As financial markets pay greater attention to climate change, and the potential financial cost of climate-related hazards increases (McKinsey Global Institute, 2020*), institutional investors are seeking to understand, analyze and manage climate risks. To do so, they need reliable information and methodologies.
In particular, the measurement of physical risks by institutional investors has thus become essential for making more appropriate investment decisions, such as investing in key sectors like infrastructure, which are particularly vulnerable to climate risks.
Our review, for the second year running, of French institutional investors' Article 173 reports showed a considerable effort on the part of institutional investors to measure physical risk. Twice as many players carried out an in-depth analysis of their portfolios' exposure to physical risk as last year. For some, however, this measurement remains incomplete , due to partial coverage of asset classes or imperfect methodology.
In this study, we analyze the practices used by institutional investors to measure physical climate risk in their Article 173 reports.