As extreme weather events pose increasing financial risks, investors play a critical role in integrating physical climate risks into investment decision-making and supporting systemic resilience measures.
UBP is proud to have worked with the Investment Leaders Group at the Cambridge Institute for Sustainability Leadership (CISL) on a new guide to help investors tackle these challenges, building on a longstanding partnership between CISL and UBP's impact team.
The climate crisis is no longer a distant threat but an urgent reality with significant financial repercussions. The raging wildfires in Los Angeles have forced 130,000 people to evacuate their homes and are projected to cost the economy more than USD 135 billion, while 2024’s deadly flooding in Valencia is expected to cost more than EUR 10 billion, and extreme weather events and natural disasters have cost the Asia-Pacific region an estimated USD 65 billion in losses in 2023. In total, climate disasters have caused losses of over USD 2 trillion to the global economy in the last decade.
Why climate resilience matters for investors
This picture sends a strong message: investors must prepare for a world in which extreme weather is inevitable and resilient investment strategies are an essential competitive advantage.
However, while efforts on climate change mitigation are gradually gaining momentum, climate adaptation and resilience continue to receive far less attention. Investor efforts to address physical climate risks remain fragmented, leaving communities and financial systems increasingly vulnerable.
Consequently, integrating physical climate risks into investment decision-making early on is crucial. This can help investors navigate the impacts of climate change on portfolio resilience and stability by better understanding exposure to climate-related risks and how their investment activities may be contributing to these risks and impacts.
But while avoiding losses is the primary motivation for building climate-resilient portfolios, focusing solely on this aspect underestimates the full range of benefits. The World Economic Forum (WEF) estimates a market opportunity of USD 2 trillion per year by 2026 in the field of adaptation and resilience investments.
Physical climate risks will increasingly impact companies' operations and supply chains. This will not only reshape corporate risk analysis but also create opportunities in sectors offering resilience solutions like infrastructure, risk detection and prevention systems, and ecosystem restoration.
Nicolas Barben, Global Head of ESG Solutions, UBP
At the same time, investors can play an important role in supporting systemic resilience measures through their investments, and as such help to minimise further physical and financial damage by contributing to broader climate resilience.
A practical investor guide
To support investors on this urgent and complex journey, the CISL publication Investing in Tomorrow: A guide to building climate-resilient investment portfolios provides investors with practical tools and strategies to address climate adaptation and resilience; it serves as a roadmap for managing physical climate risks within investment portfolios while contributing to greater climate resilience as a way to strengthen the broader economic ecosystem.
Focusing on listed equity and debt portfolios, the guide provides actionable insights and strategies, structured around two key themes:
1. Building Resilient Investments
This part outlines tools and approaches to integrate physical climate risks into investment portfolios, and highlights how early integration of climate risks into the investment process enhances preparedness and decision-making. It focuses on five central elements, including: setting investment objectives; asset allocation; due diligence and security analysis; portfolio construction and monitoring; and post-investment engagement.
2. Enabling Investment into Resilience
This section explores how investors can engage with policymakers, businesses, and the financial sector to drive systemic changes, including by aligning private capital with global adaptation goals, enhancing corporate disclosure standards and collaborating with the broader financial system to unlock innovative financing models.
The guide’s two-pronged approach aims to enable the financial sector to take decisive and systemic action. It shows the importance of collaboration and advocacy to drive meaningful change within the investment community and beyond. It also represents a critical step in equipping investors with the tools and strategies to mitigate climate risks and to actively contribute to a more resilient global economy.
