The Impact of Physical Climate Risk on the Valuation of Global Equity

This article examines how physical climate damages (and tipping risks) propagate into the valuation of a global equity portfolio. Under plausible assumptions about weak abatement and the presence of low-threshold climate tipping points, the difference in shareholder value relative to a world without climate damages can exceed 40%, indicating that markets may be materially underpricing physical risk.  Conversely, prompt and robust abatement can hold losses to <10% even if tipping dynamics are present—an implied “benefit” of =30 percentage points in preserved equity value relative to delayed action scenarios.  The analysis stresses that the degree of abatement aggressiveness, the probability and temperature thresholds for tipping elements, and state-dependent discounting (i.e., lower rates in bad times) are the three levers that swing outcomes from “a few percentage points” to >40% valuation impairment.

Technically, the paper embeds physical-risk damages into forward-looking cash-flow and discount-rate assumptions for an equity index, then sweeps scenarios across tipping thresholds and abatement speed.  The authors note that if today’s equity prices already reflected realistic physical-damage paths, valuations would have to imply either extremely strong near-term abatement or negligible macroeconomic output effects from climate change; because neither assumption seems likely, they conclude there is “ample potential for equity revaluation.”  The findings are consistent with macro-damage projections in Nature that, even absent future emissions, the world economy is committed to a ~19% income reduction within ~26 years, with damages potentially ~50% larger when daily variability and extremes are included—context that reinforces the plausibility of large asset-price impacts.  The equity-valuation lens thus translates aggregate damage functions into investor-relevant losses, highlighting capital-market benefits from faster mitigation that curb the >40% downside tail.

From a policy and risk-management perspective, the paper’s “few percent to >40%” span is a sensitivity map for supervisors and asset owners: it shows how abatement policies (e.g., carbon pricing trajectories) and physical-risk governance (e.g., adaptation that reduces damage intensity) can materially shift valuation outcomes by double-digit percentages.  For strategic asset allocation, it suggests hedging and sector tilts that reduce exposure to climate-sensitive cash flows and tipping-point-amplified losses.  Taken together with EDHEC’s parallel synthesis showing that losses could exceed 50% with near tipping points (and <10% under timely abatement), the weight of evidence supports rapid mitigation as a financially prudent strategy.

Riccardo Rebonato, Dherminder Kainth, and Lionel Melin. “The Impact of Physical Climate Risk on the Valuation of Global Equity Assets.” Environmental and Resource Economics 88 (January 2025): 857–894. https://link.springer.com/article/10.1007/s10640-024-00953-z 

Evaluating the Full Cost of PFAS: Considerations for Cost-Benefit Analysis and Regulatory Design

This report synthesizes recent research on the monetized damages caused by per- and polyfluoroalkyl substances (PFAS), a class of synthetic "forever chemicals" that accumulate in humans and ecosystems. The authors argue that while existing estimates of PFAS-related economic damages are substantial, they are likely significant understatements due to limited scopes in exposure pathways and health endpoints. Most current studies focus on drinking water and a small subset of compounds, omitting ecological impacts, property value declines, and various health conditions. The paper advocates for class-based regulation and a standardized set of methods for exposure assessment and valuation to support more robust and transparent policymaking.

The study identifies significant variation in damage estimates, stemming from different assumptions regarding exposure-response relationships and valuation techniques. For example, some U.S.-focused research estimates annual health damages in the tens of billions, yet these figures often ignore "precursor" compounds that degrade into terminal PFAS. Additionally, the costs of removing PFAS from the environment are found to be exceptionally high, making upstream restrictions on use and disposal a necessary complement to remediation. The report warns that narrowly targeted regulations may lead to "regrettable substitution," where firms switch to structurally similar but unregulated PFAS compounds that may be just as toxic.

Significant costs identified in the report include:

* Estimated annual health-related damages in the U.S. range from under $1 billion to over $60 billion.

* The cost per kilogram of PFAS removed from contaminated media ranges from $0.9 million to $60 million.

* One study estimated that the cost of destroying just one year's worth of global PFAS releases exceeds the annual global GDP.

* Routinely monitored PFAS often comprise less than 50% of total PFAS found in human exposure media like textiles and food packaging.

* EPA found strong evidence that PFOA exposure is associated with renal cell carcinoma, an endpoint quantified in at least one of the three major studies reviewed.

Safavi, Leila, and Peter Howard. *Evaluating the Full Cost of PFAS: Considerations for Cost-Benefit Analysis and Regulatory Design*. New York: Institute for Policy Integrity, New York University School of Law. October 2025. https://policyintegrity.org/publications/detail/evaluating-the-full-cost-of-pfas

Projected Effects of the Clean Competition Act of 2025

This report analyzes the projected impacts of the Clean Competition Act (CCA), which proposes a domestic performance standard and a carbon border adjustment mechanism (CBAM) for energy-intensive goods. Using the Global Economic Model (GEM), the authors assess how carbon fees on US manufacturers and analogous tariffs on imports would influence trade, revenues, and emissions. The policy is designed to incentivize lower emissions intensity by taxing carbon levels above a set industry benchmark. The findings suggest that the CCA would shift US imports toward less carbon-intensive countries, such as the UK and Japan, while reducing imports from higher-intensity producers like China, Mexico, and India.

The CCA is projected to significantly reduce global greenhouse gas emissions, with the United States leading the reductions through both improved manufacturing efficiency and decreased demand for energy-intensive goods. While the policy raises substantial government revenue, it also results in slightly lower domestic production in covered sectors like aluminum, steel, and cement due to increased costs for higher-intensity producers. The report notes that the tariffs provide a protective effect for cleaner US manufacturers, but the overall balance of effects leads to small declines in output across most covered and downstream industrial sectors.

Key projections and economic impacts include:

* Global emissions are projected to decrease by 81 million metric tonnes (MMt) in the first year, with US reductions accounting for 63 MMt.

* By the tenth year of the policy, annual global emissions reductions are projected to reach 140 MMt, with US reductions at 119 MMt.

* Total government revenue is projected to be $7.2 billion in the first year and reach $101 billion over the first ten years.

* Domestic output in covered sectors is projected to fall slightly, including cement by -0.02 percent, aluminum by -1.9 percent, and iron and steel by -0.6 percent.

* The policy results in a 0.6 percent output tax equivalent for domestic petroleum refining, contributing to a 0.3 percent rise in imports from zero-tariffed countries.

Rennert, Kevin, Mun Ho, Katarina Nehrkorn, and Milan Elkerbout. *Projected Effects of the Clean Competition Act of 2025*. Report 25-19. Washington, DC: Resources for the Future. December 2025. https://www.rff.org/publications/reports/projected-effects-of-the-clean-competition-act-of-2025/

Assessing Ecosystem Service Value Dynamics and Compensation Gaps in Key Ecological Zones of Xizang

This research examines the challenge of balancing ecological conservation with socio-economic growth in the Xizang Autonomous Region, a critical ecological barrier for Asia. The study employed the "value equivalent factor method" and high-resolution remote sensing data to assess land use changes and ecosystem service value (ESV) dynamics from 2000 to 2020. The authors focused on eight key ecological function zones to determine how urbanization and climate change have altered the landscape. A novel "ecological compensation priority score" (ECPS) was introduced, based on the ratio of non-market ESV to GDP per unit area. This methodology aims to provide a scientific foundation for improving fiscal transfer mechanisms in high-altitude, economically limited zones.

The results reveal a complex "U-shaped" trend in grassland coverage, indicating a period of decline followed by recovery. While wetlands showed rapid gains in ESV, there were notable losses in the values associated with snow and barren lands. Water bodies were found to contribute disproportionately to the total ESV of the region because of their essential regulatory functions, despite covering a limited physical area. The study highlights a major gap between the provision of these ecosystem services and the current levels of financial compensation provided to these regions. This imbalance suggests that current policies may not be sufficient to ensure sustainable plateau development in the long term.

The authors estimate a compensation amount for the northwestern Qiangtang Plateau desert ecological zone of approximately 1.6 trillion CNY in 2020. The study period covered 20 years of data from 2000 to 2020 to capture long-term trends. Furthermore, the region is noted for its high urbanization pressure, as the French urban population (used as a comparison point for urban stress) reached 81.5%. The findings underscore that certain ecological zones require significantly higher priority in compensation due to their immense, yet largely non-market, ecological value.

           

Du, Qianqian, and Lei Li. "Assessing Ecosystem Service Value Dynamics and Compensation Gaps in Key Ecological Zones of Xizang: Towards Sustainable Plateau Development." *Frontiers in Environmental Science* 13 (August 2025): 1648758. https://doi.org/10.3389/fenvs.2025.1648758

Cost and Benefits of Climate Change Adaptation Policies: Evidence from an RCT and Extreme Flooding in Pakistan

This study estimates the damage costs of climate change by incorporating the specific costs and benefits of adaptation measures across various environmental scenarios. The researchers utilized a three-year tracking period of households in rural Sindh, Pakistan, which included exposure to extreme monsoon flooding in 2016. This field-based approach allowed for a precise analysis of how targeted preparedness programs can foster resilience against adverse weather shocks. The methodology specifically compared communities participating in a humanitarian aid program to a randomly selected control group. By doing so, the authors were able to quantify improvements in health and food security directly attributable to the intervention.

The findings demonstrate that proactive adaptation investments are highly effective and can pay for themselves within a very short timeframe. In fact, the analysis suggests that these measures have the potential to significantly reduce the social costs of carbon when viewed over a long-term horizon. The research highlights that identifying strategies to mitigate the social cost of carbon is essential for achieving sustainable outcomes. Despite the success of the program, the authors acknowledge that many standard climate models have historically failed to differentiate between various adaptation scenarios. This study fills that gap by providing empirical evidence of how local policies impact economic stability.

The authors estimate $101.47 in damages per household for those left unprotected during a flood event. The paper notes that in 2020, the U.S. government reportedly underestimated the societal costs of carbon dioxide by approximately 3.6 times. While some models suggest a social cost of carbon (SCC) range between $35 and $115, newer predictions using extreme event data place it as high as $1,056 per ton of CO2. Additionally, the study observed that insurance density in the studied region was extremely low, estimated at a mere $4 per person. These figures underscore the high return on investment for humanitarian and climate preparedness programs in vulnerable regions.

Avdeenko, Alexandra, and Markus Frölich. "Cost and Benefits of Climate Change Adaptation Policies: Evidence from an RCT and Extreme Flooding in Pakistan." *Journal of the European Economic Association* 23, no. 5 (October 2025): 1950–2002. https://doi.org/10.1093/jeea/jvaf012

Does Urban Overheating Affect Neighborhood Attractiveness? Evidence from the French Housing Market

This article investigates urban overheating as an environmental "dis-amenity" that negatively impacts the health and quality of life for residents. By reducing the attractiveness of certain neighborhoods, overheating is hypothesized to exert downward pressure on housing prices. The study utilizes a unique "Thermocity" dataset, which provides high-resolution nighttime land surface temperature data from satellite observations across four French urban units. The methodology combines this climatic data with an exhaustive record of housing transactions from 2013 to 2019. To ensure accuracy, the author employs an "instrumental variable approach" using wind speed to address potential endogeneity in local temperature readings.

The analysis reveals a statistically significant negative relationship between local temperature increases and property values. This effect is not uniform across all studied areas, showing substantial variation between different urban units. The findings are robust even when using alternative measures of overheating from different data sources. As urbanization continues to increase and global temperatures rise, the incidence of urban overheating is expected to become a more prominent factor in the housing market. The research suggests that nearly 81.5% of the French population is now living in urban areas, making this a critical issue for public policy and urban planning.

The most striking finding is that a 1 °C increase in urban overheating is associated with a 2.2% decrease in housing prices. The study analyzed a total of four French urban areas using satellite data. The housing transaction dataset spanned a seven-year period from 2013 to 2019. Furthermore, the study notes that 81.5% of the French population currently resides in urban areas where these overheating effects are most pronounced. These results provide clear evidence of the economic "penalty" associated with living in heat-stressed urban environments.

Vincent, Pierre. "Does Urban Overheating Affect Neighborhood Attractiveness? Evidence from the French Housing Market." *Journal of Housing Economics* 71 (2026): 102111.  https://www.sciencedirect.com/science/article/pii/S1051137725000701