As climate change intensifies, there are increasing demands to include climate risks in real estate valuations and credit assessments. For banks and insurers, this means a shift from a historical focus to future-oriented analysis.
What is physical climate risk?
Physical climate risk refers to the direct effects of climate change, such as floods, heatwaves, storms, and droughts. These events can affect the value, functioning and insurability of buildings.
In its report FI Supervision 33: Climate risks in banks' stress tests (2025), Finansinspektionen (FI) has highlighted the need to integrate physical climate risks into banks' risk assessments. According to the report, the effects of, for example, floods, heatwaves and storms are often underestimated in traditional stress tests. FI therefore urges banks to develop models that better reflect climate-related risks - especially those linked to real estate collateral.
Read the full report here: FI Supervision 33 - Climate risks in banks' stress tests
Why is it relevant for banks and rating agencies?
Properties located in flood-prone areas, with high vulnerability to heat stress or affected by erosion may have a lower market value. In addition, restoration costs and insurance premiums may increase.
Here's how you can act:
- Integrate climate data into valuation models
- Use geo- and mapping data to identify risk areas
- Ensure ESG analysis includes physical climate risk
Including climate risk is not just a requirement from regulators - it's a tool for better credit decisions and future-proofing your business.
At Metria, we are experts in real estate and geographic information.
Pleasecontact us at Metria if you want to know more about climate-related risks.
More information about our services and how they can be used to minimize flood damage can be found here:
Analysis and advice - Turning data into knowledge (metria.se)
Climate-related risks - Metria Climate Index Property
Metria climate analysis for real estate and housing in Sweden