April 1 – In 2025, the economic reality of climate risk hit hard. The hurricanes drove home insurance highs and wiped out the Florida coast. Floods in the UK raised claims in high-risk areas. In the Philippines, scientists have said that 30 percent of the damage caused by Typhoon Fung-wong is directly attributable to climate change. These were not exceptional weather events. They were financial events, and markets still don’t sell them as such.
The numbers are clear. Extreme weather caused losses of $2.3 trillion between 2000 and 2023, disrupting operations, supply chains and broader economic and natural systems. Physical climate risk now threatens credit ratings, insurability and public finances – as well as the long-term returns that pension funds and insurers can provide. However it remains largely absent in terms of asset pricing, portfolio construction and credit analysis.
COP30 in Belem was supposed to change this. Billed as the “Amazon COP”, it was aimed at setting standards and stability in the situation and reducing emissions, not least in the most vulnerable countries. The meeting provided some building blocks, from the heads of state’s commitment to cut costs and implement the Loss and Damage Fund, to strong language for strengthening key agreements.
However it lacked a reliable way to close the adaptation finance gap and provided little explanation for how to mobilize private capital. Investors have left Belem without the strategic certainty they need to factor climate risk into pricing and liquidity.
Some investors don’t wait. Take Octopus Energy Generation, which has applied the Institutional Investor Group on Climate Change Risk Assessment (PCRAM) methodology to a 100 MW solar portfolio across Europe. This process identified hail damage and heat stress as material risks, and showed how measures aimed at strengthening, in this case, polymer coating to enhance hail resistance, and an independent mist system on cooling panels, can protect income and improve long-term quality.
It also assessed whether reducing residual risk through those measures could improve the asset’s vulnerability.
Octopus Energy Generation has applied the Institute’s Investors Group on Climate Change climate risk assessment methodology to solar panels in its portfolio across Europe and… Purchase Licensing Rightsopens a new tabRead more
One is the Private Infrastructure Development Group, which tested a cargo boat on Lake Victoria against climate change in 49 weather conditions using this method. It was able to map the direct and indirect benefits from investments in capacity building measures that protected incomes.
These are not bad cases. They show what is possible when physical harm is treated as a financial variable rather than an environmental footnote.
Tools to do this are available. What is missing is scale. Fragmented processes, poor productivity and weak investment pipelines hold back money, while policy and regulation continue to prioritize reducing emissions over building capacity. Without clear signals and better data, capital will struggle to flow at the required rate.
The question is not whether climate risk is financial. The events of last year removed any lingering doubt about that. The question now is how we can bridge the gap between knowing that and doing it.
Traders who consider stability a core part of their portfolio strategy will be better placed than those who do not. Policymakers who put the right standards and incentives in place will spend less on disaster relief later on. And companies that ramp up their operations now, rather than scaling back after the damage is done, will protect more than just their assets.
The choice is as simple as it is urgent: invest in a warranty with a plan or pay it forever.
The views expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to maintaining integrity, independence and freedom from bias. Ethical Corporation Magazine, a division of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.
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Stephanie Pfeifer is CEO at the Institutional Investors Group on Climate Change, an investor-led organization with 400+ members across 20+ countries who want to support progress toward a better climate and climate future. Stephanie sits on the steering committees of Climate Action 100+, the Net Zero Asset Managers initiative and the Investor Agenda, as well as the executive committee of Paris-aligned Asset Owners.
