Turning climate risk into strategy: predictive data for resilient portfolios

As climate shocks grow more frequent, investors must move beyond backward-looking models. A Risk.net webinar explored how predictive analytics, shifting fiduciary duty and resilient strategies are reshaping portfolios

The accelerating costs of climate change are forcing investors to rethink how they assess, value and manage portfolios. Billion-dollar disasters are no longer outliers but regular occurrences, and traditional models rooted in historic data are proving insufficient.

These challenges, and the opportunities that might arise from them, were explored in a recent Risk.net webinar, convened in association with First Street, Predictive risk for resilient portfolios: climate adaptation, valuation and strategy.

From insurance checks to integrated analysis

For much of the industry, climate risk was once treated narrowly – often limited to ensuring whether assets could be insured. This is changing rapidly, the panel noted. Investors are now embedding climate assessments into acquisition processes, portfolio monitoring and strategic allocation. Larger wealth funds with significant real estate portfolios, for example, are shifting from simple site-level insurance checks to comprehensive evaluations of current and future risks. These assessments not only identify whether an asset can be protected from climate events, but also how resilient it is likely to be in a changing climate.

This shift reflects a growing consensus that climate risk is financial risk. Exercises such as monitoring for climate exposure, perhaps once seen as peripheral to due diligence, are becoming central to investment decision-making.

A maturing toolkit

Climate analytics have grown in sophistication, enabling asset managers to move beyond blunt stress tests to asset-level insights. “When we started about nine years ago, it was really hard to find people using sophisticated physical climate risk tools,” explained First Street’s chief economist, Jeremy Porter. “Now we’re able to look at individual property investments and understand things like improving resilience for certain buildings – and what that return on investment looks like in relation to climate risk.”

Advances in geospatial modelling, physics-based climate simulations and the recognition that infrastructure and supply chain vulnerabilities can pose financial risk are driving this evolution. When it comes to wildfires or floods, investors are no longer only asking “What is the hazard?” but also “How will it affect revenue, viability and location desirability?”

The challenge of data quality

Despite an influx of data providers, progress and application can be uneven. “The growth … has increased quantity, but not necessarily quality,” observed Aaron McDougall, head of climate at Amundi Investment Solutions. “Much of the data still relies on downscaling approaches that struggle to provide reliable results at the entity or asset level. We need models that can provide bottom-up, granular insights rather than just a top-down average.”

As a consequence, participants cautioned that investors must be rigorous in assessing methodologies and realistic about uncertainties before integrating outputs into decision-making.

From stress tests to strategy

The panel highlighted how firms are applying climate models not only to assess risk but also to uncover opportunities. Amundi, for example, has begun using geospatial tools to evaluate individual entities within its €2.2 trillion portfolio, tailoring analysis to different asset classes. “We’re moving beyond simply identifying risks,” said McDougall. “It’s about using these tools to inform stock-picking and credit analysis, and even to highlight emerging markets for adaptation-focused solutions.”

For longer-term investors in infrastructure or real estate, illiquidity makes climate-resilient due diligence especially critical. Once an asset is acquired, realignment is far more difficult – meaning the quality of initial investment decisions carries increasing weight.

Fiduciary duty redefined

Across the discussion, panel members agreed that fiduciary responsibility now includes climate adaptation. Boards and trustees expect managers to show that climate risks – physical and transitional – are being considered alongside traditional metrics. For long-term investors, integrating climate into decision-making is not optional, but part of fulfilling their responsibility to safeguard wealth across generations.

For Porter, the key is connecting climate models directly to material financial outcomes: “What we’re really looking for is to understand ways in which climate translates into financial risk. It’s not about climate in a vacuum – it’s about how it impacts revenue, asset values and long-term portfolio resilience.”

Looking ahead

The panel concluded with a recognition that climate analytics are still at an early stage – but progress is accelerating. Firms such as First Street are already working with global asset owners and asset managers to incorporate specialised climate risk financial modelling capabilities into their investment processes – addressing climate risk before it materialises. In the meantime, regulators are tightening expectations and clients are demanding greater transparency.

As McDougall highlighted: “This is a marathon, not a sprint. But the tools are improving, and we’re increasingly able to use them not just to mitigate risks, but also to identify the opportunities that come with adaptation.”