Financial Materiality of Physical Climate Risks

This research article examines the financial implications of physical climate risks, specifically focusing on hurricanes and their impact on asset performance. The study utilizes MSCI GeoSpatial Asset Intelligence data to analyze hurricane activity from 2022 to 2024, assessing whether localized exposure to such climate hazards affects stock performance. The findings indicate that firms with assets in hurricane paths experienced significant underperformance, with the effects worsening over time. The research highlights the uneven sector risks, particularly noting that the utilities sector showed the most downside sensitivity due to its infrastructure-heavy asset base. Additionally, the article discusses the importance of integrating physical climate risks into investment processes, emphasizing that current approaches remain underdeveloped. It proposes a scalable analytical framework that can be adapted to various climate hazards, aiming to provide empirical evidence for investors to better assess and manage these risks in their decision-making processes.