Julie Gorte is Senior Vice President of Sustainable Investing at Impax Asset Management, where she oversees the company's ESG-related research and shareholder and public policy advocacy efforts.

The era when weather disasters were considered 'acts of God' for which no one was responsible has ended. Although not all extreme weather is driven by climate change, compared with previous decades, we are seeing an increasing impact of climate change on the number and severity of recent catastrophic events.

Billion-dollar weather disasters are increasing and are likely to continue rising in the near term. In the 1980s, the United States experienced three billion-dollar weather disasters per year. Today, the National Oceanic and Atmospheric Administration (NOAA) calculates an average of about 23 events per year based on the number of weather- or climate-related disaster events in the United States over the most recent five-year period, 2020-2024.

This surge has had ripple effects across numerous industries and sectors. For example, insurance once accounted for only a small portion of the total cost of homeownership. Earlier, it was merely an option checked off because mortgage lenders required it. However, that is no longer the case. Since 2018, insurance premiums for owner-occupied homes in the United States have risen by more than a third, with even larger increases in states particularly vulnerable to climate-driven weather disasters.

This source of inflation is not limited to homeowners. Businesses are also facing rapidly rising property and casualty insurance premiums. Overall, the cost of insurance in the era of climate risk is a significant and growing concern for investors, affecting every industry and sector to varying degrees.

This brings resilience into focus for investors.

Investors need information about companies' resilience strategies for coping with climate-driven disasters to accurately assess investment risk. Currently, this information is insufficient, but recent research suggests the situation is improving.

Investors need to know the locations of companies' key assets and value chain nodes, because physical risk often depends both on where assets are located and on the nature of their operations. Investors need to understand which assets or operational activities in the value chain are most vulnerable, and what measures can be taken to replace, repair, or compensate for potential damage.

Investors need to understand these risks not only under ideal scenarios, such as limiting warming to an average increase of 1.5°C, but also under a range of more realistic scenarios reflecting varying rates of progress in emissions reduction. Finally, investors need to know what measures companies are taking to understand and manage these risks, and how they are building more resilient value chains.

How can companies provide climate risk information and create more resilient value chains?

The initial steps are relatively straightforward and can leverage external expertise to assess the value at risk under various climate hazards and conduct scenario analysis. The first step is for companies to map the locations of all key assets, including those critical to the value chain, not just company-owned assets. If you are a food company whose coffee bean supply all passes through a single port that is vulnerable to hurricanes and floods, that is a critical node in the value chain. Although most companies do not own the ports they use, they depend on that infrastructure.

We recently saw an example of such a critical node in Hurricane Helene, which destroyed a high-purity quartz mine that supplies most of the material needed for global semiconductor manufacturing. The mine was able to reopen about two weeks later, but a longer closure could have affected global semiconductor manufacturing. The last time companies faced major supply chain disruptions was during the COVID-19 pandemic, when recovery took months or even years and affected more industries, including automotive, computers, and other consumer electronics.

The second step is to consider what response measures would be taken if any key asset were out of operation for an extended period, which for a large port might be just a few days. Are there alternative sources, production capacity, or logistics arrangements? If certain items are damaged beyond repair, how high are the replacement costs and how long would it take? Would the loss of capacity affect other company operations, and if so, what are these cascading effects?

The above two steps, while requiring effort and time, are relatively straightforward. However, what comes next becomes a bit trickier. One axiom of climate change is that the future will be different from the past and present. The best way to assess vulnerability and value at risk is through scenario analysis.

For example, for a utility company located on the U.S. Gulf Coast or Atlantic coast, this means being able to withstand not only the hurricanes it has already experienced, but also hurricanes with stronger winds, larger wind fields, higher storm surges, and more rainfall. Similarly, there are third-party resources available to help companies conduct climate modeling and understand which assets may be affected by various factors in the 'Pandora's box' of future acute and chronic physical climate risks.

It is also worth noting that financial markets are known for being myopic in pricing events that may occur in the future. But in the real world, the long term is still measured in decades, not just a few years. Most pension fund assets are invested in index funds, and the constituents of major financial indices may remain in the indices for decades. Furthermore, assets on most companies' books are depreciated over 35 years, so investors' accurate pricing of risk is not just about the next 3-5 years.

Finally, the key piece of the puzzle is what measures companies are taking to enhance resilience. Here, the answers require not only concerted effort but also sensitivity to context. How do companies withstand hurricanes, squall lines, or increasingly severe hail? How do they manage supply chains that depend on rail transport when heat domes cause rails to expand and disrupt traffic? How do they manage food businesses when summer heat can make outdoor farm work dangerous during harvest season, or prolonged drought reduces the supply of key raw materials from current sources? What happens if a wildfire destroys a company's headquarters? All of these situations have actually occurred.

Impax recently engaged with most of the electric utilities in the S&P 500 to discuss what measures they are taking to enhance resilience. We found that those utilities that are good at envisioning worst-case scenarios and creating stronger resilience are often those that have already experienced natural disasters.

In this case, the scope was limited to utilities that had incurred significant liabilities due to wildfires. But we also found a utility located on a hurricane-prone coastline that could not really answer questions about scenario analysis and seemed not to understand its implications. A few weeks after our conversation, many of that company's networks lost power for days due to a hurricane.

Building resilience takes years. We know climate disasters will only get worse. The best time to start was yesterday—if missed, that is today.