Physical climate risks are playing an increasingly prominent role in the financial sector’s risk management. But simply knowing that a risk exists is not the same as being able to use that information in a credit decision, a portfolio analysis, or as a basis for risk management.
This also became clear during Metria’s seminar on physical climate risks in September. The discussions repeatedly returned to issues of data quality, geographic level of detail, and how climate information can be linked to the right properties and assets.
In Metria Insights Finance – Climate Risk in Practice, we take a closer look at what it takes to move from a general risk overview to information that can actually be used in business decisions.
From General Climate Risk to the Right Property
The fact that an area is vulnerable to, say, flooding does not automatically mean that all properties in the area face the same risk.
Two properties may have different levels of exposure depending on factors such as elevation, soil conditions, proximity to water, and terrain. For physical climate risk to be useful in a credit or risk assessment process, the information must therefore be linked to the correct geographic location and the correct property.
When climate data is combined with property information and geographic analyses, it is possible to move from an overall risk picture to identifying exposure at the property level—and then analyze that exposure across an entire portfolio.
More data is not necessarily better data
The challenge is not primarily to gain access to as much climate data as possible.
For the information to serve as a basis for decision-making, it must be relevant to the question the business is trying to answer. It must have the right geographic resolution and be linkable to the assets that are actually being assessed. Furthermore, different data sources must be able to be combined in a reliable manner.
Therefore, the question should not begin with: “What climate data do we have?”
but rather: “What decision do we need to be able to make?”
Only then can we determine what information and analysis are needed.
Climate risk must be integrated into regular processes
Physical climate risk is no longer an issue limited to sustainability reporting.
For the financial sector, it is also relevant in areas such as credit assessments, valuations, investments, and portfolio analyses. For the information to be useful, it must also be able to answer specific operational questions:
Which properties are exposed? To what risks? What does the exposure look like in the portfolio? And where is a more in-depth analysis needed?
This is the step from identifying climate risk to actually incorporating climate risk into business operations.
Climate risk is also an economic issue
CDP’s Disclosure Dividend 2026 shows how environmental risks are increasingly linked to financial consequences. In the analysis, 71 percent of the more than 11,260 large and medium-sized companies included specified which financial metrics are exposed to material environmental risks.
At the same time, CDP’s calculations point to the potential economic value of managing environmental risks. The figures are based on the companies’ own estimates and several assumptions and should therefore be viewed as indicative, but they illustrate an important shift:
Physical climate risk is not just about the climate. It must also be understood as an economic risk.
Three questions to start with
For organizations developing their approach to physical climate risk, we at Metria Insights highlight three questions:
1. What decision should the information support?
Credit assessment, portfolio analysis, investment, reporting, or something else?
2. What level of geographic detail is required?
An overall risk picture may be sufficient for an initial screening, while other decisions may require analysis at the property or building level.
3. Can the information be linked to existing data and processes?
Value is only realized when climate risk information can be related to the properties, collateral, and portfolios that the business actually works with.
Read Metria Insights Finance – Climate Risk in Practice
In this report, we explore how property information, climate data, and geographic analyses can be combined to identify and analyze physical climate risk at the property and portfolio levels.
Read/download Metria Insights Finance – Climate Risk in Practice
Would you like to discuss climate risk as it applies to your portfolio?
Metria combines property information, geodata, and geographic analyses to identify and analyze physical climate risk at the property and portfolio levels. The analysis can be tailored to your organization’s specific needs and used as a basis for credit assessments, portfolio analysis, and investments, among other things.
See also:
Three Insights from Discussions on Climate Risks in the Banking Sector
How does climate risk data provide a better basis for decision-making in the financial sector?
Guide: Climate Risk Analysis with Geodata
Contact us to discuss how climate risk data can be used in your business