Physical climate risk is increasingly recognised as a core driver of performance, valuation, and responsibility to investors for asset managers.

At Mitiga Solutions, we work closely with asset managers across real estate, infrastructure, energy, and agriculture, and other asset classes. Based on these collaborations, we’ve identified five key considerations shaping how leading firms approach physical climate risk assessment today.

Key takeaways

• Physical climate risk is now a financial and investor concern  
• LPs are demanding stronger, science-based risk integration  
• Insurance is often the first real test of climate-risk assumptions  
• Asset-specific modelling is critical for meaningful insights  
• Scalable, shareable tools are essential for portfolio-wide decisions  

What is physical climate risk assessment?

Physical climate risk assessment evaluates how climate hazards, such as floods, heatwaves, wildfires, or extreme wind, can impact assets, operations, and financial performance.

For asset managers, this means understanding exposure at the asset and portfolio level and translating climate data into investment, operational, and strategic decisions.

1. Climate physical risk is now a core financial and fiduciary factor

Asset managers increasingly recognise physical climate risk assessment as a critical driver of investment performance, long-term valuation, and responsibility to investors. What was once treated as a secondary consideration is now a defining element of responsible investment, driven by the growing frequency, severity, and financial materiality of climate hazards.

However, physical climate risk does not exist in isolation. It competes with other variables in investment decision-making, from market dynamics to regulatory shifts and operational constraints. This makes usability essential. Climate risk insights must be structured so they can be directly integrated into financial models, underwriting processes, and portfolio strategies.

More importantly, climate risk data must move beyond exposure metrics and support decision-making. A robust physical climate risk assessment should enable asset managers to:

• Quantify financial impacts (e.g. asset damage, downtime, capex requirements) ‍
• Prioritise assets based on risk-adjusted value exposure  ‍
• Inform investment decisions, including deal screening and investment committee discussions  ‍
• Support insurance strategies, including negotiations and risk transfer  ‍
• Guide capital allocation for adaptation and resilience measures  

Without this translation layer, even the most advanced climate science remains disconnected from how capital is actually deployed.

Key takeaway: A strong physical climate risk assessment must be decision-ready, financially interpretable, and directly usable within investment workflows, not just scientifically robust.

2. Long-term investors are demanding stronger climate-risk integration

Long-term investors are no longer willing to accept indefensible or inconsistent climate risk management. Institutional investors overseeing more than $1.5 trillion are increasingly signalling that meaningful climate risk integration is now expected, with implications for:

• Capital allocation and shifts in investment flows  ‍
• Stewardship evaluations and ratings  ‍
• Mandate reallocation across managers

This shift reflects a broader change in how investors evaluate long-term value and risk exposure, increasingly grounded in forward-looking climate scenarios.

Under high-warming scenarios, pension fund returns could decline significantly by 2040, with potential reductions of up to 50% in some markets and up to 30% by 2050 in others.

In response, Limited Partners (LPs) are raising expectations. Asset managers are now expected to:

• Apply consistent climate risk assessment methodologies across portfolios  ‍
• Integrate climate science into investment decision-making  ‍
• Align portfolios with long-term climate scenarios, rather than short-term cycles  

For asset managers, this has direct implications for fundraising and competitiveness. A clear, comparable, and defensible approach to climate risk assessment is becoming essential to demonstrate long-term value creation.

Key takeaway: Climate risk is now a capital allocation signal, not just a reporting requirement.

3. Insurance is where climate risk becomes real

Climate risk assessment becomes truly actionable when it intersects with insurance requirements and underwriting decisions.

In practice, this dynamic often becomes visible when climate modelling identifies significant risk that is not fully accounted for early in the investment process.

In battery storage projects, for example, modelling can highlight substantial flood exposure under extreme rainfall conditions. While this type of risk may be initially deprioritised during development, it tends to resurface during insurance underwriting.

At that stage, risk assumptions are tested more rigorously. Assets may be deemed uninsurable unless specific mitigation measures, such as elevation or redesign, are implemented. These requirements often align closely with the original climate model outputs.

The consequence is rarely marginal. What could have been addressed upfront becomes a reactive intervention, leading to:

• Project delays and disrupted timelines  ‍
• Increased capex due to remediation works  ‍
• Design changes under time and budget pressure  

In many cases, this triggers a broader response. Asset managers move from a single-asset issue to portfolio-wide screening, applying hazard models across similar assets to avoid repeated exposure.

However, adaptation is not straightforward.

• It introduces additional costs, often on top of already high insurance premiums  ‍
• It must be asset-specific, reflecting operational and physical constraints  ‍
• Generic recommendations rarely improve resilience in a meaningful way  

In practice, portfolio companies understand their assets best. Overpromising one-size-fits-all adaptation strategies not only fails to reduce risk but can also erode trust in climate data and the teams behind it.

Key takeaway: Climate risk often becomes most visible through insurance constraints. When not addressed early, it translates into higher costs, delayed decisions, and reactive interventions.

4. Climate risk must be tailored to each asset class

Not all climate-exposed assets behave like buildings, yet many climate risk models still implicitly treat them as such.

In reality, risk is driven by the physics, biological tolerances, and operational thresholds of each asset. Applying generic assumptions can lead to misleading or incomplete results.

For example:

• Wind energy: Turbines respond to different stressors, including blade fatigue from repeated wind gusts, gearbox sensitivity to heat, icing conditions, and shutdown thresholds at specific wind speeds  ‍
• Infrastructure and real assets: Exposure translates into material stress, degradation, and operational downtime, depending on design and usage  ‍
• Agriculture: Risk depends on crop-specific physiological thresholds, such as heat stress tolerance, pollination temperature windows, and moisture conditions that influence disease

These differences require more than simple exposure analysis. They demand:

• Asset-specific damage functions, reflecting how each asset responds to climate hazards  ‍
• Flexible modelling approaches, adapting thresholds across regions, asset types, and use cases  ‍
• Integration of climate science with engineering and biological systems, to capture real-world impacts  

No single model can capture this diversity. Instead, a modular approach to climate risk assessment is needed, combining climate science, statistical modelling, and domain-specific impact functions to generate meaningful, decision-ready insights.

Key takeaway: Climate risk assessment must be tailored to the specific characteristics of each asset. One-size-fits-all models lead to misleading results and poor decisions.

5. Climate-risk tools must enable scale, consistency, and collaboration

Asset managers are no longer assessing climate risk in isolation. They require tools that allow multiple stakeholders, from investment teams to operators and external partners, to access and interact with the same insights directly.

In practice, this means enabling shared visibility into asset-level climate data, so that the same information used in investment decisions can also inform:

• Operational planning and maintenance strategies  ‍
• Adaptation and resilience investments  ‍
• On-the-ground decision-making by asset managers and operators  

Without this, a common breakdown occurs: climate insights remain siloed within investment teams, while implementation teams lack access to the same data.

The result is predictable:

• Insights remain siloed across teams  ‍
• Decisions are delayed or disconnected from operations  ‍
• Climate risk is mispriced or poorly managed  

Mitiga Solutions’ platform, EarthScan, is designed to address these challenges by enabling asset managers to assess, compare, and share climate risk insights across portfolios in a consistent and scalable way.

By combining asset-level modelling with a unified methodological framework, teams can move from fragmented analysis to decision-ready insights that support investment, operational, and reporting workflows.

To address this, a global and consistent methodological foundation is essential. Without standardisation in how hazards are defined, measured, and modelled, asset managers cannot meaningfully compare risk across:

• Regions and geographies  ‍
• Asset classes and technologies  ‍
• Portfolios and investment strategies  

A unified approach ensures that risk signals remain comparable and decision-relevant across contexts, while enabling alignment across the value chain, from investment teams to operators, engineers, insurers, and lenders.

Key takeaway: Climate risk must be embedded across the value chain, supported by shared access, consistent methodologies, and tools designed to operate at portfolio scale.

How asset managers can improve physical climate risk assessment

To move from insight to action, asset managers should:

• Start with asset-level exposure mapping across portfolios  
• Adopt scenario-based analysis to understand forward-looking risk  
• Ensure consistency in methodologies across assets and geographies  
• Integrate climate risk into valuation, capex, and investment decisions  
• Use tools that enable collaboration and portfolio-wide scale  

EarthScan enables this by providing:

• Asset-level hazard modelling  
• Scenario-aligned projections from 1970 to 2100
• Scalable portfolio screening and comparisson
• Decision-ready outputs for investment and reporting workflows

Conclusion

Physical climate risk is no longer theoretical. It is already shaping:

• Investment decisions  ‍
• Insurance outcomes  ‍
• Asset performance  

For asset managers, the challenge is no longer access to data, but the ability to translate that data into consistent, comparable, and decision-ready insights across portfolios.

Those who succeed will be better positioned to protect asset value, meet investor expectations, and remain competitive in a rapidly evolving market.