This summer’s record heat is another reminder that the physical consequences of a warming climate are no longer theoretical. But some of the clearest evidence is not found in temperature records. It is found in what we pay.
Climate risk is increasingly reflected in insurance premiums, mortgage delinquencies, transport costs and food prices. Extreme weather can damage assets and disrupt production. Rising food and energy costs can fuel inflation. Governments face growing bills for adaptation and recovery. Across regions, sectors and asset classes, the economic consequences are becoming harder to ignore.
For investors, however, this repricing has another side. The more costly climate impacts become, the greater the need for solutions that reduce those costs.
Protecting the economy we already have, while building a lower-carbon one, will require enormous investment. Spending on the energy transition alone reached US$2.3 trillion in 2025, more than double the level in 2020.
This is creating a substantial and expanding market for businesses that can help economies withstand a hotter, more volatile climate. The investment opportunity lies in companies positioned to capture the rising, underappreciated spending required to solve environmental and social challenges, where the resulting long-term earnings potential is not yet fully reflected in market expectations.
Follow the insurance premium
Insurance is perhaps the clearest indicator of what physical climate risk actually costs.
Insurers use detailed, localized data and regularly reprice policies to reflect changing risks and recent losses. As the physical environment changes, the cost of protecting assets can therefore change quickly.
Global insured catastrophe losses reached roughly US$107 billion in 2025 and are estimated to rise to US$186 billion by the end of the decade. At the same time, the uninsured protection gap has widened to US$424 billion as adequate cover becomes more expensive or, in some locations, unavailable[1].
The consequences extend well beyond insurance. Higher premiums and insurance withdrawals shift more risk onto households, businesses and governments. US mortgage data offers another indication: following extreme weather events, delinquencies tend to rise while house-price appreciation slows. That can weaken household finances and put additional pressure on public services just as communities need to spend more on recovery.
Food prices make the impact even more visible. Higher temperatures are contributing to persistent price pressures, while continued warming could push global food inflation higher by around three percentage points annually by the mid-2030s.
Energy and transport systems are vulnerable too. Extreme temperatures increase electricity demand while potentially constraining thermal and nuclear generation. Heat, drought and flooding can disrupt waterways, railways and roads.
Taken together, these effects demonstrate why climate change is not simply an environmental or ESG consideration. It is increasingly a financial variable.
Sovereigns and municipalities face higher adaptation and recovery bills. Companies face damaged assets, interrupted operations and supply-chain disruption. Weather-driven food and energy shocks can feed through to headline inflation and, ultimately, interest rates.
Nor can investors avoid these risks simply by avoiding investments labelled “climate”. Even a passive index portfolio is likely to carry meaningful physical climate exposure through the companies, sectors and geographies it represents.
The question, then, is not only where the risks sit, but which businesses stand to benefit from the growing need to reduce them.
The growing economics of keeping cities cool starts with heat
As temperatures rise, cities need buildings, public spaces and infrastructure that can cope with more frequent and intense periods of extreme heat.
Local authorities are increasingly incorporating climate adaptation into procurement and urban planning. At the same time, cooler, greener and more resilient districts can command premiums in land and property values.
This is driving demand for technologies ranging from solar-control glass and reflective façades to district cooling, green infrastructure, geothermal storage and digital monitoring.
Companies such as Acciona, Stantec and Skanska illustrate an important feature of this investment theme: the distinction between building a lower-carbon economy and protecting the existing one is increasingly blurred. Many climate solutions do both.
Water becomes an infrastructure priority
The same dynamic is playing out in water. Flooding, drought and ageing infrastructure are turning water management from a traditional municipal utility issue into a major economic and investment challenge.
In the US alone, around US$625 billion of investment is estimated to be required over the next 20 years to safeguard drinking-water infrastructure. Including wastewater and stormwater systems, the requirement rises above US$1.2 trillion.[2]
Meeting that need will require investment across the water value chain, from moving and treating water to detecting leaks, improving drainage and managing stormwater.
Alongside this physical infrastructure is a growing technology layer, including valves, smart meters, sensors and network intelligence that can make water systems more efficient and resilient.
In a warming climate, communities increasingly face the paradox of having either too much water or too little of it. The ability to manage both extremes is becoming more economically valuable.
The grid is the backbone
Perhaps the largest and most clearly financed investment response, however, is in energy infrastructure.
Some US$15.8 trillion of global grid investment is estimated to be required by 2050.[2] Importantly for investors, much of this spending is driven by structural needs rather than short-term economic cycles. Grid expansion, electrification and security of supply all require sustained investment in the networks that carry electricity.
But building those networks highlights another dimension of the transition: materials.
Storebrand Global Solutions invests in companies enabling electrification, including Prysmian, the world’s largest cable manufacturer, and Nextracker, a leading producer of smart solar tracking systems. Both depend on copper.
Electrifying and adapting the global economy will be extraordinarily material-intensive. Yet primary extraction of many of the required materials can itself be carbon-intensive, while supplies are often geographically concentrated.
That makes circular supply increasingly important.
Recovering metals from scrap and electronic waste can reduce emissions and import dependency while creating an additional source of strategically important materials. We therefore see recycling businesses such as Tomra, Aurubis and Umicore as potentially durable beneficiaries of this structural shift.
Climate adaptation is becoming an investment market
For investors, the central point is not that climate change might affect asset prices at some point in the future. It already does.
Insurance markets are repricing physical risk. Housing markets are registering the consequences of extreme weather. Food and energy shocks are feeding inflation. Governments are spending more to make infrastructure resilient. Companies are investing to protect factories, supply chains and customers.
Yet these costs are not necessarily fully reflected across financial markets.
That creates risk, but also opportunity. As the costs of physical climate change become more visible, capital is likely to follow the demand for solutions.
Companies that reduce water losses, cool cities, strengthen electricity grids, recover critical materials and make infrastructure more resilient are not serving a niche environmental market. Increasingly, they provide infrastructure and technologies that economies cannot function without.
Climate change is already changing what assets cost, what infrastructure society needs and where capital must be spent. As the physical costs of a warmer world rise, so does the economic value of reducing them. For investors, that could prove to be one of the most significant investment shifts of the coming decades.
Read the full white paper by Philip Ripman, Portfolio Manager Storebrand Global Solutions, here.
Sources:
[1] Swiss Re</Swiss Re> Institute, sigma 1/2026: Global natural catastrophe losses in 2025.
[2] US EPA, 7th Drinking Water Infrastructure Needs Survey, 2023.
[3] Bloomberg NEF, New Energy Outlook 2025: Grids.