Lisa Eichler on Why Physical Climate Risk Is Already Reshaping Investment Returns

Physical climate risk is often framed as a long-term issue, but your new analysis indicates the impact is already materializing. Why is this a “today” problem for investors? 

Physical risk isn’t tomorrow’s problem - it’s already eroding returns today. Our latest analysis of 18 asset-owner portfolios shows that one quarter of portfolio value is exposed to severe physical hazards now. These location-specific risks, from flooding and heat stress to hurricanes and wildfire, are already affecting companies’ operations, supply chains and logistics, and ultimately investor outcomes. 

The research makes clear that understanding where a company’s assets are matters just as much as what sector it’s in. Physical risk is no longer a distant scenario-planning exercise; it’s a material driver of performance right now. 

How well do asset owners truly understand the location-driven risks embedded in their portfolios? 
In our experience, many asset owners have a solid view of climate exposure at the sector level, but far less visibility into the geographic footprint of the companies they hold. When geospatial data is used to map real-world asset locations, it becomes clear that traditional portfolio analysis can overlook significant vulnerabilities, because it does not consider where physical operations sit on the map. 

Across the portfolios assessed, 25% of value was exposed to severe hazards. But the range is stark: Some portfolios carry as little as 14% severely exposed portfolio value, while others shoulder up to 61% prompting an important question: Does this align with what investors see in their own assessments? Often the answer is “not yet,” which is why asset-level intelligence is becoming essential. 

Your analysis also shows that sector and domicile can be misleading. Are these labels hiding investors' true exposures? 
Very often, yes. Two companies in the same sector can have very different physical risk profiles, simply because their assets are located in different hazard zones. Sector classifications alone don’t capture that granularity. 

Similarly, domicile is a poor proxy for exposure. Companies now generate around half of their output outside their home country, meaning a firm headquartered in a low-risk region may still depend heavily on assets in hazard-prone geographies. For investors, this means that physical risk cannot be inferred from sector or country labels. Understanding exposure now requires an asset-level lens. 

Your research shows nearly 89% of assets face exposure to two or more hazards. How can asset owners turn this from a challenge into an opportunity, and what role does geospatial intelligence play? 

Multi-hazard exposure is widespread, yet many companies still show limited adaptation measures. This creates opportunities for asset owners to engage on resilience planning, capital-expenditure alignment, supplier diversification, and insurance strategy. 

Geospatial intelligence is increasingly being used to identify, quantify, and manage physical risks, informing internal allocation decisions, infrastructure due diligence, and engagement with external managers. 

Looking ahead, geospatial intelligence is poised to become as foundational as financial data. It enables investors to pinpoint asset-level exposure, model how hazards evolve over time, and identify where adaptation investments may unlock long-term value. Physical risk is now hidden in plain sight, but with the right tools, investors can bring it into focus.