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Sustainable Finance Outlook: Physical risk meets capital
The latest issue of SEB's Sustainable Finance Outlook highlights a stark reality: the energy transition is too slow to avert material physical climate risks. It examines exposure to these risks at fund, company and asset levels, and how sustainable finance can strengthen climate resilience. The report also explores water as both a systemic financial risk and an investment opportunity.
"The transition is indeed underway, driven by economic and geopolitical forces, but it is not happening fast enough to avoid negative human and economic consequences," says Thomas Thygesen, Head of Strategy and ESG in SEB Equity Research. "The exact number is up for debate, but there is little doubt that continued increase in temperatures will come at high costs. Now companies and investors must find out how to measure and address those risks."
"Physical climate risks are often overlooked and even companies with low carbon intensity and strong governance can have assets that are highly exposed to flooding or extreme heat," says Samantha Arpas, Sustainable Finance Specialist at SEB. "Physical risk exposure varies across funds, but water stress emerges as the dominant hazard regardless of market segment."
"Against a backdrop of growing geopolitical tensions, global sustainable debt transactions reached USD 1.6 trillion until the end of September, up 15 per cent year on year," says Gregor Vulturius, Lead Scientist and Senior Advisor in Climate & Sustainable Finance at SEB. "Corporate issuers generally allocate little sustainable finance to climate resilience, with less than 3 per cent of reported allocations since 2013 directed towards reducing vulnerability to climate risk."
"Asset-level assessment is essential for investors and corporates to understand the potential economic consequences of climate risk exposure and make informed decisions." says Samantha Arpas. "We identify 48 European data centres among those with the highest climate risk exposure across leading markets worldwide."
The report also features an analysis by Christopher Flensborg, Head of SEB Water, on how climate change compounds pressures from ageing infrastructure, underinvestment, pollution and rising demand-and how to make water investments bankable.
About the Sustainable Finance Outlook
The Sustainable Finance Outlook delivers insights and market intelligence for navigating the sustainability transition. Issued four times per year, the report engages a readership exceeding 3000, comprising financial institutions, corporates, and decisionmakers within SEB's primary markets.