Climate Adjusted Value is the percentage reduction in value for the property, relative to an equivalent property unaffected by climate change.
Climate Adjusted Value (CAV) assumes that borrowed funds are finite and that money spent on insurance or self-insurance against extreme weather and climate related hazards must redirect financial resources away from servicing a mortgage or loan on that asset. Using a default interest rate, this diversion of funds is calculated as an equivalent reduction in the principal value of the loan that may be borrowed.
As the value of a property may fluctuate with the market, the reduction in the lending capacity is expressed as a percentage reduction in market value rather than an absolute value. The Climate Adjusted Value is therefore the percentage reduction in value for the asset or property, relative to an equivalent property unaffected by extreme weather and climate change.