MSCI CEO: why markets must catch up with physical climate risk

All across the world, all across different kinds of extreme weather, the records keep falling.

This summer alone, we saw the hottest July ever recorded in North America, Africa and Asia ; the hottest June–July ever recorded in Western Europe ; the hottest global average sea surface temperature ever recorded; the lowest water levels ever recorded in some of Europe’s biggest rivers ; and record-breaking rainfall everywhere from China , Japan , South Korea , Pakistan and Canada to Hawaii , Missouri , Indiana , West Virginia , New York and beyond.

In the months ahead, a “very strong” El Niño event may lead to even more records falling, based on forecasts from the World Meteorological Organization .

And yet, even as the deadly and destructive impacts of extreme weather accumulate, and even as researchers warn that the economic costs of climate change could be far worse than previously thought , physical risk remains significantly undervalued in global financial markets.

Fixing this problem would go a long way toward accelerating the world’s adoption of real climate solutions.

The economic and financial impacts of climate change To understand the urgency of the problem, consider just a few numbers.

Between 2020 and 2024, the world witnessed 99 extreme-heat events, compared with only 14 in all of the 1980s, according to a recent Allianz report .

Over roughly that same period (1980 through 2023), the annual global costs of weather-related hazards spiked from about $23 billion to nearly $156 billion, according to a study by First Street, which is now part of MSCI.

Meanwhile, a separate analysis from MSCI and First Street shows a sixfold increase since 2000 in the percentage of U.S. public companies making off-cycle revenue disclosures related to physical climate impacts.

This means that physical risk is already visible in investment portfolios.

And researchers in Europe have shown that neglecting physical risk can lead investors to underestimate potential asset losses by 70% or more.

The costs of extreme weather have gone up, but most public companies still do not provide the level of transparency that investors need.

When MSCI and First Street examined the annual reports issued by more than 25,000 firms between 2023 and 2025, they found that only 27% made a substantial disclosure explaining how physical climate risks either had affected or could affect their performance.

The intersection of physical risk and AI For that matter, physical risk does not exist in a vacuum.