Physical climate risks represent direct financial threats to corporate assets, infrastructure networks, and credit exposures driven by environmental changes.
The Physical Risk Transmission Vectors
- Acute Physical Risks: Sudden, extreme weather events (such as severe floods, wildfires, or intense hurricanes) that cause structural damage to commercial properties, disrupt supply chains, or destroy agricultural harvests, triggering immediate spikes in loan default rates.
- Chronic Physical Risks: Long-term, gradual environmental transformations (such as rising sea levels or persistent temperature increases) that erode the economic productivity of specific regions, devalue real estate collateral, and strain insurance underwriting models.
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