Climate risk due diligence for institutional investors

Challenge

Large institutional investors with a long investment horizon increasingly recognize that climate change can pose material financial risks to natural resource assets. Agriculture, forestry, and other real asset investments are particularly exposed to climate variability and long-term climate shifts—affecting yields, asset viability, operational costs, and long-term returns.

Specifically, the investor wanted to know:

• How will climate change affect a particular asset over the next 20+ years?
• Which risks are most material to long-term returns and which are manageable?
• Are there options to mitigate the long-term climate risks, and is an investment in mitigation worth the reduction in long-term climate vulnerability?

Solution

Rather than relying on generic scoring systems, we applied a multifaceted analytical approach that includes the following:

1. Asset vulnerability and sensitivity analysis

Evaluate how assets—from forests and farms to global seafood operations—are physically and biologically exposed to climate stressors such as heat, drought, water availability, ocean temperatures, and extreme events.

2. Forward-looking climate projections

Use ensembles of global climate models that are downscaled locally to assess how asset-specific variables (e.g., days above critical temperature thresholds vs. average temperature changes) are projected to shift in the regions where assets operate, aligned with long-term investment horizons.

3. Integrated risk interpretation

Combine asset sensitivity with projected conditions to identify the most material risks, delivering scientifically defensible insights (e.g., impacts of temperature or water changes on crop yields or species viability).

4. Risk analysis refinement

Collaborate with the client to refine analyses using asset-specific factors such as local management practices and water rights—going beyond generic risk models.

5. Identify risk mitigation opportunities

Where relevant, help the client and partners identify and assess mitigation strategies, enabling integration into asset valuation and future investment decisions.

6. Determine new opportunities and the competitive landscape

In some cases, identify where climate shifts may create new investment opportunities (“buy low”), while also highlighting geographic variations in risk to support competitive positioning.

Results

Our team supported the investor’s due diligence process by delivering custom, asset-level climate risk assessments. These are designed to directly inform investment decisions, not just reporting requirements, and help the investor:

• Strengthen investment decisions by identifying material climate risks early in the deal process.
• Inform pricing, financing, and negotiation strategies, including adjustments to assumptions used in internal financial models.
• Guide further due diligence, such as targeted site visits, data requests, or engagement with asset operators.
• Evaluate mitigation options, including operational changes and capital investments that could reduce long-term exposure.
• Evaluate future investment opportunities in a given market by mapping climate risk for a region or industry beyond the specific investment under analysis.
• Support board-level decisions, contributing climate risk insights to broader investment approval packages.

A tailored approach

For each institutional investor we work with, we tailor the scope to the investment’s complexity, budget, and timeline. This allows us to deliver fast-turnaround analyses that are rigorous and actionable. For especially complex investments, such as a multinational seafood company with diverse species and geographically dispersed operations, we helped define clear analytical boundaries while still capturing portfolio-level risk dynamics.

And we don’t stop at risk identification. Our team provides expert interpretation and context, enabling follow-on discussions with investors about the interpretation of complex climate data, mitigation options, tradeoffs, and feasibility—supporting iterative dialogue rather than static, one-off deliverables.