April 16, 2026
Physical Climate Risk Assessments (PCRA) are rapidly reshaping how businesses and financial institutions understand and respond to climate change. PCRAs can have major implications for business strategy and investment decision-making. Current interest is also being driven by regulator-led process, such as financial system stress-tests and mandatory climate-related financial disclosures (CRFDs). For climate scientists, this moment represents a rare and powerful opportunity: the world’s largest decision-making systems of finance, insurance, investment, corporate governance now urgently needs climate expertise, but often struggle to use scientific information well. A new NESP Climate Systems Hub handbook exists to help scientists step into that space effectively.
The finance sector is enormous, far larger than government, and exerts deep influence over business strategy, investment, infrastructure, insurance, and the allocation of capital. Yet until recently, climate change in this sector was framed mainly as a sustainability or reputational issue. Now, regulators across major economies require businesses to disclose their financial exposure to climate risk. Financial system stress-tests and CRFDs aim to prevent climate-driven financial instability and systemic shocks, much like reforms introduced after the Global Financial Crisis. That shift makes physical climate risk (the impacts of heat, storms, floods, fire, sea level rise, and systemic climate shocks) material to investors, insurers, lenders, and boards.
And this is where climate scientists have a critical role to play. Finance professionals generally do not have the tools or conceptual frameworks to interpret climate information or evaluate whether a physical risk assessment is credible. Climate data is often presented in ways that are misaligned with their needs, like wrong spatial scales, mismatched time horizons, unclear uncertainty communication, or no connection to exposure and vulnerability. Meanwhile, many businesses lack even basic asset-level data required for meaningful risk assessment. Without scientific guidance, organisations risk producing misleading disclosures, flawed scenario analyses, and poor decisions that could amplify financial losses or systemic risk. But scientists also need to understand the perspectives of the business and finance professionals that they are communicating and collaborating with.
PCRA is inherently interdisciplinary. It requires linking climate drivers to hazards, exposure, vulnerability, adaptation, and financial consequences. That requires integrating knowledge and information from domains spanning climate science, hydrology, engineering, economics, risk management and corporate decision-making, and many more. No single discipline can do this alone. Scientists bring essential understanding of hazard mechanisms, extremes, non-linearity, and deep uncertainty, all of which have complex interactions with other knowledge and values required to conduct a relevant and reliable PCRA..
The current phase-in of mandatory reporting for all large businesses makes this moment strategically important. CRFD standards (such as IFRS S2 and national equivalents) mandate scenario analysis but do not specify the underlying methods. That means the first few years of implementation will effectively set the norms for best practice. Climate scientists who engage now can shape how physical risk is assessed for decades, and help shift industry norms towards relevant, reliable and decision-ready PCRA methods.
We are currently in a unique window to ensure that the financial system, arguably the most powerful lever in the global economy, responds to climate change in a way grounded in the best available science. Engaging with PCRA can dramatically increase the real-world impact of your work, align financial decision-making with physical reality, and help steer society toward more robust mitigation and adaptation outcomes.
Have a read of this new handbook for an introduction to key issues, including context, frameworks, and language to do that confidently and effectively.
