Introduction

The report develops an NGFS-aligned framework to assess physical climate risk in U.S. equities through long-term impacts on economic activity and firm valuations. Climate physical loss (CPL) is defined as the reduction in enterprise value caused by climate-related physical damage.

The framework combines macroeconomic damage projections, discounted cash flow modelling and sector-specific vulnerability adjustments using publicly available data. Under the NGFS Current Policies scenario, projected nominal GDP losses by 2100 range from approximately -48.6% in Florida to modest gains in Alaska. The U.S. equity benchmark records an estimated CPL of around -4.0%.

Model and data

The framework estimates climate losses in three stages: projecting macroeconomic climate damages, transmitting those damages into firm cash flows, and adjusting results for sector-specific sensitivity.

The model uses NGFS Phase V scenarios and quadratic damage functions linking temperature anomalies to GDP losses. U.S. state-level impacts are derived using EDHEC-CLIRMAP projections, allowing regional climate vulnerability differences to be captured.

Firm valuations are estimated using discounted cash flow analysis. Future cash flows are scaled according to projected state-level GDP changes and discounted using sector-specific weighted average costs of capital (WACC). Lower-WACC sectors are more exposed to long-term climate impacts because valuations rely more heavily on distant cash flows.

Sector vulnerability adjustments use rankings from several ESG and climate-risk providers. Utilities, Energy and Basic Materials consistently rank as the most exposed sectors, while Health Care, Technology and Communication Services show lower exposure.

Results

The analysis of the 500 largest U.S. listed firms identifies substantial variation in physical climate exposure across states and sectors.

Southern states are projected to experience larger economic losses, while Alaska and Oregon may record modest gains under some scenarios. The report notes that country-level climate assessments can obscure regional dispersion.

Sector characteristics materially influence valuation outcomes. Differences in WACC generate an estimated 1.6 times spread between the most and least climate-sensitive sectors. Utilities and Consumer Staples exhibit higher sensitivity because of lower discount rates and greater vulnerability to long-term climate impacts. Technology and Communication Services show lower relative sensitivity.

At portfolio level, the U.S. cap-weighted equity benchmark records a weighted CPL of approximately -4.0% under the NGFS Current Policies scenario at the 2100 horizon. Equal-weight state and sector allocations would produce larger losses of around -5.3%, indicating that benchmark sector allocations partly mitigate climate exposure.

Sensitivity analysis

Results show limited variation across integrated assessment models, but scenario and horizon assumptions become increasingly important over longer periods. Differences between scenarios are relatively small by 2050 but diverge materially by 2100.

Under Current Policies at 2100, portfolio CPL estimates range from approximately -3.9% to -4.6% depending on the model used. Under Net Zero scenarios, losses decline to between -1.1% and -1.7%.

Conclusion

The report concludes that physical climate risk in U.S. equities is shaped by both regional exposure and portfolio composition. Although U.S. states show relatively high macroeconomic sensitivity to climate risks, the structure of the U.S. equity benchmark reduces overall portfolio losses. The framework is intended to support strategic asset allocation and climate scenario analysis using transparent and publicly available inputs.