At Capitals Coalition, we regularly capture perspectives from leading voices across finance, business, policy, sustainability, and the economy. Each month, we pick up on market signals and bring in an expert to make sense of them. In 300 words or less.
In recent weeks, we’ve been tracking a growing debate around the mismatch between modelled and real climate and nature risk facing portfolios — and the hidden systemic risks that sit beneath it. The HSBC convening of major UK banks brought this tension into sharp relief. As we see it, this isn’t primarily a disclosure problem — it’s a measurement and application problem. The architecture of modern finance was never designed to account for the natural, social, and human capital on which all economic value ultimately depends. This measurement and application gap extends well beyond climate. The Institute and Faculty of Actuaries’ recent report on planetary solvency explicitly criticises the finance sector for treating climate and nature as separate risks, arguing there is no valid case for climate scenarios that don’t integrate biodiversity. The UK Government’s own national security assessment warns that ecosystem degradation and collapse threaten national prosperity. And research of UK asset owners found that over 93% already believe nature and climate action are inseparable.
To dig into what’s driving this disconnect and what the finance sector needs to do differently, we asked Steven Bullock, Head of Geospatial Intelligence & Transition Products at MSCI, to share his perspective.
The data is there. The action is lagging
The debate about whether climate and nature risks can be measured has largely been settled. The question now is what financial institutions are doing about it. A persistent misconception is that geospatial data isn’t mature enough to drive real investment decisions. That it’s a future capability rather than a present one. That’s no longer true. The data exists, the resolution is there and the analytical frameworks to translate it into financial terms are well established.
MSCI’s recent study, Hidden in Plain Sight: Physical Risk in Asset Owners’ Portfolios, analysed the equity portfolios of 18 global asset owners. It found that business interruption losses across these portfolios are set to reach USD 1.07 trillion over the next year, against USD 76 billion in direct asset damage – a ratio of 14 to 1. Traditional risk frameworks are missing the larger, more diffuse business interruption story. Nature risk follows a similar pattern. Another study from MSCI and WWF, Identifying nature-related risks: From global portfolio to local risk, found that across the MSCI ACWI Investable Market Index, USD 32 trillion in revenue is highly exposed to pollution risk and USD 7.3 trillion to water availability risk. Comparing asset-level water availability risk metrics with country-level risk metrics for each company, the study also found that water risk exposure was materially underestimated for 40% of the total portfolio market value.
Climate risk and nature risk are not separate problems. They’re tied to the same assets in the same locations. Geopolitical instability, energy transition pressures, and the AI infrastructure buildout are also placing new demands on those same locations.
What lags is the institutional investor response: the governance structures that treat this information as material, capital allocation processes that reflect location-specific exposure, and a willingness to act on analysis that has been available for some time. The data already exists. Those who build fluency with it now will be better positioned as regulation tightens and markets start to price these risks. The time to move from awareness to application is now.
Words by Steven Bullock, Head of Geospatial Intelligence & Transition Products at MSCI
