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

Extreme weather keeps setting records, but financial markets still aren’t treating physical climate risk like the real cost it is. That is the core argument here: if investors keep missing where climate damage shows up, they will keep mispricing assets, and that slows down the shift toward actual climate solutions.

The evidence is piling up. Allianz counted 99 extreme-heat events from 2020 to 2024, compared with 14 in the entire 1980s. First Street, now part of MSCI, says annual global costs from weather-related hazards rose from about $23 billion in 1980 to nearly $156 billion in 2023. And yet, when MSCI and First Street looked at more than 25,000 company annual reports from 2023 to 2025, only 27% made a substantial disclosure about how physical climate risks had affected, or could affect, performance.

That gap matters because the damage is already visible in portfolios. A separate MSCI and First Street analysis found a sixfold increase since 2000 in the share of U.S. public companies making off-cycle revenue disclosures tied to physical climate impacts. European researchers have also warned that ignoring physical risk can lead investors to underestimate potential asset losses by 70% or more. The problem is not abstract, and it is not future tense.

The pressure is coming from more than weather alone. Physical risk now overlaps with tariffs, supply-chain rewiring, energy transition policy and geopolitics, so a flood, drought or transport disruption can ripple far beyond one factory or one port. The Panama Canal, the Strait of Hormuz, Germany and Taiwan all come up here for the same reason: location now matters a lot more to balance sheets than many price tags admit.

AI makes the picture messier, not cleaner. Data centers are using huge amounts of electricity, especially fossil-fuel electricity, and some of them sit in places exposed to heatwaves, wildfires and flooding. At the same time, AI could help with decarbonizing hard-to-abate industries, spotting emissions, modernizing grids and improving batteries. That mix of risk and opportunity is exactly why markets need better location-based data, faster.