Companies are increasingly addressing the impacts of extreme weather events and other physical risks but market signals will be key in driving investment.

Those are among perspectives shared at the MSCI Institute’s roundtable examining companies’ readiness to confront climate shocks. The forum featured leading institutional investors, banks, academics and industry groups coming together in São Paulo during the run-up to COP30 to discuss how companies are responding to the growing reality of physical climate risk, the opportunities for investors and the implications for policymakers.

Daniel Cremin, the MSCI Institute’s operating officer (left), and Linda-Eling Lee, the Institute’s founding director (second from left), discuss companies’ resilience to physical risk with investors, banks, academics, and industry groups in São Paulo on Nov. 5, 2025.

Below are some of the insights from the conversation, which built on the Institute’s recent Corporate Resilience Survey. The report, which gathers views from risk, operations and finance officers at 550 companies in industries highly exposed to physical risk globally, finds that over 80% of companies surveyed have experienced disruption from extreme weather events in the past five years, and that the overwhelming majority are conducting some form of physical risk-related cost-benefit analysis. Separately, research by MSCI analyzing the portfolios of 18 global asset owners representing USD 4 trillion in total assets under management finds that around 25% of asset-owner equity value sits in severe hazard zones.

Read the Institute’s Corporate Resilience Survey

1. Companies play defense

“Most companies are good at reacting to physical risk versus making it a competitive advantage,” observed one asset owner. At the same time, “investors are not giving companies a lot of credit for investing in cost avoidance and capturing long-term benefits.”

• The observation echoes a finding from the Institute’s survey that companies recently impacted by extreme weather events are twice as likely to have upgraded their infrastructure for resilience.
• Short horizons can limit investor focus. “It’s career risk for CIOs,” one asset owner noted. “Why focus on resilience over the long term if they can get higher returns within their time horizon?”
• Others cited examples of progress. One asset owner cited a real estate investment trust that saw insurance premiums fall by 11% after showing how its flood defenses reduced physical risks.

2. Markets need stronger signals

More than half of roundtable participants (55%) said in an informal poll that market pricing and signals from insurers would drive the fastest progress in building resilience.

• A professor at Harvard Business School cited his research into a mutual insurer that can pass profits to policyholders. It supplies companies it insures with actions they can take to strengthen resilience to physical risk, tracking the actions companies take and the reductions in risk that result. The insurer’s approach, he noted, reflects its management’s training as engineers. “If you approach the problem as engineers rather as investors, you get a different result,” he said.
• “We find a challenge with our investors that to tell them you’re going to save money by avoiding risk and loss in the future does not exactly get their pulses racing,” shared one asset manager. “They want to know what to buy.” His advice: “Get the data, integrate it into the investment process, and make sure that resilience is in the price. If we can price in resilience, we can send to the market a signal to invest in it.”
• “Finance will go where the demand is,” said one asset manager, noting differences between companies in developed and developing economies when it comes to reinforcing resilience against physical risk. “From flood protection to cooling systems, real estate in the developed world is quite well protected, less so in the developing world.”
• To drive investment in corporate resilience, “we need to create that demand signal for finance to step in,” suggested one participant, who noted that most Fortune 500 companies are already well protected from physical risk with three main exceptions: their supply chains, their distribution channels and the costs of dangerous heat. “It’s important to see where there will be pockets of need,” she added.
• “Asset owners are still trying to figure out the best signal for physical risk,” agreed another investor, who shared that clients are running physical-risk scenarios but don’t feel comfortable making portfolio decisions based on it. “There’s a lot of conversation around duration-adjusted climate risk; the difference in physical risk for a 30-year bond versus a five-year bond.”
• “We are aiming to shift the focus from decreasing exposures to seeing benefits,” according to the Institutional Investors Group on Climate Change (IIGCC), citing the group’s publication of both the Climate Resilience Investment Framework and the Physical Climate Risk Appraisal Methodology (PCRAM 2.0), which are designed to support investor climate resilience and adaptation strategies. “No one sees a benefit from just minimizing value at risk.”

3. Data too

Data gaps remain a barrier, participants highlighted. While investors are improving their ability to map asset-level exposure using geospatial data, assessing vulnerability remains difficult.

• Though companies surveyed by the Institute report impacts of extreme weather on both their operations and supply chains, “we have found that corporate assessments don’t typically reflect indirect impacts,” such as how physical risk can disrupt wider economic activities, shared another investor. “It underplays the management of physical risk.”
• “Companies are thinking about the investments they need to make,” echoed one lender, adding that “when we model direct and indirect exposure, it’s the indirect piece around supply chains where it becomes very challenging. Still, she said, mortgage lenders are increasingly factoring physical risk into lending and underwriting, as well as seeing increased engagement with borrowers on the topic.

4. Resilience opportunities take different forms

Participants agreed there are different aspects of resilience investment. One focuses on opportunities to make money through investments in companies that provide resilience solutions. Another focuses on the purchase of resilience solutions by companies for their own operations or supply chains. A third focuses on creating investment products designed to invest in either resilient companies or companies producing resilience solutions. Only 20% of companies in the Institute’s survey said they offer products or services that help their customers mitigate the impacts of extreme weather, while just 3% of firms that don’t offer such solutions say they aim to offer them in the future.

• “Resilience is already an investable theme, and our clients are making money in these companies,” said one investor, citing companies ranging from environmental solutions providers to suppliers of industrial and residential cooling. “If you talk to investors in these companies, they are doing well because the real-economy demand for their products is booming. The management teams don’t even know the term ‘adaptation.’”
• “We are thinking about what investment products in this space would look like, but the theme is super-broad,” relayed another investor. “There is no archetypal investment in resilience. It could be a tech vertical or a buildings vertical or on the cooling side.”
• The overall framework for investing in resilience is there,” noted one asset owner, citing work by MSCI and the Global Adaptation & Resilience Investment Working Group to identify an investable universe of resilience-solutions companies, and work by Temasek and Boston Consulting Group to guide investors through the universe of opportunities. “The challenge is that the pure plays tend to be smaller or less mature, but by tracking hopefully we’ll enable capital to flow,” she added.
• “We are focused on the near horizon, where physical risk will matter materially to investors,” relayed another investor, citing the rise of catastrophic risk from wildfire in recent years. “You will have these events that drive need for these solutions. Companies that supply these solutions in the near horizon will be dramatically better positioned to capitalize.”

5. Policy matters

Participants underscored the importance of policy. Governments also have a role in addressing physical risk, suggested one investor, citing the mortgage market in Australia and the value of flood-reinsurance schemes such as the one in the U.K. “If you look at exposures that are one-off, you can go far with risk reduction, but if you have a tropical cyclone that sweeps through Sydney, those measures won’t be enough.”

• Like investors, policymakers can focus on the risks likely to rise in the near term and shape resilience accordingly,” added one investor. “Rather than adaptation everywhere for everything, you can prepare people for what’s to come through policy.”
• Policy-driven standards that require resilience can make a real difference, especially in emerging markets, a senior advisor at the Climate Policy Initiative noted. “Governments care about infrastructure,” he commented, adding that a standardized approach to regulation “allows you to pool derisked assets into securitized pools.”
• A lot of private investment in adaptation ties to national adaptation planning, yet “the distinction between public and private investment requirements is a bit nebulous,” commented one asset owner. “How do you make sure that national adaptation plans recognize a distinct role for the private sector?”