MSCI CEO: why markets must catch up with physical climate risk

A significant gap exists between the tangible economic damage caused by extreme weather and its valuation in global financial markets. As the costs from climate-related events escalate, investors are operating with a critical blind spot, potentially underestimating asset losses by 70% or more, according to European researchers.

The Rising Economic Toll

The financial impact of a warming planet is no longer a distant forecast. The annual global costs associated with weather-related hazards have surged from approximately $23 billion in the 1980s to nearly $156 billion by 2023, according to a study by First Street. This trend is mirrored in corporate financials, with a sixfold increase since 2000 in U.S. public companies issuing off-cycle revenue disclosures linked to physical climate impacts.

A Corporate Disclosure Deficit

Despite these clear financial repercussions, most public companies are not providing investors with the necessary transparency. An examination of annual reports from over 25,000 firms between 2023 and 2025 revealed that only 27% offered substantial disclosure on how physical climate risks could affect their performance. This lack of data hinders the ability of markets to accurately price these growing risks.

The Intersection of Climate and Technology

Physical climate risk does not exist in isolation; it amplifies other challenges, from supply-chain disruptions to the operational stability of critical new technologies. The boom in data centers, for instance, has created a dual challenge. These facilities are massive consumers of electricity, contributing to emissions, while their physical locations are often vulnerable to climate hazards like heatwaves and flooding. Conversely, advanced analytical tools offer the potential to improve risk modeling with asset-level precision, helping to close the information gap.

The Climate Resilience Opportunity

Accurately pricing physical risk is crucial for unlocking capital needed for climate adaptation. Building greater resilience will demand enormous investments in industrial ecosystems, including modernizing electrical grids, expanding battery storage, and future-proofing transportation networks. For investors, this represents a significant long-term opportunity. The key lies in equipping capital markets with the data and tools required to evaluate and integrate these complex risks into their decision-making processes, a transition that needs to accelerate.