Lucia Graham-Wood
Corporate Senior Engagement Specialist, Banks
As the physical impacts of climate change intensify – from extreme heatwaves and droughts to storms and flooding – investors are facing growing risks to their portfolios. This insight explores how investors can address these risks by integrating adaptation and resilience (A&R) into their engagements. It outlines key considerations, data challenges, and how IIGCC supports members through tools and initiatives.
Addressing physical climate risk is a core part of credible transition planning, and investors are seeking clearer guidance on how they could integrate physical climate risk into stewardship. To support this, IIGCC has strengthened its focus on adaptation and resilience through new resources, engagement guidance and initiatives.
Building on the Climate Resilience Investment Framework (CRIF) and the updated Physical Climate Risk Appraisal Methodology (PCRAM 2.0), including four case studies, we will in 2026 develop new resources to help members embed physical risk into corporate engagement.
To learn more and help shape this work, join us at IIGCC Engage 2026 for our member-only workshop, “Embedding adaptation and resilience into corporate engagement” on our 2026 priorities and opportunities for investor involvement.
This Insight sets out our observations on how members are beginning to incorporate physical climate risk into their engagement activities.
Engaging companies on physical climate risk: Key considerations
A. Investors are initiating physical climate risk engagements in key sectors
Physical climate risks are growing in frequency and severity, making adaptation and resilience (A&R) a critical priority for our investor members. Without adaptation, S&P Global estimates climate change could cost companies up to USD 1.2 trillion annually by the 2050s.
Physical hazards are already impacting portfolio assets, reinforcing the need for investors to assess these risks and engage with companies most exposed to them to help them manage their vulnerability. Most portfolios are heavily allocated to indexed vehicles, exposing investors to corporates with interconnected global value chains and localised climate risks.
Investor members are already initiating engagements in sectors with large, fixed asset bases, such as utilities, mining, oil and gas, and infrastructure. These sectors often operate in regions exposed to chronic hazards like drought or acute events such as wildfires.
B. Adaptation is a business imperative and opportunity
Managing physical climate risk is an economic imperative, and A&R offers a strategic opportunity for both risk mitigation and value creation. Companies that proactively manage physical risks through measures such as infrastructure upgrades, insurance partnerships, or nature-based solutions may gain competitive advantages.
Ultimately, the benefit of adaptation and resilience is longer-term operational stability and financial resilience, reinforcing the importance of integrating these considerations into investor stewardship.
Initial investor engagement questions might focus on:
- Disclosures on the company’s process for appraising physical climate risks (for both existing and new investments)
- Understanding both direct operational business disruption and indirect impacts (e.g. supply chain disruptions)
- Insurance implications, including premium affordability and coverage availability
- Understanding what adaptation options are being undertaken to manage any vulnerability
Engaging the banking sector will also be important. Banks play a critical role in helping clients assess climate risks, build the business case for regenerative practices, and provide the financing needed for resilience. Lloyds’ work on sustainable farming illustrates how resilience can be both economically imperative and commercially viable.
C. Corporate disclosures are emerging
Most companies have limited reporting on physical climate risks, but examples are emerging. For example, a transport and logistics company has reported expected revenue losses and asset damage costs in its sustainability disclosures. Unsurprisingly, the utilities and real estate sectors are the furthest ahead. For instance, one utility company has published heat maps and identified areas where adaptation and resilience measures have been implemented. In Australia, mining companies are prioritising operational resilience, particularly around water-related risks, illustrating how risk assessment informs adaptation strategies.
However, even where companies do disclose, some classify physical climate risks as immaterial without explanation. Investors should consider seeking additional disclosures in high-risk regions or sectors to understand how these conclusions were reached.
D. Data is important, but must be supplemented with engagement
Corporate reporting is important, as robust data can help identify the most exposed assets and inform engagement. While physical risk data vendors are improving offerings, asset-level data is often incomplete or inconsistent (see the GARP report benchmarking 13 vendors).
A key challenge is the lack of incentive for companies to disclose, which makes government intervention crucial. Divergent views on risk and the absence of standardised resilience metrics hinder investors’ ability to benchmark risk and company adaptation performance across a portfolio. Supply chain risks, in particular, are difficult to quantify.
Despite these gaps, investors can still take meaningful action. Asset engagement is a core lever in IIGCC’s CRIF, which helps investors develop individual climate adaptation and resilience plans. Members we spoke to have focused discussions on real-world impacts, drawing on leading practice examples and pursuing simple disclosure wins, such as clarity on hazards assessed, assets considered, and capital allocation for adaptation.
Qualitative engagement is necessary to build a stronger, more nuanced view of company risk. For example, top-down data may not capture how critical any asset is to a company's operations, and through engagement, investors can better understand materiality and the resilience measures in place.
E. Applying structured methodologies like PCRAM
Once potentially risky assets are identified, engagement can shift to requesting asset-level adaptation plans using methodologies such as PCRAM 2.0 to understand climate risk materiality and build resilience.
Our fourth PCRAM 2.0 case study, focused on a last-mile logistics warehouse in Spain, is the first to focus on real estate. It demonstrates why tailored, sector‑specific approaches are essential for managing climate risks, including within equity investments. Developed collaboratively by IIGCC, AXA IM Alts, Mott MacDonald, and Swiss Re, the study highlights that timing matters – engaging at the right stage of the asset and investment lifecycle can influence adaptation decisions.
How IIGCC will support its members
Engagement on physical climate risk and adaptation can be integrated into existing investor engagements with companies. There are clear overlaps between physical and nature-related risks, as they are transboundary, and solutions are context-specific. They also share measurement challenges, as unlike decarbonisation, which is usually measured by greenhouse gas emissions, physical/nature-related risks and impacts cannot be measured by a single metric.
There are also overlaps with Just Transition-focused engagements, as social impacts, such as heat stress among workers, are emerging concerns, particularly in the apparel and food sectors.
Based on feedback from investor members, the Corporate Programme’s strategy is structured in three steps:
- Mapping most exposed companies: Using third-party data, IIGCC has identified companies most vulnerable to physical climate risks and mapped them against companies already engaged under its existing initiatives.
- Developing stewardship resources: Provide investor members with sector-specific engagement topics for consideration that reflect operational and risk nuances, guidance on supply chain and regional variations, and examples of leading practice.
- Supporting Investor Engagements: Support investors through existing initiatives in their engagements with companies and policymakers on integrating adaptation and resilience into transition planning.
Investors have an opportunity to shape how companies understand and manage exposure and vulnerability to physical risks, while also identifying where resilience measures can unlock operational and financial benefits. Through its 2026 priorities, IIGCC will continue to equip members with tools, frameworks and guidance needed to translate expectations into meaningful engagement outcomes and more climate-resilient portfolios.
The Insight was written with contributions from Anne Chataigné.