Physical risks
Definition
Physical risks refer to the impacts on business performance and, through that, on the value of firms’ financial assets and investors’ portfolios, induced by acute risks, i.e. weather-related events such as floods and hurricanes, and chronic risks, e.g. temperature increase, sea-level rise and biodiversity loss.
For instance, a flood that critically damages a firm’s productive plants could impair the firm’s profitability and even lead to bankruptcy, if the affected plants are a core part of the firm’s business. The economic loss can then translate to a financial loss, whereby the loss in performance translates to a negative adjustment in the financial assets (e.g. stocks, bonds) or an inability to repay outstanding loans that eventually affecting investors directly. If these activities have liability cover, e.g. insurance, then insurance (and reinsurance) firms could also suffer from larger claims.
Related Content
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
