Every Financial Decision Should Account for a Changing Climate
“Physical risk is no longer a future scenario to be disclosed once a year. It is a financial input that belongs in underwriting, valuation and capital allocation today.”
Most institutions still underwrite real assets the way they always have, on historical data. The problem is that the climate is no longer behaving the way the historical record would predict. Rainfall is heavier, heat is more persistent and water stress is spreading into markets that never priced for it. When the inputs are backward-looking, the risk is mispriced, and that mispricing compounds over the 20-to-30-year life of an asset.
This is the gap First Street was built to close, and our research over the past year has made its size hard to ignore.
The cost is already on the books
Physical risk is usually framed as a future problem. But the truth is, the financial impact is already measurable in current earnings.
In our recent study, “The New Cost of Doing Business,” we found that companies are now more than 6.5 times as likely to issue a profit warning following an extreme weather event than they were two decades ago. It is not hypothetical, and it is showing up in operations, earnings and enterprise value now.
We see the same pattern in real estate. Across more than 45,000 properties held by 65 REITs in 61 countries, we found that climate disruption already costs the typical REIT around 1.1% of annual revenue, roughly USD 3.1 billion across the MSCI World REITs Index.1 In a one-in-one-hundred-year event, we found average losses reach about 15% of revenue, and nearly every REIT we studied would take a hit. These are not tail risks sitting safely in the distance. They are a standing charge against revenue that most valuation models still do not capture.
The newest frontier is the infrastructure being built for the AI economy. In research we released this month, we analyzed 97 global data-center markets and found that close to 80% of capacity sits in locations exposed to acute hazards such as flooding, severe wind and wildfire, with just over half also facing chronic stress from extreme heat, drought and water scarcity.2 Exposure runs highest in the Asia-Pacific region, at 89%, and several of the fastest growing markets, including Northern Virginia, Johor and Marseille, are among the most exposed. The world is building its most capital-intensive infrastructure where operating conditions are hardest, not easiest, and committing to those sites for decades.
From hazard to financial loss
Knowing that a property sits in a flood zone is not the same as knowing what that means for a loan, a portfolio or a balance sheet. The work that matters is the translation: turning a hazard into a quantified, financially material number that a risk committee can act on.
That translation is what we do. For any coordinate, and across more than 2.4 billion structures worldwide, First Street models physical hazards (floods, wildfires, wind, extreme heat and drought) into damage, downtime and expected loss at the level of an individual building, then aggregates them up to a company, a portfolio or a loan book. The science is physics-based and peer-reviewed, validated against observed events, and transparent enough that a regulator or an auditor can trace outputs back to their method. AI and machine learning have been foundational to the models from the start, not added at the end. Physics provides the rigor. AI provides the scale that makes property-level coverage of the planet possible, delivered on demand and queryable in plain language.
We have also pushed past individual properties. Our complex assets work applies the same modeling to infrastructure systems and large sites, including transportation networks, energy systems and the data centers above, identifying the specific segments that drive vulnerability. And because exposure is only half the question, our adaptation analytics quantify what a given resilience measure costs against the loss it avoids, so clients can weigh adaptation as a capital decision rather than a compliance line item. This is what we mean by climate risk financial modeling: It’s not a score. It’s a defensible financial input.
Why scale, and why MSCI
A model is only as valuable as the decisions it reaches. Our research keeps surfacing the same truth that physical risk is global, it is uneven and it is concentrated in exactly the markets where capital is flowing fastest. Meeting a problem of that shape means putting decision-grade science in front of the institutions allocating that capital, everywhere they operate.
That is why we will be joining MSCI. For decades, MSCI has been one of the most trusted names in the analytics that move global capital, including indexes, risk and portfolio tools, real assets and the geospatial asset intelligence that maps where companies actually operate. Pairing our property-level science with that reach will mean physical risk can sit directly alongside the factor, valuation and portfolio data investors already use, in one workflow, rather than in a separate report consulted after the decision is made. For an institution evaluating physical risk for the first time, it will provide a single path from hazard exposure to financial impact at portfolio scale. The logic of the combination is clear: our science, MSCI’s distribution and global footprint, and a shared conviction that climate belongs inside financial decision-making rather than beside it.
The standard we are building toward
We started First Street on a simple belief that every financial decision should account for a changing climate. For most of the market, climate is still something to report once a year. Our ambition has always been to make it something institutions act on; something priced into a loan, weighed in an allocation and built into a capital plan.
The research above is the case for urgency. The combination with MSCI will be how we put the answer in more hands, faster. What gets measured gets managed, and our goal is to make physical risk impossible to overlook in the decisions that determine how the world allocates its capital.
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GeoSpatial Asset Intelligence
GeoSpatial Asset Intelligence delivers asset-level nature and physical risk data to help investors, banks and insurers identify and manage risk.
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1 First Street REIT physical climate risk analysis, April 2026 (45,000 properties across 65 REITs in 61 countries).
2 First Street global data center climate risk report, June 2026 (97 markets analyzed).
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