Physical Risks
The Physical Risks research programme develops methods to quantify climate-change-driven physical risk impacts across time and space, with a particular focus on critical infrastructure, real estate and listed equities. Our approach leverages large-scale climate data processing, spatial econometrics, and advanced risk modelling to inform and enhance investment strategies within a warming context.
The Physical Risks research programme focuses on evaluating the climate-related impacts on human activities, assets and the economy, in particular quantifying the financial impacts of physical risks for different types of assets and projecting the larger scale economic and financial implications of physical climate risks within a climate change context.
We typically distinguish between two main categories of physical climate risks :
Our interdisciplinary approach unveils the combined power of high-resolution climate data from different sources (climate data, satellites), precise descriptions of assets, asset-specific damage functions, spatial econometrics, and advanced risk assessments to provide tailored diagnostics of physical climate risk exposure over a wide diversity of assets including:
Investors increasingly require not just temporal insights but also region-specific solutions. Our approach to physical climate risks puts maximum emphasis on robustness and granularity, enabling scalable applications from the local and asset level, through meso-levels, up to aggregate portfolios, economic indicators, and equity indices.
This research programme has led to the development of EDHEC-CLIRMAP (EDHEC-CLimate-Induced Regional MAcroimpacts Projector), an interactive tool that allows users to intuitively explore projected regional economic impacts of climate change. Explore the map.
The programme is a joint collaboration between EDHEC Climate Institute and two key EDHEC ventures: Scientific Portfolio and Scientific Climate Ratings. Our core mission is to enhance physical risk assessments to better inform investment strategies in a changing climate.
Related articles:
Land and climate - the agricultural sector in a warming context
The EDHEC-CLIRMAP (EDHEC-CLimate-Induced Regional MAcroimpacts Projector) is a web-hosted tool developed by the EDHEC Climate Institute. It provides a user-friendly platform for scientists, experts, professionals investors and policymakers to visualise how climate change-induced shifts in average temperature are projected to affect gross regional economic product under various warming scenarios.
This document outlines the scientific background underpinning EDHEC-CLIRMAP, with emphasis on the macroeconomic framework, the climate econometric theory, and the Delta method elaborated to project future damages over time and space. By integrating the latest subnational economic information with highly-localised climate change simulations from the National Aeronautics and Space Administration, EDHEC-CLIRMAP enables users to intuitively explore the geography of future economic damages – and uncover heterogeneity stories relevant to climate adaptation.
Explore the interactive CLIRMAP here: https://climateinstitute.edhec.edu/data-visualisations#edhec-clirmap
EDHEC-CLIRMAP is a scientific tool developed by the EDHEC Climate Institute to project how shifts in average temperature may impact regional economic output under different climate scenarios. Built on robust econometric modelling and climate data from NASA, this user-friendly platform allows researchers, investors, and policymakers to visualise spatially-resolved climate damages over time. This publication presents the methodology behind EDHEC-CLIRMAP, detailing its macroeconomic framework and Delta projection approach, and highlights its role in informing targeted adaptation strategies through high-resolution insights.
EDHEC-CLIRMAP: EDHEC-CLimate-Induced Regional MAcroimpacts Projector—A High-Level ViewThe EDHEC-CLIRMAP (EDHEC-CLimate-Induced Regional MAcroimpacts Projector) is a web-hosted tool developed by the EDHEC Climate Institute. It provides a user-friendly platform for scientists, experts, professional investors and policymakers to visualise how climate change-induced shifts in average temperature are projected to affect gross regional economic product (GRP) over time and space, and under various warming scenarios. This note provides a high-level view of the scientific background underpinning EDHEC-CLIRMAP. A full-length companion technical document EDHEC-CLIRMAP– The Macroeconomic and Econometric Background is also available.
EDHEC-CLIRMAP is an interactive platform developed by the EDHEC Climate Institute to visualise how climate change may affect regional economic output under different warming scenarios. Designed for scientists, investors, and policymakers, it translates complex climate and economic modelling into accessible, spatially-resolved projections. This overview introduces the scientific principles behind the tool, with a companion technical paper available for deeper exploration.
EDHEC Research Insights supplement to Investment & Pensions Europe (IPE)The EDHEC Climate Institute follows the long-standing research tradition of EDHEC Business School and represents a collective effort to address the pressing challenges of climate change by promoting interdisciplinary research with a more integrated vision, drawing on historical expertise in climate finance while leveraging new complementary fields to produce concrete insights and applications.
On the trail of the EDHEC-Risk Institute and the EDHEC-Risk Climate Impact Institute, the recently formed EDHEC Climate Institute addresses the diversity of climate change-related issues such as evaluating the financial implications of climate change on equity valuation, assigning probabilities to climate scenarios, integrating high-resolution climate data, assessing decarbonisation and resilience technologies, and discussing transition finance, which is a main driver for climate transition.
While climate finance often emphasises transition risk, initial work from Riccardo Rebonato highlights the critical importance of physical climate risk, which may have an even greater impact on financial markets. The research shows how physical damage impacts equity valuations under different policy and climate scenarios, revealing potential market mispricing. It underscores the need to better incorporate physical risks into financial models, as current valuations may miss their true economic effects.
Climate risk assessments often use separate scenarios that focus on extreme transition risk or severe physical risk, neglecting the probabilistic interplay between these outcomes. The study by Riccardo Rebonato proposes methods to attach probabilities of various emission abatement scenarios, integrating technological, fiscal, and policy feasibility into the analysis. This research also highlights a low probability of achieving the Paris Agreement target and the need for a more realistic alignment between economic recommendations and policy action.
Hurricanes devastate coastal cities, droughts cripple agricultural plains and wildfires ravage forests. Climate change impacts are localised, yet global averages fail to reflect these disparities. Climate risk assessments must take advantage of granular spatial data surpassing their complexity and inherent computational challenges. Such data enables precise identification of geo-sectorial vulnerabilities, allowing cities and businesses to allocate resources, develop targeted adaptation strategies and build resilience. This is what Nicolas Schneider explores in his work on how advances in data and modelling are transforming climate risk management, ensuring investors are equipped to account for localised risks and grasp the true economic cost of adaptation.
On the latter, understanding the technologies behind resilience and decarbonisation measures is a game changer. Ambitious goals and net-zero pledges dominate the conversation but remain vague or lack actionable pathways. Focusing on the technological possibilities allows one to move beyond abstract commitments. This is illustrated by the infraTech 2050 initiative, which is a science-driven approach offering systematic evaluation of technologies and strategies for decarbonising and strengthening resilience of 101 infrastructure asset subclasses with granular information. The article by Conor Hubert, Rob Arnold and Nishtha Manocha illustrates this with a concrete example on data infrastructure, a critical backbone for modern economies.
The successful adoption of resilience and decarbonisation technologies depends on effective regulatory mechanisms. Therefore, transition finance is critical to decarbonisation. In this issue, Frédéric Ducoulombier assesses the role given to transition finance in the EU Sustainable Finance Framework and highlights the gaps and flaws that hinder transition investment. He then draws on industry best practices and recent regulatory developments to propose key areas for reform aimed at improving transition finance integration.
This special issue of EDHEC Research Insights introduces the newly established EDHEC Climate Institute (ECI), which builds on EDHEC’s legacy in climate finance to address the broader and increasingly urgent challenges of climate change. Through interdisciplinary research, ECI explores critical topics such as physical and transition risks, probabilistic climate scenario modelling, spatially detailed risk assessments, and the technological and regulatory pathways for decarbonisation and resilience. Articles in this issue showcase innovative approaches—from quantifying equity impacts of physical damage to evaluating infrastructure technologies—while also critiquing and suggesting improvements to current EU transition finance frameworks.
EDHEC Research for Institutional Money Management with Pensions & Investments (P&I)We first examine how climate risks—both physical and transitional—affect equity valuation, revealing potential market mispricings.
We then introduce a probabilistic framework for climate scenarios, emphasizing the low probability of achieving the Paris Agreement target and the need for a more realistic alignment between economic recommendations and policy action.
Recognizing the localized nature of climate shocks, we explore how granular high-resolution climate data enhances risk assessment, allowing investors to identify sector- and region-specific vulnerabilities.
We also highlight InfraTech 2050, a science-driven initiative systematically evaluating technologies and strategies for decarbonization and resilience across 101 infrastructure asset subclasses, with granular insights into data infrastructure, a key component of modern economies.
Finally, we assess the role of transition finance, identifying gaps in the EU regulatory framework and proposing key reforms to better align investment with climate goals.
In this EDHEC Climate Institute special issue supplement to Pensions & Investments, we explore climate change’s impact on equity valuation, the need for probabilistic climate scenarios, and transition finance regulation. We also highlight high-resolution climate data for risk assessment and resilience and InfraTech 2050’s role in mitigating transition and physical risks, offering insights for climate-resilient investment strategies.
