1. Executive summary

The report builds on earlier CFRF work by shifting from strategic framing to operational delivery, providing practical tools for integrating physical climate risk and adaptation into financial decision-making. It demonstrates that adaptation is financially material, affecting credit risk, investment value and financial stability. Using high-quality data, scenario analysis and case studies, the report shows how resilience investments can reduce losses, improve creditworthiness and support long-term stability across assets, institutions and sovereigns.

2. Abc framework guidance update

This chapter updates the Aim–Build–Contingency (ABC) Framework as a core methodology for assessing physical climate risks across scenarios and time horizons. Enhancements include clearer guidance on scenario selection, improved data transparency and closer alignment with the Physical Climate Risk Appraisal Methodology (PCRAM). Case studies from asset managers and insurers show how ABC supports consistent risk assessment, client engagement and investment planning. Future developments include incorporating tipping points, compound and cascading risks, and stronger alignment with NGFS scenarios.

3. Integrating resilience into decision-making using adaptation-inclusive transition plans as a framework for thinking

This chapter outlines how adaptation can be embedded into transition planning through a four-step cycle: identifying risks, setting ambition, planning actions and implementation. Evidence from disclosures indicates adaptation remains less developed than mitigation, despite rising physical risk exposure. The chapter recommends the use of adaptation-focused metrics, KPIs and maturity assessments to integrate resilience into corporate strategies. Case examples show that adaptation-inclusive plans improve strategic clarity, support engagement and align resilience with decarbonisation objectives.

4. Getting practical #1: Integrating physical risk into credit modelling to support adaptation-focused investment

This chapter demonstrates how physical climate risks can be incorporated into credit models. Using a synthetic banking portfolio exposed to flooding in Thailand, the analysis shows that resilience investments reduce expected losses and lower probabilities of default. By linking hazard data, adaptation pathways and financial modelling, the approach provides quantitative evidence that adaptation strengthens credit quality and supports financial stability.

5. Getting practical #2: Integrating adaptation into sovereign credit assessments

The report presents empirical evidence that physical climate risk negatively affects sovereign creditworthiness, particularly in vulnerable countries. It finds that adaptation efforts can mitigate credit risk, though impacts vary significantly across jurisdictions. The chapter highlights emerging practices among investors, insurers and credit rating agencies and recommends systematic inclusion of physical risk and adaptive capacity in sovereign assessments. Transparent policies and credible adaptation plans are identified as key to reducing borrowing costs and improving investor confidence.

6. Getting practical #3: Improving flood risk management in the Uk

Flood risk is identified as one of the UK’s most material physical climate exposures, yet data limitations constrain effective risk pricing and investment decisions. The chapter stresses the need for asset-level, forward-looking flood metrics and improved standardisation. Proposals such as Flood Performance Certificates are highlighted as mechanisms to capture resilience, support insurability and reduce systemic risk. Enhanced data quality is presented as critical to mobilising private capital for flood resilience.

7. Tipping the scales for adaptation and resilience through financial mechanisms

This chapter reviews how financial mechanisms can incentivise and scale adaptation. It examines risk-based pricing, ESG integration, insurance solutions and product innovation, including sustainability-linked loans, blended finance and resilience-focused bonds. Case studies show how embedding resilience KPIs into financial instruments can influence capital allocation and financing costs, using existing transition finance tools to mainstream adaptation.

8. Skilling up – training available on physical risks of climate change in the financial sector

The final chapter assesses training provision and identifies significant gaps in adaptation-focused skills. Survey evidence indicates that while mitigation training is expanding, practical guidance on physical risk assessment and adaptation finance remains limited. The report recommends expanding technical, applied training to build institutional capability and embed resilience alongside transition within financial practice.