Physical Risks

Presentation

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 :

• Acute risks: Extreme weather events such as hurricanes, floods, wildfires, and heatwaves that can cause immediate damage to infrastructure, supply chains, and economic activity.
• Chronic risks: Long-term shifts in climate patterns, including rising temperatures, sea-level rise, prolonged droughts, and ecosystem changes, which gradually affect sectoral productivity, asset values, and financial stability.

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:

• Infrastructure assets– e.g., Transport networks, power grids and plants subject to immediate infrastructure and operation damages.
• Listed equities – Publicly traded companies whose market valuations are increasingly influenced by (i) their exposure to physical climate risks and (ii) the effectiveness of their risk management, as reflected in audited financial statements to investors.

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 local/asset scale, meso-levels all the way up to macro financial indices.

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.