What Smart Money Is Watching: Climate Risk Disclosures and the Real Estate Market

The federal climate disclosure rules were issued but never took effect, with the SEC voluntarily staying implementation pending court review. This creates a complex, evolving landscape where real estate professionals face new disclosure requirements beyond traditional defects.

The fate of the SEC's landmark 2024 rule remains in legal limbo. The agency published its final climate-related disclosure regulations, which would have required public companies to detail climate risks and greenhouse gas emissions. But after several states petitioned the Eighth Circuit Court of Appeals, arguing the SEC overstepped its authority, the agency stayed implementation. The SEC voted to cease its defense of the rules, and the court has ordered the agency to clarify its intentions. For now, the regulations are not enforced, leaving a federal gap.

In that vacuum, states are stepping in. California has become the first state to pass climate disclosure laws. Now, other states like New York and Illinois are proposing similar bills. New York's Senate Bill 3456, reintroduced in January 2025, would require large companies doing business there to disclose their Scope 1, 2, and 3 emissions starting in 2027 and 2028, with third-party verification. New York, Colorado, New Jersey, and Illinois have all proposed their own versions of climate disclosure bills in 2025.

This creates a patchwork of rules. The trend is clear, but the ultimate shape of the regulatory landscape is uncertain. The current administration has signaled it may challenge state laws it deems unenforceable, adding another layer of volatility. For real estate professionals, this means navigating a regulatory wildcard where compliance obligations could vary wildly by location and may change before they even take effect.

The Insurance Premium Trap: Where the Money Actually Flows

The regulatory noise around climate disclosures is important, but for real estate, the real story is written in insurance bills. The tangible financial pressure is hitting homeowners in high-risk markets, where premiums can consume over 3% of a home's value-a direct drag on affordability and a key indicator of market stress.

In cities like Miami and New Orleans, the burden is severe. Homeowners in Miami faced the highest insurance burden among the top 100 metros, with a premium-to-market value ratio of 3.7%, followed closely by New Orleans at 3.6%. For a typical home in New Orleans, that translates to an annual premium of about $8,328. That's more than twice the median premium in San Jose, California, even though the median home there is nearly eight times more valuable. This disproportionate hit weighs heaviest on lower-value, high-risk properties, making them harder to sell and less attractive to buyers.

The problem extends beyond just the premium. Protection gaps are wide. Flood coverage must be bought separately, and flood risks are largely underestimated, with about 2 million homes facing significant risk without being in official high-risk zones. Hurricane deductibles are brutal, often set at 2% to 5% of the dwelling coverage. For a $400,000 home, a 5% hurricane deductible means paying $20,000 out of pocket before insurance kicks in-20 times the standard $1,000 deductible.

Smart money watches these numbers because they are a direct, measurable factor in home saleability. When insurance costs eat up a third of a home's value, it deters buyers and pressures pricing. This isn't a theoretical risk; it's a cash flow issue that influences every transaction. The bottom line is that climate risk is already a costly reality, and the insurance premium trap is where that cost hits the market first.

The Model Mess: What Data Do Insiders Trust?

The removal of climate risk scores from major listing sites like Zillow last month was a headline, but the real story is the scientific debate beneath it. For smart money, the inconsistency in the models themselves is the bigger red flag. When different systems rate the same property wildly differently, it means the data used to price risk is not a single, authoritative signal-it's a collection of educated guesses, and that creates dangerous uncertainty.

A study last October laid this bare. The Climate Financial Risk Forum examined how 13 different climate-risk companies each rated the same 100 properties worldwide. The results were all over the place. For flood risk, one model might flag a property as highly vulnerable while another saw no risk at all. The same confusion appeared for wildfire. This isn't a minor discrepancy; it's a fundamental lack of consensus on quantifying physical risk.

The problem isn't just theoretical. Bloomberg Green compared two major flood models last year and found they matched just 21% of the time. One model might place a well-known store in Boston on a road in Atlanta with a similar name, highlighting how sensitive these systems are to data quality and assumptions. The bottom line is that risk modeling is a relatively new discipline, and the "norms to emerge and become established" are still in flux.

For investors and buyers, this model divergence is a trap. If the data is scientifically debated, how can you trust the price? Oversimplified or incorrect projections could depress the value of some people's assets for no reason and distort market pricing. The smart money watches this mess because it reveals that while the climate risk is real, the tools to measure it are still evolving. Until there's a clearer standard, the data itself becomes a source of volatility, not a reliable guide.

Catalysts and Risks: What to Watch for the Thesis

The investment thesis hinges on climate risk becoming a tangible, costly reality in real estate. The near-term catalysts are clear: watch the Eighth Circuit's decision, insurance trends in high-risk metros, and the expansion of state laws. These are the signals that will confirm or contradict the thesis.

First, the Eighth Circuit Court's ruling on the SEC's rule stay is the ultimate regulatory fork in the road. The court has ordered the SEC to clarify its intentions by the end of March 2025. The court directed the SEC to provide a status report within 90 days advising whether the Commission intends to review or reconsider the rules. A decision here could either revive federal mandates or cement the state-by-state approach. For smart money, the key is the SEC's next move. If it abandons the rule, the federal gap remains, pushing compliance costs squarely onto state-level enforcement. If it revises and defends, it sets a national baseline, but the legal battle is far from over.

Second, monitor insurance cost trends in high-risk metros. The data is already a leading indicator. In Miami, the insurance burden is 3.7% of a home's market value, a direct drag on affordability. Watch for sustained premium increases or the introduction of new, more expensive coverage tiers. This is where climate risk translates into immediate, measurable cash flow pressure. When premiums consistently eat up a third of a home's value, it deters buyers and pressures pricing-a clear sign of market distress that the thesis depends on.

Finally, track state legislative progress. California's law is the blueprint, and New York's Senate Bill 3456 is the next major test. New York, Colorado, New Jersey, and Illinois have all proposed their own versions of climate disclosure bills in 2025. The expansion of these laws would increase compliance costs for real estate and property management firms, adding another layer of operational friction. Yet, the trend faces a potential federal roadblock. President Trump's Executive Order directing the U.S. Attorney General to identify and stop the enforcement of all state laws purporting to address climate change introduces a new, unpredictable variable. The smart money watches this interplay: state ambition versus federal preemption.

The bottom line is that the thesis is being tested on multiple fronts. The Eighth Circuit's decision will define the regulatory landscape. Insurance trends will show the real-world financial impact. And state legislative progress, shadowed by federal overreach, will reveal how quickly compliance costs are scaling. These are the concrete developments that will determine whether climate risk is a distant threat or an immediate, costly reality for real estate.