Asset Owners Underestimating Physical Climate Risk, Greenbank Warns

Why It Matters

Mis‑priced physical climate risk threatens portfolio returns and fiduciary compliance, prompting a shift toward more robust, financially material adaptation analysis across the investment industry.

Key Takeaways

• Physical risk largely omitted from market pricing models
• Swiss Re insured losses hit $137 bn in 2024
• 55% of firms face severe climate hazards
• Adaptation finance gap: $310‑$365 bn needed vs $26 bn supplied
• Qualitative assessments required due to data gaps

Pulse Analysis

Investors are waking to the reality that physical climate risk is no longer a distant theoretical concern but a present‑day financial liability. Floods, droughts and extreme weather events are already eroding asset values, as evidenced by Swiss Re’s $137 billion insured loss tally for 2024. Traditional portfolio models, which focus on short‑term market signals, fail to capture these long‑term exposures, leaving pension funds, insurers and sovereign wealth funds vulnerable to abrupt de‑valuation.

The adaptation‑mitigation debate is evolving into a call for integrated risk management. Greenbank’s Craig Leslie stresses that treating adaptation as a separate, niche sustainability task undermines fiduciary responsibilities. Instead, investors must embed climate‑related physical risk into their core risk‑adjusted return frameworks, using both quantitative tools and qualitative assessments to fill data gaps. MSCI’s finding that over half of analyzed companies are severely exposed, and that 89% of assets face multiple hazards, underscores the need for a holistic approach that balances mitigation investments with resilient adaptation strategies.

Supply‑chain resilience and climate tipping points add further layers of complexity. Greenbank’s engagement with food‑sector firms illustrates how materiality framing can unlock corporate action on hidden exposure. Yet, systemic tipping points—such as irreversible ice‑sheet melt—remain difficult to model, demanding scenario‑based stress testing and forward‑looking governance. As asset owners increasingly drive the agenda, the industry must accelerate data collection, refine climate‑value‑at‑risk metrics, and allocate capital toward adaptation pathways that safeguard long‑term value creation.