Is Physical Risk Financially Material?
Preview
Physical climate risks, such as hurricanes, are intensifying and driving material financial impacts for global investors. Using MSCI GeoSpatial Asset Intelligence, we linked hurricane activity (2022–2024) to asset-level exposures, testing whether such localized hazards affect stock performance.
The analysis shows that physical risks create persistent underperformance, amplified by concentration and sector sensitivity, and highlights the role of adaptation strategies in mitigating impacts. This evidence strengthens the case for integrating granular, event-driven climate data into investment decision-making frameworks.
Key findings:
- Hurricane-exposed firms significantly underperformed, with effects compounding up to 30 business days post-event.
- Tail risk increased: The lowest-performing firms continued to decline over the 36-day study window.
- Concentrated exposures worsened underperformance versus diversified footprints.
- Utilities were most vulnerable, while IT and industrial companies suffered mainly when critical or concentrated assets were exposed.
- Adaptation strategies helped reduce performance declines.
Data as of August 2025. The two lines show the mean and median of cumulative excess returns for issuers affected by hurricanes, measured over the observation window of five business days before impact and 30 business days after. The chart indicates that these firms continued to underperform throughout the 30 business days following the event, with the number of impacted issuers varying month to month. During peak hurricane season, such as September 2022, more than half of the MSCI ACWI Index constituents — over 1,600 issuers — were affected. (*** statistically significant at the 99% confidence level that the mean of all impacted issuers’ excess returns is below 0; ** at the 95% level; * at the 90% level.) Source: MSCI ESG Research
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