Forecasting Climate Risks: New Tools for Smarter Investment Decisions
Predicting Natural Hazards: A New Era of Climate Risk Assessment
Investors have long relied on historical data to gauge their exposure to extreme weather events, often assuming future risks will simply follow past patterns. However, innovative new research is eliminating much of that uncertainty—especially around four major natural threats forecasted to shape this century.
Collaboration to Advance Climate Hazard Forecasting
A recent advancement from the Columbia Climate School, building on the original Natural Hazards Index (NHI) launched in 2016, offers a clearer picture of potential exposure to floods, droughts, and other severe weather events. In 2023, a partnership between Columbia and AB led to the release of NHI version 2.0, which introduced an interactive tool displaying hazard risks across thousands of U.S. communities.
Looking ahead, the 2025 version—NHI 3.0—represents an expanded joint effort involving leading institutions such as NASA. This upgraded model leverages the most recent climate science and advanced simulations to estimate the location, path, and intensity of four key natural hazards at midcentury and the century’s end.
NHI 3.0 doesn’t just show how threats like wildfires have grown—it forecasts how and where they’re expected to evolve. For instance, fires are not only projected to worsen in high-risk states like California and Washington but are also likely to become more frequent in historically low-risk areas such as Minnesota and South Dakota. Tornado activity is also expected to increase, shifting eastward beyond the traditional Midwest zone.
The index can even highlight how overlapping disasters affect one another. For example, while wildfire occurrences in Louisiana may decrease, that’s partly due to the expected rise in hurricanes and resulting floods.
Linking Climate Risk to Investment Strategy
This enhanced data from Columbia is a powerful resource for governments and communities planning for disaster preparedness. But its value extends further—to investors navigating a rapidly changing climate landscape.
That’s why elements of NHI 3.0 are now integrated into AB’s Physical Hazard Investment Risk (PHIR) tool. PHIR connects hazard data with financial insights, offering a clearer understanding of risk across more than 3,100 U.S. counties. It evaluates how communities might be affected by wildfires, hurricanes, tornadoes, and rising sea levels—considered the most pressing natural threats through 2050.
PHIR is especially relevant for fixed-income investments, such as municipal bonds or mortgage-backed securities, where local infrastructure like homes, schools, and utilities are directly vulnerable to regional climate shifts.
Public companies, too, can benefit. Operations spread across multiple geographic areas may face compound exposure. For example, a utility company with facilities in both Minnesota and South Dakota might currently face minimal wildfire risk. But by 2050, exposure in those states is projected to rise nearly 88%. In response, we’ve encouraged such firms to adapt successful mitigation strategies used in high-risk areas like Colorado to their less-prepared regions.
Seeing What Others Might Miss
Yet, not all risks are widely recognized or accurately priced into the market. The expanded PHIR data can spotlight overlooked investment risks and opportunities—especially in areas where future threats are not yet fully appreciated.
While tomorrow’s natural disasters may not mirror those of the past, forward-looking tools like NHI 3.0 and PHIR offer valuable foresight. Anticipating where and how risks will unfold allows businesses, communities, and investors to make informed decisions today.
Ultimately, proactive assessment of physical climate risks could not only preserve lives and infrastructure but also drive smarter investment choices. By visualizing the local impacts of future hazards, companies and bond issuers can begin to mitigate long-term threats before they materialize.
Click here to know more AB’s approach to responsibility.
Investors have long relied on historical data to gauge their exposure to extreme weather events, often assuming future risks will simply follow past patterns. However, innovative new research is eliminating much of that uncertainty—especially around four major natural threats forecasted to shape this century.
Collaboration to Advance Climate Hazard Forecasting
A recent advancement from the Columbia Climate School, building on the original Natural Hazards Index (NHI) launched in 2016, offers a clearer picture of potential exposure to floods, droughts, and other severe weather events. In 2023, a partnership between Columbia and AB led to the release of NHI version 2.0, which introduced an interactive tool displaying hazard risks across thousands of U.S. communities.
Looking ahead, the 2025 version—NHI 3.0—represents an expanded joint effort involving leading institutions such as NASA. This upgraded model leverages the most recent climate science and advanced simulations to estimate the location, path, and intensity of four key natural hazards at midcentury and the century’s end.
NHI 3.0 doesn’t just show how threats like wildfires have grown—it forecasts how and where they’re expected to evolve. For instance, fires are not only projected to worsen in high-risk states like California and Washington but are also likely to become more frequent in historically low-risk areas such as Minnesota and South Dakota. Tornado activity is also expected to increase, shifting eastward beyond the traditional Midwest zone.
The index can even highlight how overlapping disasters affect one another. For example, while wildfire occurrences in Louisiana may decrease, that’s partly due to the expected rise in hurricanes and resulting floods.
Linking Climate Risk to Investment Strategy
This enhanced data from Columbia is a powerful resource for governments and communities planning for disaster preparedness. But its value extends further—to investors navigating a rapidly changing climate landscape.
That’s why elements of NHI 3.0 are now integrated into AB’s Physical Hazard Investment Risk (PHIR) tool. PHIR connects hazard data with financial insights, offering a clearer understanding of risk across more than 3,100 U.S. counties. It evaluates how communities might be affected by wildfires, hurricanes, tornadoes, and rising sea levels—considered the most pressing natural threats through 2050.
PHIR is especially relevant for fixed-income investments, such as municipal bonds or mortgage-backed securities, where local infrastructure like homes, schools, and utilities are directly vulnerable to regional climate shifts.
Public companies, too, can benefit. Operations spread across multiple geographic areas may face compound exposure. For example, a utility company with facilities in both Minnesota and South Dakota might currently face minimal wildfire risk. But by 2050, exposure in those states is projected to rise nearly 88%. In response, we’ve encouraged such firms to adapt successful mitigation strategies used in high-risk areas like Colorado to their less-prepared regions.
Seeing What Others Might Miss
Yet, not all risks are widely recognized or accurately priced into the market. The expanded PHIR data can spotlight overlooked investment risks and opportunities—especially in areas where future threats are not yet fully appreciated.
While tomorrow’s natural disasters may not mirror those of the past, forward-looking tools like NHI 3.0 and PHIR offer valuable foresight. Anticipating where and how risks will unfold allows businesses, communities, and investors to make informed decisions today.
Ultimately, proactive assessment of physical climate risks could not only preserve lives and infrastructure but also drive smarter investment choices. By visualizing the local impacts of future hazards, companies and bond issuers can begin to mitigate long-term threats before they materialize.
Click here to know more AB’s approach to responsibility.
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