Incorporating climate risk into asset allocation for APAC investors

Published

July 2025

Christy Chan, head of APAC client development at ICE, spoke with Asian Investor about the need for APAC investors to incorporate physical climate risk data into a portfolio-wide view of risk exposure and allocation opportunities.

This article was originally published in Asian Investor

The financial implications of climate risk become more apparent with each passing year. Economic losses from typhoons making landfall in APAC countries were estimated to exceed US$20 billion in 2024;1wildfires burned more than two million acres in Indonesia in 2023;2and monsoon-driven floods in Pakistan, India, and Bangladesh affected tens of millions of people in 2024.3

Both imminent and long-term climate risks are a mounting concern for asset owners and investors across APAC. "During the 2024 typhoon season in the western Pacific, ICE identified over 380,000 corporate asset locations that were exposed to 50-knot winds or higher," said Christy Chan, head of APAC client development at ICE. "As typhoons approach, we can now link these exposed assets to associated corporate debt issuers and their securities in near real time."

Figure 1.Corporate exposure to the 15 typhoons with forecasted windspeeds greater than 50 knots during the western Pacific 2024 season. Black dots are corporate asset locations in ICE Climate datasets that can be linked to corporate debt issuers. Source: ICE Climate and the Global Disaster Alert and Coordination System as of 04/10/25.

Asset managers in APAC hold increasingly global portfolios that span asset classes from vanilla equities to sovereign and corporate bonds, to commercial and residential mortgage-backed securities. These asset owners - as well as institutional investors and buy-side firms located across APAC - have come to rely upon physical risk data to meet disclosure requirements, financial reporting obligations, stress testing regimens and other regulatory mandates. Many, however, are unaware that physical risk datasets can also be configured to provide analysis into climate risks facing their asset portfolios.

"By providing a portfolio-wide view of physical risk exposure - both for active extreme weather events and for longer-term climate risks - we can help investors identify where their climate exposure might be coming from and provide insight into what their exposure means for potential financial loss," said Chan.

A consistent approach across asset classes

To understand physical risk exposure at the portfolio level, a consistent approach is key. Risk estimates and potential financial losses need to be easy to interpret, compare, and report, whether an investor is focusing on equities, fixed income, or other asset classes.

"Regardless of whether we are estimating hurricane risks for corporations, heat-related risks for sovereign nations, or flood risks for real estate portfolios or pools of mortgages, our data, models, and loss projections are built on a common foundation," Chan said.

Figure 2.Areas of greater Brisbane, Australia; Chennai, India; Bukit Timah, Singapore; and Bangkok, Thailand with building footprints shaded by projected rain-related flood risk (measured as annual average losses as a percentage of property value) under Shared Socioeconomic Pathway (SSP) 5-8.5 in 2050. Source: ICE as of 04/08/2025. Contains information from GlobalMLBuildingFootprints, which is made available here under the Open Database License (ODbL).

As the images above of greater Brisbane, Chennai, Singapore, and Bangkok demonstrate, ICE Climate's loss projections are all built on a global dataset of over 1.6 billion building locations, including well over 100 million building locations in India, China, and the United States, over 40 million in Japan, and over 55 million in Indonesia. Many APAC investors may have exposure to U.S. climate risk through their equity portfolios and fixed income holdings (whether directly, or via mutual fund structures, exchange-traded funds or other investment vehicles), or via securitized assets such as U.S. mortgage-backed securities.

"Our global datasets of 1.6 billion building locations, modelled building characteristics, and estimated building-level risks underpin everything that we do," Chan explained. "They allow us to examine the physical climate risks associated with financial assets anywhere - whether in Japan, Thailand, India, the United States, or any other country or city around the world."

Flood risks are not the only climate-related hazard facing APAC investors, with typhoons having a major impact on economic activity in the region every year. In mid-2024, for example, Typhoon Shanshan caused several major automakers to pause manufacturing operations in southern Japan.4As the charts below illustrate, tropical cyclone-related losses for both property and business revenue in southern Japan are projected to increase steadily over the next 35 years. In fact, over the upcoming decades, ICE Climate projects that tropical cyclone risks in many parts of Asia-Pacific are likely to increase more quickly than hurricane risks in North America.

Figure 3.Projected losses associated with 1-in-100-year tropical cyclone windspeeds in three example locations in southern Japan under Shared Socioeconomic Pathway 5-8.5.

Wildfires and extreme heat are two further sources of climate-related risk for investors in the Asia-Pacific region to factor into their asset allocation decision-making. The Australian 'Black Summer' bushfires in late 2019 and early 2020 were unprecedented in geographical scale and duration.5

Figure 4.ICE Climate's wildfire scores for 100,000 randomly selected building locations across Australia (of about 12 million across the country in ICE's datasets) projected out to 2050 under Shared Socioeconomic Pathway 5-8.5. ICE Climate risk scores are provided on a 0-5 scale (5 is the highest risk) in order to give investors easily interpretable metrics to assess their exposure within each asset class.

Australia isn't alone - South Korea, Japan, and Indonesia have all experienced major wildfires in recent years.

A portfolio-wide view of risk exposure

While a consistent approach to understanding physical climate risk is key, the next steps in empirically quantifying portfolio-wide climate risks are just as critical. To make loss projections useful and meaningful for investors and asset managers, risks estimates have to be aggregated to the debt/equity issuer and security level and transformed into estimates of potential financial loss.

For example, for corporations, ICE Climate leverages a dataset of more than three million corporate asset locations around the world, mapping these locations onto its much larger dataset of 1.6 billion global buildings and their associated risks. Financial loss estimates can then be estimated by combining physical risk information with projected revenues and the cost of carbon.

Figure 5.Across ICE Climate's dataset of over 40,000 public corporate debt issuers, there are more issuers in Asia-Pacific with high estimated overall physical climate risk (ICE Corporate Physical Risk Score ≥ 3) compared to North America - a number that is projected to increase in the upcoming decades under an SSP-5-8.5 climate scenario. ICE can then link these issuers to their debt securities, including over 10,000 ISINs associated with high-risk APAC issuers in 2025.

"The power of ICE Climate's building-level approach to risk modelling is that it allows us to aggregate and assess risks consistently, anywhere in the world, whether the risks are associated with global corporations and their assets, the homes in pools of mortgages and real estate portfolios, or the buildings located within a specific municipality, local authority, or sovereign nation," said Chan.

At the same time, ICE also uses its datasets to identify corporations, financial assets and securities (including equities) that may be at risk in the immediate term, due to approaching storms and active flood, tornado, and wildfire events.

"ICE's differentiator is our ability to deliver this data in a comprehensive and global way, including deep expertise in fixed income, and award-winning research on climate risk," said Chan. "Our granular, bottom-up geospatial intelligence platform integrates extensive asset linkage information - including real estate, mortgages, government bonds, corporate debt and company locations - with extensive data layers on climate risk, energy consumption, building valuations and more."

"With the global expansion of the ICE geospatial platform, we can now provide this kind of information across asset classes, for imminent risks today and long-term risks in the future - anywhere in the world," Chan concluded.

1Source: Willis Towers Watson, Key elements of the 2024 Pacific typhoon season: Shanshan, Yagi and the Philippine storm cluster, April 14,2025

2 https://www.undrr.org/resource/indonesia-wildfires-2023-forensic-analysis

3 https://news.un.org/en/story/2024/08/1153726

4 https://www.cnn.com/2024/08/28/asia/japan-typhoon-shanshan-landfall-intl-hnk

5 https://www.moodys.com/web/en/us/insights/insurance/Black-Summer--five-years-on---a-sobering-reminder-of-australia bushfire risk

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