Insights
The Physical Climate Risk 'Appraisal' Methodology (PCRAM 2.0) – with the ‘A’ updated from Assessment – is a practical guide for understanding and managing the physical risks that climate change poses to real assets like buildings, infrastructure, and land.
PCRAM has been developed to help investors, asset managers, and developers make better decisions by factoring in physical climate risks (PCRs) such as floods, heatwaves, and storms. It gives a clear way to assess these risks and identify opportunities for more resilient, future-proof investments.
Since its development, PCRAM has aimed to create a consistent, standardised approach for integrating physical climate risks into financial decision-making. However, as climate risks intensify, the need to move from simply assessing risks to actively managing and mitigating them has become clear. That is where PCRAM 2.0 comes in.
PCRAM was initially developed by the Asset Design & Structuring working group of the Coalition for Climate Resilient Investment (CCRI). This was informed by instrumental support from Mott MacDonald and 35 different institutions, including banks, investors, engineering firms, climate risk data providers, lenders, credit rating agencies and academic institutions. Its development passed to IIGCC in March 2023.
A broader and deeper approach to climate risks
In its first year under IIGCC, the results of PCRAM's practical implementation were published. These showed tangible improvements in how investors can integrate physical climate risks into decision-making using the methodology, leading to stronger and more resilient asset management. PCRAM 2.0 builds on these insights, broadening the Methodology and its application to better meet investor needs.
PCRAM 1.0 helped market participants evaluate risk at the asset level and begin embedding it into investment processes. This updated version widens that scope, moving beyond risk identification to support practical resilience planning.
The updated Methodology now includes portfolio and fund-level analysis, not just for individual assets. It also adopts a systems approach, helping investors consider how assets interact with their surroundings – local infrastructure, communities, or the natural environment. This shift makes understanding the complete picture of climate risks and opportunities easier, rather than viewing assets in isolation.
Investors will notice an improved focus on value protection and enhancement. PCRAM 2.0 looks at resilience not only as a risk management issue, but as part of long-term asset value. It includes considerations like insurability, credit quality, operational stability, and the role of nature-based solutions, such as wetlands or forests, in strengthening resilience.
The Methodology has also been tested in a real estate case study, with further implementation work planned to build out its applicability across the sector.
The table below outlines PCRAM’s development over time, with updates highlighted in blue.
Practical, open, and tested
Investors can consider PCRAM 2.0 in action through four new case studies, provided by a range of industry partners. Two consider solar assets, the third a maritime and port infrastructure example, and the fourth a real estate asset. As the first of its kind, more implementation work is planned for PCRAM in the real estate sector to build out its applicability.
These case studies show how the Methodology works in practice, across a range of asset types and geographical regions, building on its practicality through real-world experience. Two case studies from the first edition, showcasing a coastal windfarm and a hydropower facility, were well received.
Importantly, PCRAM 2.0 remains open source and available for anyone to use or adapt. It combines insight from climate science, engineering, and finance, offering investors a consistent, transparent approach to understanding risks, assessing materiality, and choosing the right adaptation actions.
PCRAM 2.0 delivers a range of benefits that make it a valuable tool for investors and asset managers.
It promotes standardisation through a clear and consistent process for assessing climate risks, helping stakeholders align on a common approach. It supports better risk management by identifying both risks and opportunities, leading to more predictable returns and stronger, more resilient assets.
The Methodology also ensures efficient resource use, directing time and capital toward the most impactful resilience measures. Finally, it fosters knowledge building, equipping investors with the tools and insights needed to navigate uncertainty and make informed decisions in a changing climate.
How PCRAM supports broader climate resilience strategies
PCRAM 2.0 sits alongside the Climate Resilience Investment Framework (CRIF), the first investor-specific and comprehensive resource to help develop their own individual climate adaptation and resilience plans.
CRIF provides a guide for investors at the organisational level – covering broad aspects such as working with assets to improve resilience, policy advocacy, as well as stakeholder and market engagement.
PCRAM is central to CRIF's target setting methodology, forming the basis of asset-level target setting. The two are inextricably linked, complementary in purpose, and serve distinct functions to investors.
CRIF helps investors develop targets and plans to improve investment resilience at both asset and portfolio levels. Its target setting methodology stresses the importance of implementing PCRAM to an increasing proportion of assets over time and implementing appropriate adaptation measures to address material physical climate risks.
Together, CRIF and PCRAM enable investors to take a proactive, structured approach to managing physical climate risk, turning insight into action and building a more resilient financial system.
Thanks to our funder, the UK Foreign, Commonwealth and Development Office, and to our case study participants (listed alphabetically): AXA Investment Managers, Howden, Mott MacDonald, Octopus Energy Generation, Oxford University Environmental Change Institute, Private Infrastructure Development Group (PIDG), Stafford Capital Partners/Theia Investments, Swiss Re.
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