Physical climate risk is playing an increasingly prominent role in banks’ risk management. However, access to climate risk data is not the same as having information that can be used in a credit decision, a portfolio analysis, or an investment.
For climate risk data to be useful, the bank must be able to link the risk to the right properties and assets, understand the exposure at the relevant geographic level, and relate the information to the decision at hand.
Start with the decision—not with the data
There is an increasing amount of data on, for example, flooding and other physical climate risks. But more data does not automatically provide a better basis for decision-making.
The information needed depends on the question the bank is trying to answer. Is the goal to conduct an initial screening of a portfolio? To assess a property as part of a credit process? To identify where an in-depth analysis is needed? Or to create a basis for investment and risk management?
Therefore, a better starting point is not “What climate data do we have?” but rather:
What decision do we need to be able to make?
Only then can we determine what data, level of geographic detail, and analysis are needed.
A general risk assessment isn’t always enough
The fact that an area is vulnerable to, for example, flooding does not mean that all properties within the area have the same level of exposure.
Two properties located close to each other may be affected differently depending on factors such as elevation, soil conditions, proximity to water, and terrain. An overview map may therefore be sufficient for an initial screening, while other decisions require analysis at the property or building level.
This is where the combination of different types of information becomes important. By linking climate data to property information and geographic analyses, it is possible to move from the question “Where is the risk?” to more business-related questions:
Which properties are exposed? To what risks? What does the exposure look like across the portfolio? And where is a more in-depth analysis needed?
From individual properties to the entire portfolio
For the bank, it’s not just the exposure of a single property that matters. The same information may need to be analyzed for many properties and collateral simultaneously.
When climate data can be linked to the right properties, it becomes possible to analyze exposure at the portfolio level. This makes it possible to identify where exposure exists and where there may be reason to proceed with a more detailed assessment.
It also makes physical climate risk relevant in more areas of the business. The information can be used as a basis for, for example, credit assessments, valuations, investments, and portfolio analyses—not just in sustainability reporting.
Climate risk is also an economic issue
When physical climate risk affects real estate and other assets, it also becomes a financial issue.
CDP’s report *Disclosure Dividend 2026* shows that companies are increasingly linking environmental risks to financial consequences. Of the more than 11,260 large and medium-sized companies included in the analysis, 71 percent specified which financial metrics are exposed to material environmental risks.
For the bank, this reinforces the need to move from a general understanding of climate risk to information that can be related to the properties, collateral, and portfolios the business actually works with.
Three Questions to Make Climate Risk Data Useful
When a bank develops its approach to physical climate risk, three questions serve as a good starting point:
Is it related to credit assessment, portfolio analysis, investment, reporting, or something else?
A general risk overview may suffice for an initial screening. Other decisions may require analysis at the property or building level.
Value is created when climate risk information can be related to the properties, collateral, and portfolios that the business actually works with.
From Risk Profile to Decision
For the bank, the challenge is therefore not merely to recognize that physical climate risk exists. The information must be linkable to the properties, collateral, and portfolios the business actually works with—and to the decision that needs to be made.
Which decision should the information support? What level of geographic detail is required? And can the information be used in conjunction with existing data and processes?
These are questions we explore in depth in the new issue of “” Metria Insights: Climate Risk in Practice—Finance.
In it, we take a closer look at how physical climate risk can serve as a useful basis for credit assessment, investments, and portfolio analysis, among other things.
Read Metria Insights: Climate Risk in Practice – Finance
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