The Bill is Due: Physical-Hazard Revenue Losses Mount, Plans Lag

As the planet continues to warm, physical climate risk is no longer an abstract future concern. It is financially material today, with companies facing two types of threats: 

• Acute hazards such as floods, cyclones and wildfires, which arrive suddenly and inflict visible, headline-grabbing damage. 
• Chronic hazards such as extreme heat, precipitation shifts or prolonged drought, which gradually increase over time, reducing productivity, shifting consumer behavior, straining operations and depressing revenues. 

Acute-hazard events like the Los Angeles wildfires or Typhoon Doksuri in Southeast Asia grab headlines as examples of tail risks that can drive outsized losses for companies. Our data shows, however, that investors need to be equally mindful of the slower-burning risks inflicted by chronic hazards that can relentlessly erode enterprise value.  

This shift in perspective is critical for investors and risk managers. Acute events test resilience episodically. Chronic risks, however, permanently alter the operating baseline: reshaping supply chains, labor productivity, insurance costs and asset valuations. Ignoring them means underestimating the true drag of climate change on corporate earnings and portfolio performance. 

Using MSCI’s Physical Risk Metrics – Issuer Level, we estimate that the approximately 9,350 global public companies across the MSCI Climate Change Metrics universe¹ could face a total of USD 1.3 trillion in losses from physical climate hazards, as depicted in the table below. The losses are based on estimates of direct asset damage and lost revenue opportunities.² They can be further broken down as follows: 

• USD 183 billion (14%) in losses from acute events, where pluvial flooding, coastal flooding and tropical cyclones and hurricanes are the top three contributors.  
• USD 1.1 trillion (86%) in losses from chronic risks, where extreme heat accounts for almost half of the total expected losses (USD 598 billion), followed by extreme precipitation (USD 349 billion).³

Physical losses have always affected companies, and the figures presented here are in comparison to a world without asset damage, productivity declines or operational disruptions from physical hazards. Given the sheer scale of these losses, however, their upward trend in a warming world and the uneven exposure of companies to such risks (as discussed below), investors must be mindful of their present and growing financial materiality. 

This analysis was undertaken with data from MSCI's Physical Risk Metrics - Issuer Level, spanning the 9,350 companies in the MSCI Climate Change Metrics universe as of Aug. 22, 2025. Average annual loss (AAL) estimates do not reflect tail risk and extreme losses.

Forecasts for company-level AAL aggregate estimates of asset damage and business interruption at the firm’s individual asset locations, giving a holistic view of the physical hazard exposure of each issuer. Using MSCI Physical Risk Metrics – Issuer Level we looked at the distribution of losses across global listed firms in the coming year, as well as the risk concentration measure of the average percentage of these estimated losses that come from a specific province (i.e., sub-national administrative region or state). Our analysis, as shown in the chart below, finds that: 

• The distribution of estimated losses for both acute and chronic hazards are skewed and long-tailed to the right, meaning that a large amount of risk is concentrated in a relatively small number of companies. 
• Both chronic and acute-loss estimates are regionally concentrated for the average company. Acute losses are more concentrated, with the top contributing province for each company making up a higher average percentage of total estimated annual losses than the equivalent for chronic. Larger globalized companies have lower loss concentration than smaller companies, but even for mega-cap names, an average of over 30% of estimated losses are from a single province.    

All values are derived from MSCI’s Physical Risk Metrics – Issuer Level. AAL estimates as a percentage of the firm’s most recent annual revenue are based on an aggregation of estimated losses from the issuer’s asset locations identified by MSCI ESG Research. MSCI’s Geospatial Asset Location Database covers over three million global issuer asset locations but may not reflect all operations or asset locations for each issuer. It also does not capture certain infrastructure types that span wider land areas like utility service lines and telecommunication networks. The distributions on the left are from the 9,347 global public issuers that make up MSCI’s Climate Change Metrics universe, as of Aug. 22, 2025. 

Companies in high-risk locations that have not developed plans to manage physical hazards may face the greatest vulnerabilities. Investors can start a preparedness assessment for a company by checking for disclosures of physical-risk assessments, and whether the findings of these assessments are incorporated into core strategy, planning and risk operations.⁴

Data from MSCI Physical Risk – Issuer Level metrics show that while almost two-thirds (65%) of MSCI ACWI Index constituents disclosed they had completed physical-climate-risk assessments, only around half (56%) also reported incorporating climate-related factors into their overall risk-management processes.  

Data as of Aug. 22, 2025, based on constituents of the MSCI ACWI Index. Sector definitions are based on the Global Industry Classification Standard (GICS®). GICS is the industry-classification standard jointly developed by MSCI and S&P Dow Jones Indices. Source: MSCI ESG Research  

Combining company-level hazard analysis with assessments of adaptation capacity gives investors a more complete picture of their exposure to physical climate risks. As the distribution of risks above shows, investors who limit exposure to the highest-risk names through portfolio construction, monitoring and engagement can potentially improve financial outcomes. Acute risks may generate lower average losses, but their volatility makes them critical to account for in order to avoid catastrophic shocks. Chronic risks, by contrast, erode value more steadily year after year — and in a warming world, their growing scale makes them essential to incorporate when modelling issuers’ future cash flows.