Pension investors cannot afford to ignore the resilience premium

Quietly, the debate about whether climate change matters to capital markets has ended. For pension funds, trustees and other long-duration investors, the issue is no longer whether this is real, but how quickly it is being priced into their portfolios. Credit rating agencies, central banks, and institutional fixed income desks are all repricing assets in response to physical climate risks such as wildfires, water scarcity and coastal inundation.

The gap between exposed and resilient assets is widening across asset classes. Three transmission channels: credit ratings, insurance and sovereign risk, are the leading signals through which planetary risk is repricing markets.

Pension funds and other institutional investors are highly aware of these new realities. How to move capital towards climate resilience and stay on the right side of this repricing gap is steadily becoming a defining issue. Call it the “resilience premium” – a value differential in yield, price, or spread that is accruing to assets that demonstrably reduce exposure to physical climate risk.

While climate risks are increasingly clear across asset classes, identifying where the associated resilience premiums are building requires better signals through a new and coherent information architecture. For pension fund trustees and chief investment officer the opportunity is not just to navigate away from climate risks, but to capitalise on the emerging resilience premiums.

Resilience premiums in credit ratings

Between 2005 and 2017, S&P Global downgraded two North American investor-owned utilities for physical climate risk. Between 2018 and 2023, it downgraded 19. Since 2020, nearly 100 utility credit downgrades have been linked to wildfire and extreme weather. By 2024, downgrades outpaced upgrades in this sector for the fifth consecutive year.

This is not just a California or US story; similar vulnerabilities have been recorded in Australia, Greece, Italy and Spain. Rating agencies are explicit that “an actual fire is not necessary for a downgrade” – they are pricing forward-looking physical exposure. The resilience premium, on the other hand, is equally legible. Moody’s upgraded the utility PG&E in March 2025, citing its $20bn investment in wildfire mitigation. A utility that demonstrated resilience spending recovered its credit profile. Resilience spending is already helping to stabilise credit quality.

“Sovereign bonds represent a significant allocation in most pension portfolios, making physical climate risk increasingly relevant”

Resilience premiums in insurance

Insurance premiums in US coastal cities and infrastructure are growing significantly due to climate risk. In 2026, home insurance premiums are projected to rise for a fifth consecutive year, climbing at triple the rate of inflation.

Coastal cities in exposed regions like Florida and Louisiana are being hit hardest. Average Florida insurance premiums have jumped by 117% between 2019 and 2023, affecting households, fiscal budgets and investors alike. Insurance is now the fastest-growing expense for building owners.

A resilience premium is at work in nature infrastructure. In Florida, a 2025 study by Swiss Re Institute found that high-quality coastal habitats, such as mangrove swamps, have reduced insurance claim frequencies by approximately 50%. Insurance repricing forces institutional investors to reconsider the protective role that nature plays as a climate resilience investment.

Resilience premiums in sovereign fixed income

Sovereign bonds represent a significant allocation in most pension portfolios, making physical climate risk increasingly relevant. The International Monetary Fund (IMF) finds that a one percentage point increase in climate vulnerability adds approximately 15.5 basis points to a sovereign’s risk premium. The European Central Bank (ECB) finds that physical climate risk now affects one in four sovereign credit ratings. Universities are at work proposing new ways to adjust sovereign risk premiums to climate change and nature loss.

Meanwhile, the 20 most climate-vulnerable nations have estimated that by 2018 they had already paid more than $60bn in additional borrowing costs over the prior decade – a figure projected to exceed $160bn by 2030.

In advanced economies, the resilience premium is forming around sovereign and sub-sovereign green and resilience bond issuances. Tokyo’s October 2025 €300m climate resilience bond – the first certified under the Climate Bonds Initiative’s new resilience criteria – was 7x oversubscribed, attracting €2.2bn in demand from 120 institutional investors. For the most vulnerable, debt swaps for climate could mobilise an estimated $100bn for nature restoration and climate resilience across the 49 most debt-distressed nations.

Mind the signal gap

Climate risk is already repricing assets. Resilience premiums are silently forming. Pension investors cannot ignore these new realities as they allocate portfolios in a context of growing global volatility. But the signals are broken. What is missing, and must be addressed, is how we move from climate risk to resilience opportunities. A shared market information infrastructure that signals the direction for these premiums across countries, regions and sectors, allowing trustees and CIOs to distinguish assets building premiums through forward-looking climate and nature models, from those that remain structurally exposed.

The case for building that visibility is anchored in financial risk. Investing in resilient physical infrastructure, resilience information systems, resource circularity, and natural infrastructure is increasingly the most credible form of risk management. Being able to read the market signals that capture the repricing of planetary risk is obviously important. But reading the signals that show where to invest in climate resilience is essential.

Alejandro Litovsky, founder and chief executive officer of Earth Security