Asset-level assessment of climate physical risk matters for adaptation finance

Giacomo Bressan, Anja Đuranović, Irene Monasterolo () and Stefano Battiston ()
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Giacomo Bressan: Vienna University of Economics and Business
Anja Đuranović: Utrecht University
Irene Monasterolo: Vienna University of Economics and Business
Stefano Battiston: University of Zurich

Nature Communications, 2024, vol. 15, issue 1, 1-13

Abstract: Abstract Climate physical risk assessment is crucial to inform adaptation policies and finance. However, science-based and transparent solutions to assess climate physical risks are limited, compounding the adaptation gap. This is a main limitation to fill the adaptation gap. We provide a methodology that quantifies physical risks on geolocalized productive assets, considering their exposure to chronic and acute impacts (hurricanes) across the scenarios of the Intergovernmental Panel on Climate Change. Then, we translate asset-level shocks into economic and financial losses. We apply the methodology to Mexico, a country highly exposed to physical risks, recipient of adaptation finance and foreign investments. We show that investor losses are underestimated up to 70% when neglecting asset-level information, and up to 82% when neglecting tail acute risks. Therefore, neglecting the asset-level and acute dimensions of physical risks leads to large errors in the identification of adaptation policy responses, investments and finance tools aimed to build resilience to climate change.

Date: 2024
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DOI: 10.1038/s41467-024-48820-1

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