Physical climate risks arising from climate change are now a critical concern for infrastructure owners, operators, and investors in the built environment. These risks, both acute (event-driven hazards like floods and storms) and chronic (long-term shifts in weather patterns), pose significant threats to infrastructure. According to the Coalition for Disaster Resilient Infrastructure, climate-related disasters are responsible for average global infrastructure losses of $732-845 billion annually, underscoring the urgent need for adaptive measures.

The long-term and CapEx-heavy nature of infrastructure and built environment assets make them particularly exposed to physical climate-related risks. Rising temperatures, precipitation variability, sea level rise, and severe weather events collectively threaten to degrade these assets physically while simultaneously impacting the operational processes that rely on them. For companies in the built environment sector, typically operating on tight profit margins, a single major disruption can have considerable financial impacts.

The implications extend beyond direct infrastructure owners and operators; all users of the built environment are impacted. Critical assets such as buildings, airports, roads, power lines, data centres, and even landfill sites are essential to business activities. Interruptions in these areas cascade through supply chains, causing significant disruption.

Physical climate risks are, therefore, increasingly understood as a substantial financial threat to built infrastructure, affecting asset valuation, carrying amounts, and profitability. These risks often result in unanticipated capital and operational costs, lowering returns and diminishing asset value.

Consequently, a failure to identify, monitor, and mitigate physical climate risks can lead to substantial financial losses in the built environment sector. Without proactive risk management, physical risks increase the likelihood of maintenance requirements and early decommissioning, resulting in unanticipated capital and operational costs that damage profit margins.

Inadequate risk identification means that infrastructure owners may overlook critical vulnerabilities in their assets, from location-specific exposures to weaknesses in older infrastructure not designed for modern climate conditions. Moreover, the lack of mitigation strategies—such as retrofitting flood-prone buildings or reinforcing water supply networks in drought-prone areas—leaves assets vulnerable to climate impacts. When climate events occur, unprepared assets can incur severe operational disruptions, reduce revenue, and even face devaluation. This reduction of asset value directly impacts profitability and can damage the financial health of infrastructure portfolios, as assets without resilience mechanisms are perceived as higher-risk investments.

Furthermore, integrating climate risk insights into design and planning phases allows businesses to future-proof assets while creating opportunities for innovation and competitive advantage. Designing with climate resilience in mind—such as by selecting more durable materials, incorporating nature-based solutions, or adjusting site locations—ensures that new infrastructure is better prepared for the impacts of extreme weather and long-term climate shifts. This approach not only minimises the risk of costly disruptions; it also builds trust with stakeholders, enhances asset value and demonstrates alignment with regulatory requirements.

Businesses must proactively identify, monitor, and manage physical climate risks to protect assets and build long-term resilience. This involves conducting thorough risk assessments to pinpoint vulnerabilities and implementing actionable strategies to address them effectively.

• Climate-Focused Scenario Planning: Organisations should adopt advanced techniques to project multiple potential climate futures. By analysing how different scenarios could impact assets and operations over time, businesses can make informed decisions that remain resilient under various climate pathways.
• Stakeholder Engagement to Manage Risks: Effective management of interdependent risks requires collaboration across key stakeholders, particularly in sectors such as the built environment. Businesses should foster stakeholder engagement to establish robust risk monitoring and management strategies, thereby enhancing overall organisational resilience.

A deeper understanding of current and future climate risks offers multiple benefits, from improved stewardship of existing assets to more resilient design in future projects. By actively assessing and planning for physical climate risks, businesses can safeguard asset value, reduce unplanned expenditures, and ensure operational continuity—all essential for business longevity.

For investors, this commitment to understanding and managing physical climate risks creates confidence, as it signals that the business is not only protecting its assets but also aligning with best practices in sustainability and risk management. Transparent, data-backed climate resilience efforts demonstrate to investors that the business is well-equipped to face the physical impacts of climate change, enhancing credibility and reputation.

To understand more, one of our specialists can talk you through your challenges. Request a call back here, or contact our Head of ESG Risk, Reporting and Communications, Ed Packshaw here. 

Author: Mila Fenton, Consultant, Simply Sustainable

1. https://www.cdri.world/assessment-fiscal-risks-due-disaster-induced-loss-damages-cdri-member-countries
2. https://www.epa.gov/climateimpacts/climate-change-impacts-built-environment
3. https://ukgbc.org/our-work/topics/physical-risk/
4. https://www.accountingforsustainability.org/content/dam/a4s/corporate/home/KnowledgeHub/Guide-
5. https://kpmg.com/xx/en/our-insights/ifrg/2024/climatechange-ppe-intengibles.html
6. https://www.mckinsey.com/capabilities/sustainability/our-insights/will-infrastructure-bend-or-break-under-climate-stress