.
