Physical climate risks represent direct financial threats to sovereign assets, national production capabilities, and credit exposures driven by changing environmental conditions.
The Physical Risk Transmission Vectors
- Acute Physical Risks: Sudden, extreme weather events (such as severe floods, wildfires, or intense hurricanes) that damage data infrastructure, break transport hubs, or destroy agricultural yields, causing immediate spikes in credit risk and insurance claims.
- Chronic Physical Risks: Long-term, gradual environmental transformations (such as rising global temperatures or sea levels) that erode the economic output of specific geographic regions, devalue real estate collateral, and strain public treasuries.
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