Climate Risk Assessment for Infrastructure Projects: A Practical Framework for US Institutional Investors

In 2024, the United States experienced 27 separate billion-dollar weather and climate disasters, costing approximately $182.7 billion. Hurricane Helene alone caused $78.7 billion in damage.

Since 1980, the US has sustained 403 billion-dollar disasters exceeding $2.9 trillion in cumulative damages. Natural disasters caused $368 billion in global economic losses in 2024, with only 40% covered by insurance.

For US pension funds and asset managers with infrastructure allocations, these are not abstract statistics. They represent direct financial exposure to roads, bridges, power grids, water systems, ports, telecommunications networks, and renewable energy installations that sit in the path of increasingly frequent and severe climate hazards.

And the risk is compounding: the average time between billion-dollar disasters in the US has fallen from 82 days in the 1980s to just 10 days in 2025.

Yet research from EDHEC Business School found that 66% of infrastructure investors have conducted zero quantitative evaluation of how climate physically impacts their returns. The risk gets acknowledged in investment committee presentations. It does not get priced in the DCF model.

This guide provides the practical framework for closing that gap: a structured climate risk assessment methodology that integrates physical and transition risk into infrastructure investment analysis, aligned with the TCFD/ISSB disclosure framework and the NGFS climate scenarios. For the broader enterprise risk management context, see our guide to enterprise risk management.

Understanding Physical and Transition Risk for Infrastructure

Climate risk for infrastructure operates across two distinct but interconnected channels: physical risk and transition risk. Every infrastructure asset is exposed to both, but the mix varies dramatically by asset type, location, and time horizon.

Physical Risk: The Direct Impact of a Changing Climate

Physical risk is the financial impact of climate change on the physical infrastructure asset itself, on its operating environment, and on the communities and supply chains it depends upon. It splits into two categories:

Transition Risk: The Policy, Technology, and Market Shift

Transition risk arises from the global shift toward a low-carbon economy. For infrastructure, this means changes in policy (carbon pricing, emissions standards, building codes), technology (displacement of fossil fuel generation, EV adoption changing transport demand), markets (energy price shifts, commodity repricing), and reputation/litigation (climate litigation against asset owners, ESG-driven capital allocation).

The TCFD framework organizes transition risk into four subcategories: policy and legal, technology, market, and reputation. For the COSO ERM framework that governs how these risks integrate into enterprise risk management, see our detailed guide.

For a detailed comparison of risk management frameworks including COSO ERM and ISO 31000, which provide the structural foundation for integrating climate risk into enterprise risk management, see our article on COSO ERM vs ISO 31000.

Climate Scenario Analysis: The NGFS Framework

Climate scenario analysis is the primary tool for assessing how different climate futures affect infrastructure asset values and returns.

The Network for Greening the Financial System (NGFS), a coalition of 130+ central banks and supervisors, provides the most widely used scenario set.

The NGFS released version 5.0 in November 2024, incorporating the latest economic and climate data and introducing short-term scenarios covering a five-year horizon for the first time. The scenarios are publicly available via the NGFS Scenarios Portal.

The Three NGFS Scenario Families

For infrastructure investors, the critical insight is that there is no scenario in which climate risk is absent. In orderly transition scenarios, transition risk dominates: carbon-intensive infrastructure faces accelerating policy and technology headwinds.

In hot house world scenarios, physical risk dominates: all infrastructure faces escalating damage, insurance repricing, and maintenance cost inflation. Disorderly transition produces both simultaneously.

The investment question is not whether climate risk exists but which combination of physical and transition risk the portfolio is positioned for.

The Climate Risk Assessment Framework: Asset-Level Vulnerability Scoring

The following framework provides a structured methodology for assessing climate risk at the individual infrastructure asset level, aggregating to the portfolio level.

It is designed for integration into existing due diligence and portfolio monitoring processes. For the foundational risk assessment methodology, see our complete guide to the risk assessment process.

Step 1: Hazard Identification by Asset Type and Location

Map each infrastructure asset to the climate hazards relevant to its location and type. Use geospatial climate data to identify exposure:

Step 2: Vulnerability Scoring (1-5 Scale)

For each asset, score vulnerability across five dimensions that capture both exposure and adaptive capacity:

Composite Climate Risk Score = Weighted average of five dimension scores

Suggested weighting: Hazard Exposure 25%, Sensitivity 20%, Adaptive Capacity 20%, Transition Exposure 20%, Insurance/Financial Resilience 15%. Weights should be calibrated to the portfolio’s specific risk appetite and investment horizon.

Step 3: Financial Impact Quantification

Convert vulnerability scores into financial impact estimates using scenario-specific assumptions:

• CapEx impact: Estimate adaptation capital expenditure required under each scenario (flood barriers, cooling system upgrades, structural reinforcement, relocation). Model as additional cash outflows in the DCF.
• OpEx impact: Estimate changes to operating costs: insurance premium escalation (model at 5-15% annual increases for high-exposure assets), increased maintenance frequency, energy costs for cooling, water costs.
• Revenue impact: Model revenue effects: downtime from acute events (availability reduction), chronic performance degradation (wind yield decline at P10-P90 range, solar efficiency under heat stress), demand shifts from transition.
• Terminal value adjustment: Adjust exit multiple or terminal value for assets with elevated climate risk. An asset that scores 4-5 on the composite scale may face a compressed exit multiple reflecting buyer’s climate risk perception.
• Insurance repricing: Global insured losses from natural catastrophes exceeded $137 billion in 2024.
• First Street Foundation projects $1.47 trillion in US property value losses over 30 years from insurance repricing alone. For infrastructure assets in high-exposure locations, model the scenario where insurance becomes unavailable or cost-prohibitive.

For guidance on scenario analysis and Monte Carlo simulation techniques that support the financial quantification step, see our article on risk quantification for boards: translating risk into financial terms.

Climate Risk KRI Dashboard for Infrastructure Portfolios

For the broader KRI library applicable to enterprise risk management, see our article on enterprise risk management key risk indicators.

TCFD, ISSB, and the Evolving Disclosure Landscape

The original TCFD disbanded in October 2023, with its recommendations fully integrated into the ISSB Standards (IFRS S1 and S2), effective January 2024. Mandatory climate disclosure now applies across 36+ jurisdictions globally.

In the US, California’s Climate-Related Financial Risk Act requires companies with over $500 million in revenue to disclose climate-related financial risks by January 2026, with penalties up to $500,000 for non-compliance.

The SEC adopted its climate disclosure rule in March 2024, though implementation has been stayed pending litigation.

Regardless of the regulatory outcome, institutional investors are increasingly required by their own stakeholders (beneficiaries, LP investors, rating agencies) to conduct and disclose climate risk assessments.

For the ISO 31000 risk management framework that provides the methodology structure for integrating climate risk into enterprise risk management, see our getting-started guide.

The disclosure framework requires four pillars of climate risk information:

The Insurance Repricing Problem: A First-Order Risk for Infrastructure

The insurance industry is repricing climate risk faster than most infrastructure investors. This creates a direct, near-term financial impact that does not require waiting for 2050 climate projections to materialize.

Global insured losses from natural catastrophes have exceeded $100 billion annually for four consecutive years.

Major insurers are withdrawing from high-risk geographies entirely: State Farm, Allstate, and other carriers have reduced coverage in California and Florida. For infrastructure assets in these regions, insurance is becoming unavailable at any price for certain hazard types.

The financial impact cascades through the infrastructure investment model. Increased insurance costs reduce EBITDA and cash flow. Reduced coverage increases the asset owner’s retained risk.

Unavailable coverage makes the asset potentially unfinanceable (lenders require insurance). At exit, a buyer’s valuation will reflect the forward insurance trajectory. First Street Foundation projects $1.47 trillion in US net property value losses over 30 years driven by insurance pressures alone. Infrastructure assets, which are fixed-location, long-lived, and capital-intensive, are more exposed to this repricing than most asset classes.

For guidance on building the business continuity and disaster recovery plans that help manage the residual risk when insurance coverage is inadequate, see our article on how to develop an enterprise risk management framework.

90-Day Implementation Roadmap

Days 1-30: Baseline and Data Infrastructure

• Inventory all infrastructure assets by sector, location, and vintage. Map each to FEMA flood zones, wildfire risk zones, coastal exposure, and heat stress indices.
• Select climate scenario set (NGFS v5.0 recommended) and define the time horizons for analysis (2030, 2050, and end-of-asset-life for each asset).
• Procure geospatial climate hazard data: NOAA, First Street Foundation, WRI Aqueduct, NGFS Climate Impact Explorer.
• Assess current insurance coverage against climate hazards for each asset. Identify coverage gaps and premium trajectories.

Days 31-60: Assessment and Scoring

• Conduct asset-level vulnerability scoring across all five dimensions for each infrastructure asset.
• Run scenario analysis: model financial impacts (CapEx, OpEx, revenue, terminal value) under orderly, disorderly, and hot house world scenarios.
• Calculate portfolio-level aggregations: weighted average climate risk score, AUM-weighted physical and transition exposure, insurance repricing trajectory.
• Identify high-risk assets requiring adaptation plans or divestiture consideration.

Days 61-90: Governance and Disclosure

• Build the climate risk KRI dashboard with automated data feeds where available.
• Present portfolio climate risk assessment to the investment committee with scenario-specific IRR impacts and recommended actions.
• Develop or update climate risk disclosure in alignment with ISSB/TCFD framework requirements.
• Integrate climate risk scoring into the acquisition due diligence checklist for all future infrastructure investments.
• Establish annual refresh cycle for asset-level vulnerability scores and scenario analysis.

Frequently Asked Questions

Which climate scenarios should infrastructure investors use?

The NGFS scenarios (version 5.0, November 2024) are the standard reference for financial institutions. At minimum, test your portfolio against three scenarios: Net Zero 2050 (orderly transition), Delayed Transition (disorderly), and Current Policies (hot house world). This provides the range of outcomes needed for investment committee decision-making and regulatory disclosure. The NGFS short-term scenarios (released May 2025) are also relevant for near-term stress testing.

How do you quantify physical climate risk in a DCF model?

Translate physical risk into cash flow adjustments. For acute risk: estimate annualized expected loss from extreme events (probability of occurrence x cost of damage + business interruption).

For chronic risk: model degradation curves for revenue drivers (e.g., P50 wind yield declining 0.5-1.0% per decade) and cost escalation for maintenance, insurance, and adaptation CapEx. Apply these as scenario-specific adjustments to the base case DCF. The difference in NPV between the climate-adjusted and base case DCF quantifies the climate value-at-risk for the asset.

What is the biggest climate risk for US infrastructure right now?

Insurance repricing and availability. While the long-term physical and transition risks are significant, the most immediate financial impact comes from the insurance market’s accelerating repricing of climate risk.

Infrastructure assets in Florida, California, the Gulf Coast, and other high-exposure regions are already experiencing premium increases of 10-30%+ annually, coverage reductions, and carrier withdrawals. This affects current cash flows, lending terms, and exit valuations today.

Do international infrastructure assets require a different climate risk approach?

The framework is the same, but the data inputs and regulatory context differ. International assets (particularly in emerging markets) may face higher physical risk exposure (less resilient infrastructure, weaker disaster response), different regulatory trajectories (some jurisdictions accelerating climate policy, others lagging), and limited insurance markets. The NGFS scenarios provide global coverage.

Local climate data may be less granular than US data (FEMA, NOAA, First Street), requiring alternative sources such as WRI Aqueduct and the NGFS Climate Impact Explorer.

How does climate risk assessment interact with ESG requirements?

Climate risk assessment is the analytical core of the ‘E’ in ESG for infrastructure. ISSB Standards (IFRS S2) require climate-specific disclosures that go beyond general ESG commitments to quantitative scenario analysis and financial impact assessment. For investors subject to SFDR (European operations), PRI commitments, or LP reporting requirements that reference TCFD/ISSB, the climate risk assessment framework described in this guide produces the data needed for compliance. For the ESG KRI framework that extends beyond climate to social and governance indicators, see our article on key risk indicators for ESG and sustainability risk.

What role do pension fund fiduciary duties play in climate risk assessment?

US pension fund fiduciaries have a legal obligation to act in the best financial interests of beneficiaries. As climate risk becomes material to infrastructure investment returns, failure to assess and manage that risk creates potential fiduciary liability.

The DOL’s 2022 rule (Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights) explicitly permits fiduciaries to consider climate and ESG factors when they are material to risk-return analysis.

Climate risk assessment for infrastructure is not an ESG preference; it is a fiduciary requirement when the evidence supports materiality.

Conclusion: Climate Risk Is Investment Risk

The data is unambiguous. 403 billion-dollar disasters since 1980. $2.9 trillion in cumulative damages. $182.7 billion in 2024 alone. Insurance markets repricing at double-digit annual rates.

The average time between billion-dollar disasters down to 10 days. Infrastructure assets sit in the direct path of this accelerating trend.

For US institutional investors, the question is no longer whether to assess climate risk in infrastructure portfolios. It is whether the assessment is rigorous enough to protect the portfolio and meet the disclosure obligations that regulators, beneficiaries, and LP investors are demanding.

The framework exists: NGFS scenarios for the climate pathways, TCFD/ISSB for the disclosure structure, asset-level vulnerability scoring for the analytical methodology, KRI dashboards for the monitoring cadence, and scenario-adjusted DCF models for the financial quantification.

The implementation requires commitment, data investment, and the honest acknowledgment that infrastructure assets priced as if climate conditions are static are mispriced.

Strengthen your climate risk and ESG assessment capability. From scenario analysis to key risk indicators, our resource library covers the standards and practical tools that investment and risk professionals rely on. Explore our guides at Risk Publishing to deepen your climate risk assessment practice.

Sources and References

1. NOAA NCEI. U.S. Billion-Dollar Weather and Climate Disasters (2024 Update). ncei.noaa.gov
2. Climate Central. U.S. Billion-Dollar Disasters: 1980-2024 Analysis (2025). climatecentral.org
3. NGFS. Scenarios Portal: Version 5.0 (November 2024). Network for Greening the Financial System. ngfs.net
4. ISSB. IFRS S2: Climate-related Disclosures (2024). International Sustainability Standards Board.
5. TCFD. Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (2017; integrated into ISSB 2023).
6. Aon. Weather, Climate and Catastrophe Insight: 2024 Annual Report.
7. First Street Foundation. Financial Impact of Climate Risk on US Property Values.
8. Repath. How Climate Risk Affects Infrastructure Valuations (2025). repath.earth
9. EDHEC Infrastructure Institute. Climate Risk in Infrastructure Investment (2024).
10. ISO 31000:2018. Risk Management Guidelines. International Organization for Standardization.

Chris Ekai

Chris Ekai is a Risk Management expert with over 10 years of experience in the field. He has a Master’s(MSc) degree in Risk Management from University of Portsmouth and is a CPA and Finance professional. He currently works as a Content Manager at Risk Publishing, writing about Enterprise Risk Management, Business Continuity Management and Project Management.