We use cookies that are necessary to make our site work as well as analytics cookie and third-party cookies to monitor our traffic and to personalise content and ads.
Please click “Cookies Settings” for details on how to withdraw your consent and how to block cookies. For more detailed information about the cookies we use and of who we work this see our cookies notice
Necessary cookies:
Necessary cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website and cannot be switched off in our systems. You can set your browser to block or alert you about these cookies, but some parts of the site will then not work. The website cannot function properly without these cookies.
Optional cookies:
Statistic cookies help website owners to understand how visitors interact with websites by collecting and reporting information
Marketing cookies are used to track visitors across websites. The intention is to display ads that are relevant and engaging for the individual user and thereby more valuable for publishers and third party advertisers. We work with third parties and make use of third party cookies to make advertising messaging more relevant to you both on and off this website.
The rising cost of climate catastrophes – how should investors respond as extreme weather becomes the new normal?
key takeaways.
The financial and economic impact of climate-related catastrophes is accelerating rapidly, posing systemic risks to insurers, governments, and markets
While political action on climate is faltering in some regions, market forces are driving investment into resilient, low-carbon, and adaptive sectors
For long-term investors, climate change is reshaping risk and return dynamics, requiring both resilience to extreme weather events and strategic positioning for the transition to a low-carbon economy.
In 1984, the total global financial loss from climate disasters was USD 9.19 billion.1 Twenty years later, the cost had risen to USD 95.57 billion.2 Fast forward another two decades to 2024, and the bill had risen again, to USD 320 billion.3 Looking ahead, the long-term trajectory is clear: the scale and cost of climate-related events is not only rising, it is accelerating.
Total global financial loss from climate disasters 1984-2024
In billion USD
2025, meanwhile, could break all records. According to global brokerage reinsurance firm Gallagher Re, the first quarter of the year saw climate catastrophe costs reach USD 89 billion4 – almost double the ten-year Q1 average.
While each year’s tale of loss is often told through the lens of a single event – the extreme wildfires in Los Angeles that took place in early 2025, 2024’s catastrophic flooding in Valencia, 2022’s record drought in China5 – the overall trend is clear: extreme weather events are no longer outlying anomalies; stoked by climate change, they are becoming the norm.
In more and more places, extreme weather is now a material risk for businesses, policymakers and insurers, who are being forced to rethink their risk analysis and business models. It is also becoming a key macro consideration for investors. While assessments of market, global economic and geopolitical outlooks will remain essential, the threat of extreme weather is set to become a central feature of long-term investment analysis.
Sign up for our newsletter
Are businesses adopting sustainable business models? Are producers and manufacturers building supply chains that are resilient to wildfires, floods and drought? And how will portfolios be affected as insurers hike their prices – or even withdraw from markets altogether? As the physical impacts of climate change intensify, investors are increasingly turning their attention to resilient assets and transition-ready sectors that offer both protection and potential for outperformance. We explore how investors should respond to the rising cost of climate catastrophes.
As the physical impacts of climate change intensify, investors are increasingly turning their attention to resilient assets and transition-ready sectors
Counting the cost
When it comes to the likely impact of climate change on global markets and broader society, insurance firms are the canary in the coalmine. According to Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority, the cost of extreme weather events could destabilise banks and leave governments struggling to cope. “I think it is the biggest risk facing society,” she says. “I see risks going up and more and more people not being able to insure their homes.”6
In parts of the US, this risk is already a reality. Across 2022 and 2023, State Farm, the US’s largest home insurer, suffered losses of more than USD 12 billion – in response, they paused new business in California and decided not to renew tens of thousands of policies. Several other major insurers adopted the same approach.7
With insurers unable or unwilling to provide cover against floods or wildfires, taxpayers are, increasingly, picking up the bill. In 2024, the Spanish government pledged EUR 10 billion to cover the cost of reconstructing uninsured assets following catastrophic flooding,8 while in many developed nations, governments are increasing the provision of state-backed underwriting to ensure home-owners are able to access ‘last resort’ insurance9.
Financial markets respond
According to the Financial Stability Board (FSB), the watchdog set up by the G20 nations, the rising economic costs of climate catastrophes could lead to a pullback in bank lending to vulnerable households and businesses, a downturn in investor confidence, and an abrupt re-pricing of climate-physical risk. Government borrowing costs could rise and, in the worst-case scenario, panic could beset financial markets as participants realise they have failed to properly price in climate change risk.10
The real estate market is also likely to be impacted. Steve Bowen, Chief Science Officer at reinsurance firm Gallagher Re, explains that the increasing prevalence of extreme weather events in some regions, and the rise in the cost of home insurance is “having effects on the valuation of properties.”11 According to a study by First Street, America could see USD 1.47 trillion wiped from the total value of residential property by 2055, as a growing number of areas become subject to “climate abandonment” and sky-high insurance costs.12
Despite this stark picture, some governments are rolling back policies designed to halt climate change. In 2024, after protests in Europe, the EU watered down its flagship plan to reduce the use of environmentally-harmful farming chemicals13, while in Germany and France the AfD and Rassemblement National have made respective gains, in part by promising to de-prioritise sustainable policy-making.
On the other side of the Atlantic, President Trump’s promise to unleash the US oil industry and withdraw the US from the Paris Agreement appears to show little concern for the growing threat from wildfires, or that hurricanes hitting the East Coast are becoming more powerful as global temperatures rise.14
More urgently, his administration’s move to cut over 1,000 staff from the National Oceanic and Atmospheric Administration – which supports critical weather forecasting used by myriad organisations – has prompted pushback from the Reinsurance Association of America.15
Physical and economic resilience to climate change
Against this backdrop, a transition to resilience is taking place across many sectors, driven less by public policy and more by economics, as consumer demand and the on-the-ground impact of climate change force firms to adapt. This is not merely a defensive manoeuvre. It represents a significant growth opportunity for companies that can lead the way. For many corporates, the question is no longer ‘whether’ to transition to sustainable business models and climate-resilient supply chains, but instead ‘how’.
In the construction sector, for example, the transition is being seen through multiple innovations, some aimed at creating more resilient buildings, others at minimising the industry’s climate impact.
Installing rooftop solar panels achieves both, simultaneously reducing the emissions arising from a building’s day-to-day use and, when combined with battery storage, increasing resilience to the short-term power outages that are often caused by extreme weather events.16 A study conducted by several of the world’s leading universities found that rooftop solar alone could provide 27 Petawatt-hours of electricity each year, more than four times the total electricity used in all homes around the world.17
This is not merely a defensive manoeuvre. It represents a significant growth opportunity for companies that can lead the way
Rooftop solar panels can also be combined with ‘green roofs’, which have been shown to cut rooftop temperatures by as much as 13 degrees Celsius.18 Meanwhile, retrofitting old buildings to install better ventilation and insulation are set to become key resilience measures as global temperatures rise. Around the world, we estimate there are 225 billion square metres of buildings’ floor space in need of renovation, and that the value of the global renovation sector will triple to reach USD 3.3 trillion by 2030.19
Increasingly, the construction sector is also looking to build resilient supply chains by turning to renewable, nature-based alternative materials to replace highly-emitting steel and concrete.20 For example, timber grown in carefully-managed forests is seeing rising demand as a structural material – the market for engineered wood is projected to grow at a CAGR of 5.3% to reach USD 427.3 billion by 203321. Meanwhile, numerous start-ups are racing to produce low- or even negative-carbon bio-cement (which absorbs more carbon during its lifecycle than it emits), in a move that could disrupt an industry forecast to be worth USD 821.6 billion by 202622.
In the urban development and infrastructure sectors, architects and city-planners are also looking to nature for inspiration to design cities resilient to climate shocks on the macro scale. In part, this means simply integrating more nature into the urban environment, an approach which has been shown to significantly reduce the urban heat island effect23. More targeted nature-based adaptations include ‘sponge cities’, where rainwater is absorbed, cleaned and channelled through plants, trees, soil, rivers and lakes, instead of relying on sewers and gutters. Already tested in numerous cities around the world, the result is a much lower risk of flooding and a cleaner, more secure supply of water for residents during dry spells.24
Investment risks from climate change… and opportunities
For investors, the growing threat from extreme weather creates portfolio risk, both from the immediate potential harms of individual weather events and the possibility of broader market re-pricing. At Lombard Odier, our TargetNetZero strategy seeks to build portfolio resilience against these risks while identifying the once-in-a-lifetime opportunities that are arising as we transition to a fully decarbonised economy.
Many low-carbon investment strategies begin by excluding high-emitting companies and sectors. We believe this is a mistake. We choose instead to identify the ‘ice cubes’ – firms that, though they may be high-emitters today, have robust decarbonisation roadmaps in place, and that we believe will lead their sectors in the transition. Progress by such firms is essential to achieving net zero, and yet their adaptation to a low-carbon economy is often under-priced by markets that have failed to adopt this long-term net-zero outlook.
Despite the short-term political noise, the transition to a sustainable economy is now driven by powerful structural forces – technology, consumer preference, physical necessity and long-term economic rationality
Our science-based, forward-looking approach aims to build diversified portfolios by identifying firms that will not merely survive in a decarbonised world, but will thrive – those adapting now to climate change by building resilient supply chains; those in high-emitting sectors that will rise above their peers as emissions regulations become ever tighter; and those creating the innovative new materials, processes and digital platforms that will offer net-zero solutions across sectors.
Momentum is building. Despite the short-term political noise, the transition to a sustainable economy is now driven by powerful structural forces – technology, consumer preference, physical necessity and long-term economic rationality. At Lombard Odier, we are convinced that sustainable investing is essential for preserving and growing our clients’ wealth over the long term. Indeed, recent moves by President Trump to roll back key climate policies are, in effect, putting the transition onto surer long-term footing by sparking a new era of economics-led sustainability.
As Hubert Keller, Lombard Odier’s Senior Managing Partner, explains, “The notion that sustainable investing is over makes very little sense. The environmental crisis is going to force changes on the real economy. But we like to take a positive view. At some point – whether in ten, twenty or thirty years – we will end up in an economic framework which will be fully decarbonised, which will have a neutral to positive footprint on nature, and which will be socially more equitable. And that is why we are incredibly excited as investors, because we think we are the beginning of a very profound economic transformation.”25
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
share.