a.s.r. Real Assets Investment Partners: Climate risks and real assets

October 28, 2026

Climate change is often viewed as a sustainability issue. Why is it also a financial issue for investors in real assets?

‘With real assets, climate change has a direct impact on value development. Property, infrastructure and natural capital – all of which I classify as real assets – are physical investments in specific locations. A building, a port, a wind farm or a piece of agricultural land cannot be moved when circumstances change. In addition to transition risks, the physical consequences of climate change – such as heatwaves, droughts, floods and extreme weather – also affect costs, returns, insurability and valuations. Recent floods, heatwaves and wildfires demonstrate that this is not an abstract issue for the future. Climate mitigation and climate adaptation are therefore both relevant. Mitigation focuses on reducing greenhouse gas emissions. Adaptation is about making real assets resilient to a changing climate. For investors, climate change is therefore not only about the social consequences, but also about risk, returns and value preservation. In practice, however, physical climate risks do not always receive the same attention as transition risks.’

What added value does an integrated approach to real assets offer for a climate-resilient portfolio?

‘Climate change does not affect real assets in isolation. A climate-resilient living environment, for example, requires good housing, reliable energy and transport networks, adequate water storage, and space for nature. Real assets are therefore closely interlinked. After all, a climate-resilient building loses value if the surrounding area is insufficiently resilient to heat, drought or flooding. In our Houseview, we therefore look at an integrated portfolio in which different categories of real assets complement and reinforce one another. This helps to mitigate risks and capitalise on opportunities arising from climate adaptation, for example through future-proof buildings, water infrastructure, climate-resilient agriculture and sustainably managed forests. The social and financial aspects often go hand in hand. Investments that make real assets and their surroundings more resilient to climate change can reduce risks for investors, increase their appeal to users, and contribute to long-term value preservation. That does not mean that every measure is automatically financially attractive. It always requires a careful weighing up of costs, risks and expected benefits. It is precisely for this reason that an integrated approach can lead to a better risk-return profile.

How do physical climate risks influence the risk-return profile of real assets?

‘The value of an investment is determined by expected income, costs and risks. Climate change affects all these factors. Higher maintenance and insurance costs reduce returns. Investments may also be needed to make real assets climate-resilient. Vacancy, loss of productivity, reduced accessibility and declining user demand can also lower income and value. Furthermore, reduced investor interest can lead to higher return requirements. Future-proof assets, on the other hand, can remain more attractive to users, financiers, insurers and buyers. For example, an asset in an area at risk of flooding can be sufficiently resilient through protective measures if the surrounding area is also resilient. That is why, in addition to exposure, we also assess the resilience of assets and the quality of the (fund) manager. Our impression is that climate risks have not yet been fully priced in everywhere. Market fundamentals may temporarily mask this effect, for example in a tight housing market or in economically attractive regions such as Florida, where demand for property remains high despite significant hurricane risks. However, rising insurance premiums show that physical risks are already beginning to manifest themselves significantly in certain parts of the market. Ignoring physical risk does not eliminate it, but merely shifts it into the future. Climate change may lead to a growing distinction between vulnerable and future-proof assets. Moreover, as regulation, insurability and user preferences change, these price differences may widen further. Climate change therefore creates not only risks, but also a potential premium for more climate-resilient assets.
 

Tomorrow’s winners will primarily be those assets that retain their value and functionality in a changing environment

 
What do you identify in portfolio analyses, and how do you use those insights?

‘Physical risks’ depend heavily on the location and characteristics of an asset. In our analyses, we look at four broad categories: floods¹, storms, earthquakes and wildfires. To determine physical risk scores, we use data from external providers. These scores combine historical data on natural disasters, geographical location characteristics and scientifically underpinned climate projections with information on existing protective measures such as dykes, flood defences and dams. Exposure to physical risks can vary significantly by region, sector and property. Although the risk profile of our client portfolios is predominantly low to medium, there are also assets with high and extreme scores. Furthermore, some assets are exposed to multiple physical risks. Analysis at property level is therefore crucial for active portfolio management. A risk score is never the end point. Different data sources and analysis tools can produce different outcomes for the same location. That is why we always compare the results with managers’ expertise and discuss them with them. Among other things, we look at existing protective measures, previous damage, insurability and planned investments. Possible measures include greening, efficient cooling, reinforcing roofs and façades, watertight doors, and raising the position of technical installations. The analysis forms the basis for active engagement with managers, through which we aim to gain insight into the resilience of real assets, existing management measures and planned improvements. Where risk management is inadequate, we expect a concrete action plan with clear measures and timelines. The outcomes of this analysis and dialogue are then incorporated into our return models, whereby higher exposure to physical climate risks can lead to additional costs, a lower expected return and, ultimately, a less favourable investment assessment.’

What is the key lesson for institutional investors?

‘The key lesson is that climate adaptation is no longer merely a societal issue, but also a financial one. Physical climate risks affect cash flows, costs, insurability and, ultimately, the value development of assets. Insight alone is not enough. Investors must engage in dialogue with managers, encourage improvements and continue to monitor progress. Climate analysis is not a standalone rating, but a tool to aid strategic portfolio decisions, investment plans and risk management. At the same time, climate models and data sources remain subject to uncertainties. This calls not for a wait-and-see approach, but for testing analyses, comparing different future scenarios and making choices that remain defensible even under changing circumstances.

Ultimately, we expect climate-resilient assets to be better positioned for users, financiers, insurers and buyers. Investments in climate resilience not only contribute to value preservation and risk management, but often also enhance the quality of life and resilience of the local environment. Tomorrow’s winners are therefore not necessarily the assets with low CO₂ emissions, but above all those that retain their value and functionality in a changing climate.’
 

IN SHORT Climate change is not a separate ESG issue, but a physical and societal development that has a direct impact on risk, returns and value preservation. Physical climate risks affect the income, costs, insurability, functionality and valuations of real assets. An integrated real assets approach provides insight into vulnerabilities, interdependencies and opportunities for climate adaptation. The investor’s added value stems from combining this insight with selection, active portfolio management and targeted dialogue with managers. Climate-resilient assets are better positioned for long-term returns and value preservation.

 

1. ^{The flood risk score quantifies the risk of physical damage at a location resulting from river flooding, flash floods and storm surges. The storm risk score reflects the risk arising from tropical cyclones, extratropical storms, hail, tornadoes and lightning strikes. The earthquake risk score reflects the risk arising from earthquakes, volcanic eruptions and tsunamis.}