Eye of the Storm: Investing in Adaptation and Resilience

Executive summary

Physical climate risk exposure: quantifying the threat

Physical climate risk presents an immediate balance sheet challenge—especially for US infrastructure-intensive industries. Regulated electric, gas and water utilities face the most direct exposure to this escalating threat across infrastructure-intensive industries. Their fixed asset location, immobile networks and essential service obligations compel them to absorb the operational and financial shocks of extreme weather events. In 2025 alone, the US faced an estimated US$138 billion in climate-related financial impacts, forecast to reach US$900 billion by 2030.

Utilities making more proactive investments

Consequently, physical climate risk impacts regulatory frameworks, valuations and investment decisions across US utilities. Major companies, including NextEra Energy, Dominion Energy, Duke Energy and American Electric Power, are shifting their capital deployment strategies. They’re going beyond reactive storm recovery, embedding proactive adaptation and grid-hardening investments directly into their baseline capital plans. In 2024, US transmission and distribution capex reached roughly US$90 billion—approximately US$30 billion of which went towards resilience and grid hardening—marking an 8% compound annual growth rate since 2020.

Establishing more predictable earnings over time

State regulators overseeing utility investments and rates increasingly require climate-specific planning, such as wildfire mitigation plans and resilience filings. Institutional investors must identify which utilities successfully navigate these regulatory frameworks whilst deploying adaptation capital effectively. Capital expenditures in grid hardening, undergrounding and digital monitoring may not generate immediate earnings, but they can establish predictable earnings growth over time by reducing restoration costs, minimising outages and expanding the regulated asset base.

Assessing resilience in utilities

For institutional investors, this transition presents a distinct opportunity for active portfolio construction. Evaluating a utility's scale of physical risk exposure, the quality of its management response and its financial capacity to fund resilience investments separates market leaders from market laggards. Utilities that maintain constructive regulatory relationships, execute credible capital plans and manage their leverage effectively may offer durable cash flows and enhanced long-term return potential. Conversely, companies that delay adaptation strategies or carry weaker balance sheets likely face escalating vulnerability.

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This material is provided for informational purposes only and is intended for professional/institutional investor and qualified client use only. Not for retail public use.

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