"Cascading Extreme Weather Events Unleash Billions in Damages Globally"

The world is grappling with an unprecedented surge in climate-related extreme weather events, which have inflicted billions of dollars in damages and exacerbated socio-economic inequalities. The International Chamber of Commerce (ICC) has quantified the economic costs of these events, revealing a staggering $2 trillion in losses from nearly 4,000 events across six continents between 2014 and 2023. This analysis underscores the urgent need for investors to integrate physical climate risks into their portfolios and engage with the broader financial system to enhance systemic resilience.

The impacts of these extreme weather events are far-reaching and complex. Direct physical impacts include the destruction of private dwellings, commercial property, and infrastructure, as well as damage to agriculture and food supplies. Human capital impacts are equally stark, with premature deaths, injuries, and health issues contributing to lost productivity and straining healthcare systems. Broader economic impacts ripple through affected areas, disrupting local supply chains, causing displacement of populations, and discouraging investment. These events widen existing socio-economic inequalities, placing significant pressure on government finances as public funds are redirected to relief, recovery, and resilience measures.



The financial implications of these events are becoming increasingly apparent for the private sector. Economic losses from extreme weather in Europe alone reached €13.4 billion in 2023, and the numbers are expected to rise, with the climate emergency hitting parts of the global south much harder. While efforts around climate change mitigation are gradually gaining momentum, the emphasis on building adaptation and resilience has been minimal. Investors are aware of the need to integrate physical climate risks in financial decision-making, but approaches to addressing it remain nascent, fragmented, and unfamiliar.

The systemic nature of physical climate risk requires a two-fold approach from private capital: making investment portfolios resilient to these risks and actively investing in resilience measures to strengthen the broader ecosystem. The guide developed by the Investment Leaders Group within CISL’s Centre for Sustainable Finance provides a roadmap for investors, breaking down what needs to happen at each stage of the investment process for listed equity and debt portfolios. By integrating physical climate risks at the start of the investment process, investors can be better prepared to assess and address their exposures at subsequent stages. Incorporating physical climate risks in asset allocation is critical to understand how they affect both short- and long-term economic and return forecasts.

Taking an active role in engaging with portfolio companies on adaptation and resilience can help investors enhance long-term value, mitigate climate risks, and drive sustainable growth. By engaging with the broader financial system, investors can leverage innovative financing models to invest in adaptation and resilience. Collective action is required at the national and international levels to scale ambition for Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs), making them more investable and catalyzing the flow of private capital.



The guide highlights the need for investors to advocate for an enabling environment, where collaboration will be key to shaping the New Adaptation and Resilience Economy. As Eric Nietsch, CFA – Head of Sustainable Investing, Asia, Manulife Investment Management, states, "A comprehensive approach to managing climate risk must address both adaptation and mitigation. Yet, too often, the focus remains on mitigation with the physical risks either overlooked or underestimated." This guide provides practical guidance, examples, and actionable steps to mobilize private capital investment towards a more resilient future.

In conclusion, the cascading effects of extreme weather events demand immediate attention from investors. By integrating physical climate risks into their portfolios and engaging with the broader financial system, investors can enhance systemic resilience and mitigate the socio-economic disparities exacerbated by these events. The world must choose: cooperation or collapse.