Key takeaways
- Physical climate risk is moving from a disclosure issue to a core financing variable, with direct implications for insurance cover, refinancing conditions and asset value.
- Investors are shifting from broad sustainability screens to asset-level analysis focused on operational resilience, insurability and long-term bankability.
- Adaptation is emerging as a more investable theme, but scaling capital will require earlier insurer involvement, more transparent risk methodologies and longer-dated financing structures.
At this year’s Sustainable Expert Forum at Parc des Princes, the panel “Physical climate risk: reshaping insurability, bankability and asset valuation” brought together Michael Kashani, Head of Sustainable Credit & Platforms, Apollo, and Morgane Schwab, Climate Risk & Business Development Officer, Zurich Resilience Solutions, in a discussion moderated by Charline Vuillermoz, Head of Sustainability for Financial Institutions Coverage, BNP Paribas. Set against a broader agenda focused on how markets are responding to the energy transition and the real-economy effects of climate change, the session examined how physical climate risk is affecting financing decisions for real assets, including real estate and infrastructure.
For capital markets, the issue is becoming more immediate. The discussion focused on asset-level analysis, insurance availability, refinancing conditions and valuation, all of which are becoming more material as climate exposure becomes easier to identify and harder to absorb. A clear theme was that resilience is moving earlier into deal structuring because exposure that cannot be insured, mitigated or clearly priced is becoming harder to finance on acceptable terms.
❝ Climate change is accelerating. Extreme weather events are becoming more frequent, more severe and harder to predict. Physical climate risk is increasingly a financial risk, affecting assets, operations, supply chains and productivity. In that context, resilience is no longer optional; it is becoming a strategic imperative. ❞
Insurance, pricing and due diligence
Insurance is becoming a more immediate transmission channel through which physical climate risk affects financing decisions. As losses rise across flood, wildfire and other weather-related events, insurers are reassessing both the price of cover and the range of risks they are willing to underwrite. Schwab argued that this matters well beyond the insurance market itself. For lenders and investors, the availability and cost of cover increasingly shape whether an asset can be financed on viable terms, refinanced over time or valued with confidence against a longer-term operating horizon.
That shift is also changing the practical meaning of due diligence. Physical climate risk is highly uneven across locations, asset classes and business models, which makes broad sustainability screening less useful on its own. What increasingly matters is whether a specific site or asset can continue operating under changing physical conditions, whether input costs or downtime could rise materially, and whether insurance and financing remain available over the life of the investment. In that sense, resilience is becoming part of the core investment case rather than a separate environmental overlay.
❝ More extreme events — acute or chronic — mean more losses, which in turn means higher premiums, narrower cover and in some cases insurers withdrawing from certain geographies or excluding certain risks. That creates a significant insurance protection gap. And what is not insurable increasingly becomes harder to invest in. ❞
This is why investors are moving towards more asset-level analysis. Corporate-level averages can obscure material differences between facilities, transport links or supply nodes that face very different climate exposures. For sectors with long-lived physical assets, that has direct implications for revenue resilience, capital expenditure needs and exit assumptions. Kashani argued that it also increases the importance of understanding not only direct exposure, but the resilience of the wider operating model around the asset.
Adaptation opportunity
A more granular view of risk is also changing how markets define opportunity. In infrastructure and real assets, climate resilience is no longer only about reducing downside; it is also shaping which assets, technologies and service models look durable under more volatile physical conditions. Kashani argued that this is particularly relevant in sectors where performance depends on weather stability, supply-chain continuity or long-lived operating infrastructure, and where small changes in physical assumptions can alter the investment case.
❝ There are also growing investment opportunities linked directly to resilience: efforts to reduce the likelihood of wildfires, resilience services, and other adaptation-related infrastructure. These are becoming increasingly bankable because the need is real and growing. ❞
This helps explain why adaptation is starting to emerge as a more investable theme in its own right. Activities such as resilience services, wildfire prevention and other forms of protective or adaptive infrastructure are attracting interest because they respond to operational needs that are becoming harder to defer. As adaptation spending becomes tied more closely to business continuity, risk reduction and asset protection, it is beginning to move from a peripheral sustainability category towards a more recognisable investment proposition.
Capital and methodology
If resilience is becoming easier to identify as a financing issue, the next question is how markets can fund it at scale. This is where the discussion shifted from diagnosis to implementation, focusing on the financing frameworks, data practices and capital structures needed to support more systematic adaptation investment.
The challenge, Schwab argued, is that adaptation does not always fit neatly into conventional financing models. Many resilience investments are designed to preserve value, reduce losses or protect future cash flows rather than generate immediate visible returns. That can make them harder to assess within capital-allocation frameworks that still favour shorter time horizons or clearer payback profiles. The result is a persistent mismatch between the long-term economic case for resilience and the way many projects are still financed.
Schwab also argued that methodology remains a major constraint. Physical climate risk modelling is becoming more common, but markets still rely on differing assumptions, datasets and analytical approaches. That makes it harder to compare exposures consistently, build confidence in pricing and translate technical climate analysis into investment decisions. Greater transparency around methods is therefore likely to be essential if adaptation finance is to scale more credibly across asset classes and geographies.
Kashani’s view was that financing structures will also need to adapt. Resilience projects are not always suited to the shortest or most liquid forms of capital, particularly where benefits accrue over longer periods or where risk reduction is the primary economic output. That points to a greater role for longer-dated pools of capital, including insurers, pension funds, sovereign investors and private markets. As he put it in the discussion, “The key point is that innovation in structure does not necessarily mean taking more risk.”
As climate-risk data improves and insurance markets differentiate more aggressively between exposures, resilience is likely to become more deeply embedded in capital allocation and project design.
