Physical risk: built for insurers, sold to investors

About this episode

Most physical climate risk tools used by investors began as catastrophe models for property insurers. They estimate what it costs to repair a building after a storm. Portfolio managers need something different: how a climate event affects a company’s enterprise value.

This short episode covers our research into that gap, and what investors can do about it.

What you’ll hear

Climate models are weakest where losses are largest. They run on grids of 50 to 200 kilometers, far coarser than the storms and rainfall behind floods and cyclones. Projections hold up better for heat and drought, which tend to cost less.

Direct damage is often the smallest part of the loss. Supply chain disruption and business interruption can outweigh it many times over, yet most tools leave supply chains out.

The episode uses the January 2025 Palisades fire as an example. A Kroger supermarket was destroyed, but it was one of more than 2,800 stores. After an early dip, Kroger’s stock outperformed the S&P 500 over the following weeks.

Our approach keeps hazard models but tests their outputs against market signals, such as how share prices and options responded to past events.

Read the full research

The white paper sets out the full Kroger case study, with steps investors can take now.

Read the white paper