A recent investors survey revealed significant concern over physical climate risks to unlisted infrastructure assets. The survey, conducted by the EDHEC Infrastructure & Private Assets Research Institute, affiliated with EDHEC Business School, found that 97% of respondents view physical climate risk as significant, with 76% believing it will have a medium to high effect on their investments. However, a mere 16% feel the impact of these risks is currently understood.

EDHEC polled 70 investment industry professionals globally, including two from Luxembourg, collectively managing over $2trn.

The indices and benchmarks produced by the institute--and recognised by the European Securities and Markets Authority--have become essential tools for investors managing $400bn in infrastructure assets. EDHEC recently expanded its database to include unique climate data for unlisted infrastructure, acknowledging the sector’s crucial role in climate transition.

The survey noted the inadequacy of existing climate scenarios used by financial institutions for assessing physical climate risks. 76% of respondents stated that the climate scenarios used by financial institutions to evaluate transition risk to infrastructure are inadequate for assessing physical climate risk. The findings also pointed to a lack of individual evaluation of physical climate risks by investors, exacerbating the challenge of managing these risks within highly concentrated portfolios.

Frédéric Blanc-Brude, the founding director of the EDHEC Infrastructure & Private Assets Research Institute, highlighted the significant but often overlooked issue of physical risk for infrastructure investors. He pointed out that while current infrastructure is built to endure today’s weather conditions, the uncertainty and potential severity of future weather pose a substantial challenge. The dilemma for investors lies in deciding whether to invest in reinforcing their assets, which is costly, especially as the global economy aims for decarbonisation to prevent climate change. In the report, Blanc-Brude questioned the viability of selectively enhancing resilience across assets and stresses the importance of making a proactive decision, stating “It cannot be done ‘on average’ for some asset but not others.” This choice could mean accepting lower profits in a world that successfully decarbonises or risking asset destruction if net-zero targets are not met. He concluded by saying, “The first step in addressing this quandary is to have better data.”

The 23-page report is available .