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Climate Risk Is Reshaping Hospitality Investment

Originally published in Hotel Investment Today

 

By Adam Greenfader, Chairman, AG&T

As climate change accelerates, the hospitality industry faces a new generation of financial and operational challenges. For owners, developers, lenders, investors, and hotel operators, climate resilience is no longer simply an environmental consideration—it has become a critical investment metric.

In this article, originally published by Hotel Investment Today, Adam Greenfader explores how emerging climate disclosure standards and sophisticated asset-level risk analysis are transforming the way hospitality investments are evaluated, financed, and managed. Drawing on AG&T’s decades of experience advising hospitality and resort developments throughout the Caribbean, he examines practical strategies that can help investors protect value while improving long-term performance.

Climate Change and Hospitality Real Estate

The hospitality industry across the globe is confronting significant new risks resulting from climate change. Coastal regions and island destinations—including the Caribbean—face escalating physical threats that are fundamentally reshaping beachfront real estate. These include accelerated beach erosion, stronger hurricanes, rising sea levels, increased storm surge, and more frequent extreme weather events.

These changing conditions are driving higher capital expenditures for repairs and renovations, increasing construction costs for new developments, reducing the availability of affordable insurance, and placing downward pressure on Net Operating Income (NOI).

The encouraging news is that investors today have access to a new generation of analytical tools that allow climate risk to be evaluated with far greater precision than ever before.

A Top-Down Framework

In 2017, the G20 Finance Ministers and Central Bank Governors established the Task Force on Climate-related Financial Disclosures (TCFD) to improve transparency surrounding climate-related financial risks.

Building on those recommendations, the first comprehensive global sustainability reporting standards were released in June 2023 through the International Financial Reporting Standards (IFRS) Foundation.

The IFRS S2 Climate-related Disclosures Standard requires organizations to disclose climate-related risks and opportunities that may reasonably affect future cash flows, access to capital, and financing costs.

Real estate represented nearly 11% of all non-financial companies participating in climate reporting, following only the materials and consumer discretionary sectors. The standards include industry-specific guidance for:

  • Real estate

  • Real estate services

  • Hotels

  • Lodging

  • Hospitality operations

For the hospitality industry, the primary areas of concern include physical climate risks and greenhouse gas emissions.

Required disclosures now extend well beyond environmental reporting and include:

  • Board oversight

  • Management responsibilities

  • Climate-related risks and opportunities

  • Financial impacts

  • Strategic resilience

  • Risk identification and assessment

  • Risk management processes

  • Integration into enterprise-wide governance

Understanding these risks is rapidly becoming an essential component of investment underwriting and capital allocation.

A Bottom-Up Approach

While regulators have focused on top-down disclosure requirements, equally important innovations are emerging from the bottom up through asset-specific climate analysis.

Historically, developers and owners have understood that hurricanes and tropical storms increase operating costs and insurance premiums. However, accurately quantifying these financial impacts has been difficult because reliable long-term data has been limited.

Today, improved reporting, better regional datasets, and advanced numerical modeling techniques allow engineers and financial analysts to evaluate coastal risks with far greater confidence.

Many coastal engineering firms now model:

  • Flooding exposure

  • Storm surge

  • Wave impacts

  • Sea-level rise

  • Shoreline erosion

  • Long-term climate scenarios

These analyses can quantify potential financial impacts over the expected holding period of an investment and even estimate how climate risks may affect future exit valuations.

One example is ATM (A Geosyntec Company) in Florida, which has developed a tiered methodology for assessing coastal climate vulnerability, adaptation strategies, implementation costs, and financial implications.

Their approach combines coastal engineering, numerical modeling, and proprietary financial tools—including the Decoupled Net Present Value (DNPV) methodology—to measure the true cost of climate risk across different property types.

While considerably more sophisticated than traditional data analytics alone, these approaches provide investors with far more reliable information for decision-making. Research has demonstrated that relying solely on historical databases can significantly underestimate future storm-wave impacts because many coastal hazards have not been consistently recorded.

 

Better Information Creates Better Decisions

 

A detailed understanding of climate risk at the individual asset level provides meaningful advantages throughout the investment lifecycle.

Developers

Developers can evaluate site-specific vulnerabilities during technical due diligence, allowing resilience measures to be incorporated into project design before construction begins.

Hotel Operators

Hotel managers can develop comprehensive emergency response plans, identify opportunities to “build back better” after major events, and establish clear operational triggers for relocating facilities or implementing protective measures.

Property Owners

Owners of individual assets can negotiate more favorable insurance coverage and premiums by demonstrating documented investments in risk reduction and resilient infrastructure.

Portfolio Managers

Institutional investors managing multiple assets can compare climate risk across portfolios, diversify geographic exposure, prioritize capital improvements, and optimize long-term investment strategies.

 

Looking Ahead

 

Climate-related financial disclosure requirements will continue expanding as regulators—including the U.S. Securities and Exchange Commission (SEC), the European Central Bank, and U.S. banking regulators—adopt increasingly comprehensive reporting standards.

Organizations that embrace both regulatory disclosure and asset-level climate analysis today are likely to enjoy a meaningful competitive advantage tomorrow.

More resilient assets not only reduce operational costs through improved energy, water, and infrastructure efficiency, but also strengthen business continuity, improve insurability, and better withstand future climate-related disruptions.

Ultimately, a more granular understanding of climate risk enables investors to make smarter decisions, protect long-term value, improve investment returns, and strengthen exit strategies.

 

About the Author

Adam Greenfader is Chairman of AG&T, a Miami-based real estate development and advisory firm specializing in hospitality, mixed-use, resort, and destination developments throughout the Caribbean and Latin America. Over the course of his career, he has advised developers, institutional investors, lenders, family offices, and public agencies on more than 55 real estate development projects across Puerto Rico, Sint Maarten, Costa Rica, Panama, Mexico, the Dominican Republic, and other Caribbean markets.

 

AG&T Thought Leadership

At AG&T, research and thought leadership are fundamental to our advisory practice. Our professionals regularly contribute to leading real estate, hospitality, finance, and economic development publications while participating in conferences, panel discussions, and industry forums throughout the United States and the Caribbean.

Adam Greenfader frequently collaborates with journalists, editors, publishers, conference organizers, and professional associations, providing expert commentary on Caribbean real estate, hospitality investment, climate resilience, sustainable development, and capital markets. His articles, interviews, and presentations help inform industry dialogue and reflect AG&T’s commitment to advancing knowledge, sharing best practices, and supporting responsible development throughout the region.