Physical Climate Risk Is Now Front and Center for Investors

Physical climate risk is already affecting reported corporate performance, so investors should combine earnings-call evidence with forward-looking issuer-level data to identify and manage exposure.

• The authors reviewed five years of earnings-call transcripts for companies in the MSCI ACWI Index and found about 12,000 mentions linking physical climate hazards to financial impacts across 1,000 companies.
• Utilities, energy and materials most often connected climate hazards with financial performance because of their capital-intensive, location-specific assets; insurers were a distinct case because hazards affect the risks they underwrite.
• Revenue was the most common financial channel, appearing in 68% of qualifying commentary, while operating expenses accounted for 17%; asset-heavy companies emphasized damage, reliability and resilience spending, whereas lighter-asset businesses cited demand, sales, pricing and volumes.
• Insurers placed more than 80% of qualifying commentary in operating expenses and only 10% in revenue, while 16% of roughly 1,500 companies with any climate-linked commentary mentioned insurance markets, often through rising premiums, larger losses or non-renewals.
• Risk patterns varied geographically: North America led mentions of tropical cyclones, severe windstorms and wildfires, emerging Asia was dominated by precipitation, and Latin America showed high mentions of precipitation and drought; revenue exposure also shifted some risks across borders.

Takeaway: Investors should first use corporate commentary to screen sectors and regions, then apply granular forward-looking data and engagement insights to assess materiality, while recognizing that the study does not quantify impact size or fully separate climate effects from ordinary weather variability.