Physical climate risk adaptation: Are businesses doing enough to adapt to physical hazards?

As managing climate change impacts grows more urgent and climate risks become unavoidable, companies will increasingly need to develop adaptation plans. These plans are crucial to ensure business continuity in uncertain environments. A climate-resilient business protects growth, reduces direct losses and enables sustainable development. 

Within our ESG Scores and data, underpinned by the S&P Global Corporate Sustainability Assessment (CSA), we assess whether companies anticipate the adverse effects of climate change and take appropriate action to prevent or mitigate the potential damage.

Physical climate risks comprise acute risks, which are driven by events such as extreme weather, and chronic risks, which refer to gradual shifts in climate patterns. According to the World Economic Forum’s “Global Risks Report 2025,” environmental risks such as extreme weather events and critical changes to Earth systems are among the top three long-term risks. Companies’ adoption of physical climate risk adaptation plans is, therefore, both a response to environmental crises and a necessary strategy for longterm survival and business resilience.

The CSA is an annual evaluation of sustainability practices covering approximately 14,000 companies worldwide. In this review, we analyze 10,365 public companies across 62 industries reporting on physical climate risk adaptation in 2024. 

Figure 1 shows a noticeable upward trend across all sectors in context-specific and overall adaptation plans from 2022 to 2024. On average, context-specific adaptation plans increased from 7% in 2022 to 9% in 2024, and overall adaptation plans rose from 10% to 26%. The data suggests that companies recognize the importance of having physical climate risk adaptation plans, reflected in the rise of context-specific and overall adaptation strategies. Sectors heavily dependent on physical infrastructure, such as utilities and real estate, showed a significantly higher implementation rate of climate adaptation plans than sectors such as finance and healthcare, which rely less on the specific locations or characteristics of their infrastructural assets. 

Companies may identify various physical risks in their climate risk assessments, including acute risks, such as water stress and wildfires, and chronic risks, such as sea level rise and heat waves.

Climate-related hazards are often specific to locations and businesses, meaning there is no one-size-fits-all solution. Therefore, while overall adaptation plans can address the general climate risks identified across a company’s value chain, context-specific adaptation and mitigation measures can better address the factors relevant to certain assets, geographies and business models. Based on the analysis of companies’ responses, less than a third of companies across sectors with an adaptation plan have integrated context-specific factors into their assets and operations.

Another key factor is the intended timeline for implementing these plans. Figure 2 shows that most companies with a context-specific plan aimed to implement it within five years, while 20% targeted five to 10 years. In contrast, companies with an overall plan were less likely to act within the same time frame, with 79% indicating they would not take action for at least a decade. By proactively anticipating and addressing the adverse impacts of climate change, companies that strategically adopt context-specific adaptation plans are better positioned to mitigate the increasing risks associated with climate hazards. 

From direct property damage and business interruption to supply chain disruptions and increased insurance costs, climate threats can lead to significant financial impacts on companies. Despite this, CSA data reveals that the majority of companies assessed have yet to disclose any form of adaptation plan. Even among those that do have plans, a considerable portion has failed to address the specific context of their business or assets, often setting extended timelines for action or none at all.

However, as physical risks become more frequent and severe, a heightened focus on preparedness in the coming decades is anticipated. This will be further driven by increased scrutiny from investors and lenders seeking to understand the exposure and vulnerability of specific physical assets to climate-related risks. By taking proactive measures, companies can enhance their resilience, minimize potential financial repercussions, align with sustainable business practices and safeguard their long-term viability.