Risk-sharing, public-private partnerships and nature-based solutions all play a part in boosting resilience against flood risk.
Border entry and ticket costs might loom largest among the hurdles facing football fans planning trips to the US for World Cup 2026. But followers of the national teams of Austria, Switzerland, Qatar and Jordan might also want to take account of the weather.
MSCI recently awarded the San Francisco Bay Area Stadium – host to at least six matches in June – a perfect 10 score for its exposure to rain-induced flooding, using a geospatial asset intelligence tool.
“For investors, location-specific exposures of assets to physical risk are becoming a piece of critical market intelligence that is especially relevant to valuing infrastructure and other real assets,” says the data provider.
Sports stadia might not feature in every asset owner’s infrastructure portfolio, but institutional investors are increasingly aware of the mounting probability, impact and costs of floods, alongside the other physical risks of climate change. Across the finance sector, efforts to quantify the effectiveness and returns from preventative and protective measures are also rising.
“Investors are combining climate hazard models with on-the-ground asset knowledge to assess flood risk,” says Maria Nazarova-Doyle, Global Head of Sustainable Investment, IFM Investors. “We use third-party climate models to screen assets based on location, and carry out deeper, asset-specific assessments where risks appear elevated. But model outputs are only one input – they’re complemented by engagement with asset teams and portfolio companies to reflect real-world conditions and limitations.”
Annual average losses associated with flooding total US$388 billion globally, the costliest of those covered in the UN’s Global Assessment Report on Disaster Risk Reduction for 2025, with US$74.1 billion arising from damage to infrastructure. By 2050, models suggest that the average annual losses to infrastructure from riverine flooding will increase between 5% and 13%, reaching US$407–439 billion in annual losses.
According to the UK government’s assessment of flood and coastal erosion risk in England, around a third of roads, railways and water pumping and treatment facilities are at risk from flooding, rising to around half by 2050.
Infrastructure both relies on – and is relied upon by – many actors. Its smooth running, which make for consistent long-term returns, is an act of collaboration, while its malfunction can be a common calamity.
When a road closes, an airport is evacuated, or a power plant, or pipeline shuts down, the impacts are widely felt. Equally, the causes can have roots beyond the direct control of the owner or operator. Similarly, solutions often involve looking beyond physical boundaries, with multiple parties involved in bolstering local, regional or sectoral resilience.
“Resilience is increasingly about managing exceedance, accepting water will arrive, and ensuring systems fail safely and recover quickly. Adaptation is increasingly layered, combining asset-level measures, property-level resilience, and catchment-scale interventions,” says Martina Egedusevic, Impact Fellow, Green Futures Solutions, University of Exeter.
Financial and physical materiality
Flood risks are not new, but climate change makes their effects felt much more widely, more frequently and with greater intensity. This includes acute risks, i.e. the flash floods and storm surges arising from high-intensity weather events, and chronic risks, caused by the sustained encroachment arising from rising sea levels and persistent flooding over time.
These risks will have different costs and impacts, in terms of damage, disruption, maintenance and insurance. Further, their different proximate sources – from surface water, rivers, or coasts – have different alleviation measures, each with their own financing implications.
The Institutional Investors Group on Climate Change’s (IIGCC) Physical Climate Risk Appraisal Methodology (PCRAM) recently updated its guidelines for real estate and infrastructure investors with a stronger focus on systems thinking and nature-based solutions.
PCRAM 2.0 guides investors through a four-step physical climate risk appraisal: scoping and data gathering; assessing asset vulnerability; identifying adoption options and solutions; and optimising and incentivising resilience across the supply chain.
“First, flood risk isn’t looked at independently, but [in terms of] how it is interconnected to other risks. Second, investors need to understand their financial materiality, not just physical materiality,” says Anne Chataigné, Senior Programme Manager for Adaptation and Resilience at the IIGCC.
Resilience is increasingly treated as a standard investment due diligence workstream, says Egedusevic.
“Investors are now routinely asking which flood mechanisms apply to an asset, whether fluvial, pluvial, coastal, groundwater, or compound, and what depth and duration thresholds lead to failure. Due diligence increasingly examines business interruption curves, distinguishing between short disruptions and prolonged shutdowns, as well as failures of access due to flooded roads, bridges, or workforce constraints,” she says.
Insurance analysis is also becoming more granular, focusing on what is fully insured, what carries high excesses, and what may be effectively uninsurable.
“These assessments feed directly into deal documentation, with resilience capex plans often built into the first one to three years post-acquisition, alongside warranties and indemnities relating to known flood history, drainage liabilities, and regulatory compliance,” says Egedusevic, noting that some transactions now include climate or resilience covenants, requiring ongoing maintenance of flood measures and disclosure of incidents.
While flooding and other physical climate risks rising up the pre-investment agenda, similar levels of oversight are exercised to maintain the value of existing assets. When developing its A$1.1 billion new runway, Queensland’s Brisbane Airport – 20% owned by IFM Investors – incorporated flood modelling across multiple climate scenarios, including extreme rainfall and sea-level rise. As a result, 98% of assets are expected to remain above flood levels in a 1-in-100-year event, and climate risk has been embedded into asset management plans and design standards.
“In effect, capital investment has also become climate adaptation investment,” says Nazarova-Doyle.
Probability and intensity
Models, ratings and other tools are being developed to help investors assess vulnerability to flood and other physical risks, including losses to revenue and asset value, as well as the return on investment in adaptation and resilience. These are increasingly forward looking, to reflect how climate change will increase them over time.
EDHEC Climate Institute offers Scientific Climate Ratings that assess the physical and transition risks of 6,000 infrastructure assets, with flood risks assessments underpinned by a calculation of the probability and intensity of flood events by location.
Because a one-metre flood event every five years has different cost implications for different infrastructure types, for example, EDHEC uses an asset-specific ‘damage function’ qualification to reach an annualised impact figure expressed as a percentage of the value of the asset.
While assets which are located near rivers or coastlines – including ports, airports, wastewater plants – are particularly vulnerable, transport networks, pipelines, and transmission lines can also be affected by flooding, as well as being highly sensitive to storms, notes Anthony Schrapffer, Scientific Director of the EDHEC Climate Institute.
EDHEC also evaluates the effectiveness of the multiple adaptation measures that can be taken to protect a particular asset, for example calculating that these might protect an asset with an efficiency of 80% against flood events with a 1-in-100-year probability.
Integration of cash flow factors such as damage cost reduction as well as capital and operating expenditure generates an internal rate of return for alternative measures. “In some cases, adaptation measures can increase the value of the asset, even with the cost they generate,” says Schrapffer, adding that this makes them easier to finance.
Chataigné argues that asset owners and managers should also consider the long-term case for investment in resilience and adaptation measures, forging partnerships with organisations with the shared exposures.
“Once we look at the interdependencies, we can understand that there are different levels of influence possible. The quantification aspect is so complex that it’s not always useful to just derive it into a number,” she says, noting the growing incidence of policy-level engagement and regional investment by asset owners to support resilience of their portfolios, but also collaboration within the finance sector.
“Integrating resilience into the cash flow forecasts is a technical conversation on how to adjust the discount rate based on the cost benefit. But we also need to shift the narrative away from just a risk to valuing resilience.”
Valuing long-term resilience means constructing short-term solutions with partners. Chataigné suggests asset owners and managers should seek to mobilise other actors in the investment value chain – insurers, lenders and other investors – to explore how to create appropriate incentives and rewards to avoid future costs and risks.
“If I’m exiting [an investment] in five years, the argument could be insurance terms that reflect resilience, and lending terms that have a credit quality aligned with how that risk that is managed. It becomes a value enhancement loop,” she explains.
“Organisations with which I share risks and rewards may be willing to shift their thinking so that we all benefit from building resilience.”
Awareness is growing across the finance sector. Jointly established by the Financial Conduct Authority and the Prudential Regulation Authority, the Climate Financial Risk Forum’s Adaptation Working Group recently released a toolkit to help financial institutions integrate resilience into decision-making across asset classes, sectors, and geographies.
This included a focus on adaptation-focused financial mechanisms, including pricing, capital, and product design levers that reward resilience, and approaches for embedding adaptation value into credit modelling and investment decisions.
Public-private partnership
Responses by investors inevitably reflect the local nature of physical climate risks. A case study included in the PCRAM 2.0 update highlights the risks posed by fluvial and pluvial flooding to a ‘last-mile’ logistics warehouse in Spain, taking in dependencies with adjacent asset systems, including power supply, transport networks, telecom and digital infrastructure, and water utilities.
Site manager Axa IM Alts worked with the site operator and other parties to reassess governance and financial incentives across the value chain, demonstrating how an investor can use its leverage to identify resilience investments that are cost-effective and capital efficient within the investment lifecycle.
But if the full solution requires increased investment in a regional natural flood management system, question arise over the threshold for effective engagement by the asset owner with local or national authorities. The willingness of investors to invest outside their site boundaries for the sake of resilience is an evolving discussion influenced by mandate and risk/return profiles, says Chataigné.
“No single asset owner can manage flood risk alone; resilience increasingly depends on how well public and private systems align,” observes Egedusevic, suggesting there is a role for institutional investors in advocacy for accessible maintenance funding, particularly for local authorities managing critical assets, as well as coordination with utilities to align capital programmes for shared resilience outcome.
The issue is a live one in the Asia-Pacific region. Institutional investors are beginning to engage with policymakers on flood risk and other aspects of climate resilience.
As an investor in a major industrial hub in a Southeast Asia city, Manulife Investment Management funded seawall and drainage upgrades for the companies in which it had a direct stake, but also worked with local government to ensure the public infrastructure surrounding its asset also bolstered its resilience.
In Australia, NSW Ports, majority owned by superannuation funds, has taken a more proactive approach to resilience-related engagement and policy following severe flooding around Port Kembla in 2022.
The port itself was not damaged, but the surrounding rail and road infrastructure was subject to landslides, disrupting customers’ ability to move goods in and out. As a result, NSW Ports has focused its engagement beyond the port itself, advocating for rail upgrades in key regions to improve the resilience of the broader transport system the port depends on.
Research by the Asian Investor Group on Climate Change (AIGCC) found that major electricity utilities could face annual costs of US$8.4 billion from physical climate hazards by 2050. A fifth of total losses were attributed to extreme precipitation, with around 31% of the analysed firms’ assets exposed to pluvial flooding risks.
“Utility and asset-level resilience planning is often intertwined with government responses, as many critical protective infrastructures — such as coastal defences and drainage systems — are publicly managed and provide system-wide resilience benefits,” said the AIGCC, calling on utilities to engage with policymakers on national, municipal and local resilience plans, and recommending investors “promote recognition of the system-wide benefits of adaptation, encouraging collaboration beyond corporate boundaries”.
But it’s still early days for investor influence in shaping and supporting national adaption plans (NAPs) in Asia. An AIGCC analysis said there was “uncertainty” regarding the role of investors to help with financing the development and implementation NAPs, recommending that Asian governments better communication investible project opportunity pipelines and roadmaps “that clearly articulate the roles of investors”.
There are, however, emerging opportunities to invest in local natural resilience, via the bonds and debt facilities being developed by multilateral development banks to finance ‘sponge’ cities, such as Nusantara, the proposed new Indonesian capital.
Last October, Tokyo’s metropolitan government issued a €300 million resilience bond designed to enhance the Japanese capital’s ability to withstand climate-related risks, including flooding, storm surges, and typhoon impacts.
Investors who invest in resilience bonds and carbon or biodiversity credits tied to the location of their infrastructure assets can gain a return while protecting the region their primary investment services.
Natural barriers
Recognition of the benefits of stemming the tide before it reaches your front door is a key reason why nature-based solutions (NbS) are playing a larger role in protecting infrastructure portfolios, often alongside ‘grey’ resilience investments.
‘Hard engineering’ solutions to protect infrastructure assets include installing high-capacity pumping systems, flood gates, and raising critical equipment (like HVAC and backup generators) onto stilts or higher floors.
Parallel investments in natural barriers include coastal port owners funding mangrove restoration, sovereign wealth funds investing in coral reefs to protect coastal airports and roads, and real estate funds allocating to ‘sponge’ landscapes – wetlands and permeable surfaces – to absorb storm surge.
“NbS can be the best solution because they usually have very low cost, and in some cases have very high efficiency,” says Schrapffer, noting however that wildfire risks might need to be taken into account in some locations. “As well as risk mitigation, they can have important natural and social co benefits,” he adds.
In January, a report from the Global Center on Adaptation (GCA) demonstrated benefit–cost ratios of between 2:1 and 8:1 from investments in well-designed NbS. Based on projects across Africa and research by the University of Oxford and the London School of Economics, the GCA emphasised the need to include avoided losses and reduced climate risks when quantifying and comparing the adaptation and resilience value of NbS, against ‘grey’ solutions.
It also called for strategic use of public finance to catalyse commercial investment via blended finance, guarantees and concessional instruments, and the leveraging of adaptation-aligned carbon credits to generate long-term revenue streams.
“The challenge is not that NbS don’t work– they do. The challenge is that we have not yet built the financial and institutional systems needed to scale them,” added Professor Patrick Verkooijen, CEO of the GCA.
While agreeing that NbS have a critical role reducing peak risk where engineered solutions alone are insufficient or unaffordable, Egedusevic warns against greenwashing risk.
“Good practice requires a clear causal link to flood risk reduction, defined maintenance and governance arrangements, monitoring of hydrological performance, and recognition of limits. NbS can significantly reduce frequent and moderate flood risk, but they do not replace engineered protection for extreme events in many locations.”
Systemic resilience
This systemic resilience approach – in which a variety of approaches are taken to protect an asset’s long-term valuation and insurability – is strongly recommended in IIGCC’s update to PCRAM.
According to the IIGCC, system-level resilience analysis can support more accurate risk pricing, better-informed portfolio strategies, and identification of investment opportunities.
It argues that systems-based mapping of an asset’s interactions with surrounding services and infrastructure also supports more targeted stakeholder engagement and financial modelling. It recommends asset owners should seek to understand system scale, clarify asset value and boundaries, quantify system risks and engage with other stakeholders in pursuit of co-funding opportunities.
“Climate risks don’t stop at the asset boundary – they affect supply chains, workforces and enabling infrastructure,” says Nazarova-Doyle.
