The Need to Reassess Risks considering Extreme Weather

Growing Cost of Extreme Weather Risk Mitigation

In May 2026, CDP (Carbon Disclosure Project, an NGO promoting environmental disclosure) published an extreme weather report (covering heavy rain, flooding, heatwaves, etc.) based on data from approximately 11,000 companies across 80 countries(*1). According to the report, the total projected financial losses from extreme weather anticipated by companies worldwide amounts to approximately $898 billion (roughly ¥144 trillion; JPYUSD: 160). Meanwhile, actual losses reported by companies in 2025 came to approximately $2.9 billion. The projected losses are roughly 300 times the current actual losses — indicating that while immediate losses remain limited, concerns about the future are already running quite high. Furthermore, approximately 48% of projected losses are expected to materialize within the next two years, making extreme weather risk a pressing management issue that cannot be deferred, with implications for capital investment decisions, insurance renewals, and supplier selection.

Are Companies Sufficiently Aware of Insurance Risk?

The report also addresses insurance. Currently, rising insurance premiums account for just 2% (approximately $25 million) of actual losses, meaning most companies have yet to feel a significant impact from increasing insurance costs. However, companies disclosing to CDP anticipate insurance premium increases totaling $3.3 billion — roughly 130 times the current level. Additionally, 48% of the 149 insurers that disclosed to CDP recognize extreme weather as a significant financial risk and project $49 billion in future climate-related insurance payment obligations. While this figure covers all policies including households and public infrastructure and cannot be directly compared to the $3.3 billion figure cited for corporations, the possibility that corporate awareness remains somewhat limited — even as insurers anticipate tighter coverage conditions — cannot be dismissed.

This asymmetry is reflected in other figures as well. While companies project $218 billion in asset impairments and early retirements as future losses, only 17 companies (totaling $58 million) have quantified the declining availability of insurance in high-risk locations. Changes in insurance terms can affect financing and asset viability before any physical damage occurs, making this an often-overlooked blind spot in corporate climate risk management.

New Dynamics Making GHG Reduction More Difficult

The primary driver of extreme weather is heat accumulation. The Earth maintains balance by radiating back into space the thermal energy it receives from the sun, but greenhouse gases (GHGs) impede this radiation. GHGs remain in the atmosphere for extended periods, meaning the effects of accumulated heat do not dissipate quickly. The World Meteorological Organization's (WMO) latest projections put the probability of surpassing the record-high temperatures of 2024 within the next five years at 86%, suggesting that record-level temperatures will persist.

Despite various mitigation efforts, humanity has been unable to curb GHG emissions. Rising geopolitical tensions are making reduction even harder. Coal is being used as a substitute in some cases due to instability in LNG procurement. An often-overlooked factor is GHG emissions from war and conflict. The war in Ukraine is estimated to have generated a cumulative approximately 237 million tonnes of GHG emissions over roughly three years since its outbreak(*2), while the early 2026 attacks on Iran are estimated to have produced approximately 5.05 million tonnes in just two weeks(*3). Emissions from military activities and conflict are estimated to account for approximately 5.5% of global totals, yet most major nations bear no disclosure obligations, leaving these figures inadequately reflected in climate accounting(*4).

Adding to this, the proliferation of AI has in recent years emerged as a new source of emissions. The IEA estimates that data center power consumption will double between 2024 and 2030, with approximately 40% of the additional electricity potentially sourced from fossil fuels(*5).

Implications for Investment Activity

Reflecting this context in investment activity, there is renewed need to assess how portfolio companies are managing physical risks. Many Japanese companies disclose under the TCFD framework and are considered to have a certain level of physical risk management in place. However, the validity of scenarios premised on worsening future weather conditions varies considerably across companies. Given that risks beyond flooding and storm surges — such as changes in insurance availability and limits on outdoor working hours due to heat stroke — are also rising, we believe that engaging companies in discussion around more multifaceted extreme weather risk scenarios is one of our roles as long-term investors.

CDP also notes that "the cost of adapting to extreme weather is one-thirteenth of projected losses," underscoring the economic rationale for investing in preparedness. While public investment in national resilience is already advancing, demand for investment related to extreme weather preparedness is expected to continue growing. Such areas merit attention as investment opportunities with high social value.

Beyond prioritizing disaster prevention and mitigation, it goes without saying that the fundamental solution — curbing GHG emissions — must also be pursued. The worsening of extreme weather may serve as a catalyst for renewed societal recognition of the need for climate action and heightened interest in GHG reduction solutions. In that sense, we continue to view the GHG emissions reduction space as a compelling investment area.

(*1) CDP, "Extreme Weather Risk is Reshaping the Global Economy" (May 2026)

https://www.cdp.net/en/press-releases/extreme-weather-risk-is-reshaping-the-global-economy

(*2) Initiative on GHG Accounting of War, "Ukraine emissions assessment" (2025)

https://www.planetarysecurityinitiative.org/news/climate-damage-caused-russias-war-ukraine-1

(*3) Climate and Community Institute, "Iran conflict emissions analysis" (March 2026)

https://climateandcommunity.org/wp-content/uploads/2026/03/Research-Snapshot_Iran-Emissions-Methodology.pdf

(*4) CEOBS / Scientists for Global Responsibility, "Estimating the Military's Global Greenhouse Gas Emissions" (2022)

https://ceobs.org/wp-content/uploads/2022/11/SGRCEOBS-Estimating_Global_MIlitary_GHG_Emissions_Nov22_rev.pdf

(*5) IEA, "Energy and AI" (2025) https://www.iea.org/reports/energy-and-ai