An article published by IPE Real Assets explores how a potential El Niño event is prompting investors to reassess physical climate risk and the way it is reflected in real asset valuations.

The article features insights from Rémy Estran-Fraioli, CEO of Scientific Climate Ratings, who explains why accurately pricing climate risk requires moving beyond broad ESG indicators towards asset-level financial analysis. While El Niño is a global climate phenomenon, its financial consequences are driven by highly localised physical hazards that affect assets differently depending on their location and characteristics.

The article highlights several key insights:

• Asset-level analysis is essential, as climate risks can vary significantly between assets within the same country, sector or even city.
• Financial materiality matters, with climate risks translated into expected impacts on asset values, revenues and creditworthiness rather than qualitative climate scores.
• Local hazards drive financial outcomes, requiring investors to understand how specific physical risks such as flooding, drought and heat translate into economic losses.
• Climate resilience remains undervalued, with markets still tending to price physical climate risk after extreme events rather than recognising the value of proactive adaptation measures.

The article reinforces the need for decision-grade climate intelligence that enables investors to identify, quantify and price physical climate risks across real asset portfolios.

Read the full article here.