Asset managers are using climate risk analyses to optimize their billion-dollar portfolios. Here’s why.
Climate & SustainabilityArticleMarch 25, 2025
Rising sea levels, extreme weather, and tighter regulations all pose growing risks for asset managers and investors. The costs of climate change are mounting relentlessly. According to research published by The World Economic Forum, the annual global cost of climate-related damage is estimated to reach between USD 1.7 trillion and USD 3.1 trillion by 2050.
Given that the real estate sector accounts for some 40% of global greenhouse gas emissions, it’s increasingly in the crosshairs of the world’s regulators. As a result, asset managers are under more scrutiny to integrate climate risk into their investment strategies and report climate exposure in line with frameworks such as the EU Taxonomy and regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD).
Climate risk is already shaping real estate investment strategies and due diligence at Zurich Insurance’s real estate investment arm. Roger Baumann, COO and Head of Product Development for Global Real Estate at Zurich Insurance Company, which oversees a portfolio of USD 25 billion assets under management, (including third-party funds) and manages over 700 sites, says climate risk is now a major factor in investment decisions.
"Climate risk is no longer a ‘tick-the-box’ exercise. It changes the way we will make investment decisions,” Baumann explains. “We might not invest in properties that exceed a certain climate [risk] threshold in the future. Where climate risk used to be an appendix in investment committee meetings, today it’s at the forefront.”
By 2050, over 80% of our portfolio faces high or very high hazard levels, increasing to 100% in the second half of the century.
Climate becomes a core factor in investment decisions
Severe precipitation and river floods can translate into damage and financial losses. While higher temperatures can increase demand for energy efficiency measures to mitigate rising energy consumption.
Baumann and his colleagues made using high-quality, forward-looking climate data a priority. They assessed a range of climate risk tools and analytics platforms to evaluate the potential climate impacts on their portfolio. The team found large disparities in the amount and quality of data available; many of the tools and services on offer fell short on actionable recommendations to reduce physical risk. Ultimately, the most compelling solution came from another part of the Zurich Group, Zurich Resilience Solutions (ZRS).
ZRS is the global risk advisory and consulting arm of the Zurich Group, working with private and public sector organizations to manage risk, mitigate losses, and build resilience in a world of evolving risk. Through their specialist climate resilience team, ZRS combines state-of-the-art analytics with physical climate risk assessments to help customers uncover their exposure to climate-related risks and adapt their assets and operations to the threat of climate change.
The real estate portfolio was analyzed using climate change data across four warming scenarios, as defined by the Intergovernmental Panel of Climate Change (IPCC). “The most striking finding was that severe precipitation events and river flooding posed the highest risks to our Swiss-anchored European portfolio," Baumann explains. “By 2050, over 80% of our portfolio faces high or very high hazard levels, increasing to 100% in the second half of the century.”
Armed with this information, asset managers can identify which sites would most benefit from climate change adaptation measures such as drainage systems, flood defenses, and nature-based solutions like wetland restoration.
We take hazard exposure data, financial quantification models, and site-specific details to deliver a clear picture of risk.
Mapping climate risk exposures from now until 2100
Investors can analyze and identify climate risk exposures from the present day to the year 2100 across a range of carefully selected climate hazards, including floods, extreme heat, windstorms and wildfires. High-quality climate data, developed in-house by data scientists, is integrated with customer-specific asset information to evaluate risk exposure. Using proprietary data models, the platform considers multiple climate change scenarios, helping investors estimate potential financial losses and business interruptions. "We take hazard exposure data, financial quantification models, and site-specific details to deliver a clear picture of risk," explains Jorge Bernal Surman, Global Delivery Lead at ZRS. "This helps asset managers prioritize adaptation measures and make strategic decisions."
The key to breaking down climate risk
The priority for asset managers is to identify and quantify climate risk in financial terms. Doing so supports asset selection, helps integrate climate risk into long-term investment frameworks and ultimately supports the performance of a portfolio. It enables asset managers to gauge resilience in high-risk locations, comply with existing climate risk reporting frameworks, and improve valuation accuracy by incorporating climate risk into their business strategy as well as cash flow projections and discount rates.
"As a large asset owner, manager, and insurer, it's essential that we not only mitigate climate transition risk and decarbonize but also have a robust framework for physical climate risk assessment and analysis to become climate resilient” Baumann explains. “Investors need clarity on the vulnerability of their portfolio to extreme weather shocks—flooding, heatwaves, and more.”
How better climate risk insights are shaping investment strategies
Baumann expects there will be a greater focus on risk diversification and avoiding properties that exceed a certain climate risk threshold. “Moving forward, we will integrate the ZRS platform more deeply to prioritize adaptation measures at the asset level. We globally manage over 700 sites. While we can’t assess them all individually, we are prioritizing the most vulnerable ones which ZRS have helped us to identify.”
He also believes climate resilience will be fully integrated into portfolio management. Future valuation models will incorporate physical climate risk, potentially impacting cash flows and discount rates. “Once that happens, climate resilience will shift from being a regulatory burden to a critical financial necessity," he predicts.
Climate change is here to stay, and investors who integrate climate risk into their strategies today will be better positioned to navigate the uncertainties of tomorrow. Asset managers should take a proactive stance on resilience strategies. By embedding climate resilience into investment strategy, asset managers can reduce exposure to climate risk while supporting industry-wide sustainable practices. Climate risk data is no longer optional, it’s essential for a resilient, future-proof portfolio.