Foresight Sustainability | Market Research

European Risk: Impacts of food, water and energy climate-related risks on European real estate

April 23, 2023 25 Minute Read Time


Climate change risk, geopolitical confrontation, population growth and urbanization strain economic resources and create risks in real estate markets that require quantifying. 

While risks related to population growth and urbanization are already implicitly included in investors’ risk premiums, climate change risk is much harder to quantify. This is due to the extremely long-term horizon of climate change risk and its uncertain economic, societal, political, health and public safety knock-on impacts. Currently, investors’ assessment of climate change risk is mostly at the asset level (e.g., flood and fire risk) and less on the macro impact of food, water and energy (FWE) security–an assessment gap which needs to be plugged. Failure to appropriately price FWE security risks could lead to material mispricing and stranded assets which will be discussed in a second follow-up article.

Rising food and energy prices across the world are severely dampening economic growth prospects and pushing more of the world’s population into poverty. The price and availability of these resources (including water) are likely to become more volatile as demand increases, climate change adversely impacts supply and the transition to a low carbon economy takes hold. Understanding and incorporating these climate risks into real estate strategy is paramount in the coming decades.

Food, water and energy demand is expected to increase worldwide by 55%, 60% and 80%, respectively, by 2050.1 In tandem, pressure on FWE systems is simultaneously increasing at a local, national and global level due to a wide range of factors, including population growth, rural-to-urban migration (urbanization), rising incomes (and associated higher spending on energy- and water-intensive goods and services), international trade and climate change (e.g., extreme weather events, water pollution, soil productivity losses and impacts related to the transition to a net zero economy).

The varying degrees of FWE security in each real estate market will lead to differing risk premiums, which are likely to widen in the decade ahead as climate change impact amplifies. It will become increasingly important to quantify these within investment risk models.

Within this context, in this two-part series, we will explore security of three key resources—food, water and energy—in countries that make up our European model portfolio. In this first article, we will focus on food and water security, picking up energy and drawing some overall conclusions in the second article.

Food security

In 2020, one in three global citizens did not have access to adequate food, according to the Food and Agriculture Organization of the United Nations.2 Multiple studies evidence the relationship between the food security of a country and its economic growth. The economic and socio-political shocks of the last few years are exacerbating the systemic issues that are threatening food security and weakening the resilience of the food system, mainly due to climate change. Data from the World Bank suggests severe food insecurity as a percentage of the global population has increased from 8% to 11% in the five years to 2020.

Pandemic-related supply chain issues, the conflict in Ukraine, and increasingly extreme weather events have drastically impacted the price of food staples globally. Relative to three years ago, the FOA Food Price Index (the components of which are in Figure 1 below) has risen by 43%. While food price inflationary pressures have since eased somewhat in Q1 2023, there are cautionary lessons to learn from this period.

Figure 1: % rise in food prices, Q3 2019-Q3 2022

Percentage rise in EU food prices (Q3 2019-Q3 2022)

A steep rise in prices puts millions of people into food poverty, dampens economic growth and can lead to increasingly nationalistic behavior via food export bans. During the summer of 2022, at least 19 countries imposed export restrictions on agricultural goods in part to secure their own food security. This sort of behavior will likely re-intensify as food supply and price volatility returns. Countries that have a higher dependence on food imports are most vulnerable to increasingly nationalistic behavior (Chart 2). Future projections in global population trends imply food production must increase by at least 60% to meet the predicted population of 9.6 billion people by 2050, according to the UN’s Food and Agriculture Organization (FAO).

Figure 2: Food imports (% of merchandise imports) by country (2021)

EU food imports (% of merchandise imports) by country (2021)
Food security is assessed by four measurements:

  1. Availability of food through either domestic supply or imports and food aid
  2. Affordability of food for households
  3. Quality and safety of food in terms of individuals’ ability to absorb and metabolize the nutrients
  4. The stability and sustainability of the food supply

Based on these four pillars, the Economist produced a food security score for nations. We have ranked the countries in our European Model Portfolio based on this index below (Figure 3).

Figure 3: Economist 2022 Food Security Score

Economist 2022 EU food security score
The Western and Northern European countries score the highest based on availability, affordability, quality and safety and sustainability. Germany, Spain and Italy are on the lower side, as are the majority of CEE countries. 

Although the majority of European countries have relatively high food security scores, they are still at risk from medium- to longer-term impacts of climate change. A recent report from the U.K. Department of Environment and Rural Affairs highlights this, suggesting the biggest medium- to long-term risk to the U.K.’s domestic production comes from climate change and other environmental pressures like soil degradation, water quality and biodiversity. Wheat yields dropped by 40% in 2020 due to heavy rainfall and droughts at bad times in the growing season. Although they bounced back in 2021, this is an indicator of the effect that increasingly unreliable weather patterns may have on future production.

Water security

Secure water supply can no longer be assumed by developers in many parts of the world. Climate change, coupled with unsustainable withdrawals, are proving to be highly disruptive, aggravating water-stressed regions and generating stress in regions where water resources are currently still abundant. Physical water scarcity is often a seasonal, rather than a chronic, phenomenon and climate change is likely to intensify fluctuations in seasonal water availability throughout the year in less resilient locations.

The trends are prompting water security to climb up the legislative agenda, with stricter regulation around usage. Developers will soon face stricter water usage conditions, meaning buildings will need to be far more efficient in their water usage. In the U.K., more extreme and frequent weather patterns have overburdened sewage systems, polluting clean water. In France, last summer, more than 100 municipalities were without drinking water, leading to irrigation bans for farmers in those areas. Many countries are extracting freshwater quicker than it can replenish it, leading to declining water basin levels.

Four risks to water security include:

  1. Climate change: Climate change will affect the availability, quality and quantity of water for basic human needs, threatening access to water and sanitation for potentially billions of people. Food security, human health, urban and rural settlements, energy production, industrial development, economic growth and ecosystems are all water-dependent and thus vulnerable to the impacts of climate change. 
  2. Rising global population: The World Bank estimates that people generally require 100 to 200 liters of water daily to meet basic needs (. However, 1 billion people do not have access to safe water, a problem that will likely increase as the world population grows from 6.8 billion people now to about 9.7 billion by 2050, according to a United Nations estimate. 
  3. Changing diets: There is a significant global trend towards increased demand for more water-intensive meat and dairy as income grows in many countries.
  4. Human conflict: Disputes over water, both within countries and between countries, are sharply increasing.3 However, few of these conflicts have led to violence. 

Across Europe, water stress is currently relatively low, with smaller economies (mostly Nordics and Alpine/CEE region) experiencing very low levels of water stress. Belgium is experiencing the highest level of water stress in Europe (see Figure 4). Water stress is generally more pressing for regions with lower water resources and/or larger population pressures. However, these are risks that should be monitored given the potential of greater water stress on the horizon.

Figure 4: Level of water stress: freshwater withdrawal as a proportion of available freshwater resources, 2019

Level of EU water stress: freshwater withdrawal as a proportion of available freshwater resources (2019)
The need to innovate to improve water security is clear. With 80%-90% of new operations globally now being built in water-scarce areas, companies are increasingly competing against each other, domestic consumers and agricultural users for freshwater.4

In Europe alone, the value of newly built industrial and commercial real estate investment in 2021 was €38.3 billion, which doesn’t take into account older assets. Meaning that just based on the newly built assets, €30.64-€34.47 billion of assets are at risk of becoming stranded due to water scarcity locally and in the upstream supply chain.5

In the second and final article in this series, we will conclude the FWE review by examining energy security and how overlooking FWE risks may lead to mispricing and stranded assets.

1 Sources: FAO, OECD and IEA.
2 Source: United Nations Food and Agricultural Organization, 2021,
3 Source: WRI
4 Source: Savills.
5 Source: Savills.