Apollo Global Management Inc. is building out its risk review process to reflect the impact on asset valuations of extreme weather.
The decision comes amid a rise in the damage done to physical assets by floods, storms and wildfires. Apollo, which has been conducting so-called top-down analyses for such risks since 2023, is now broadening that approach to allow for a more granular process to identify company-level risks before closing deals, says Jaycee Pribulsky, Apollo’s chief sustainability officer.
“Both private equity and private credit teams are expanding bottom-up, asset-level evaluations of physical and transition risks,” she told Bloomberg.
“Climate-driven disruptions can directly impact operating costs, supply chains and insurance markets,” and that makes financial risk factors “more immediate,” she said.
The development feeds into a growing awareness that extreme weather events increasingly have the potential to dramatically alter asset values. That’s as managers like Apollo look to reassure investors more broadly that valuation models in private markets are sound.
When wildfires and floods rip through neighborhoods, asset values can collapse from one day to the next. Swiss Re estimates that natural catastrophes in 2025 led to $107 billion in global insured losses, with total economic losses hitting $220 billion.
“Elevated natural catastrophe losses are no longer outliers but the new baseline,” Monica Ningen, Swiss Re’s chief executive of US Property and Casualty, said in a statement.
Pribulsky says recent steps taken by Apollo include a deeper analysis of the impact of “acute and chronic climate hazards” on areas such as “loan-level mapping in mortgage portfolios to evaluating drought, flood, heat, and wildfire exposure in hard-asset sectors, where these risks materially can influence collateral values and cash-flow durability.”
Advances in technology and data availability are allowing Apollo to refine its approach to measuring the physical and transition risks associated with adapting to a hotter planet, with such assessments now “integrated into every deal, across all asset classes,” she said.
Efforts to quantify such risks are spreading across private markets. KKR & Co. said in July that it’s introduced a new credit climate risk model that provides analysts with physical risk inputs for reviewing new and existing issuers, and can also be used to assess credit valuations.
A month earlier, KKR warned that potential “changes in climatic conditions, together with the response or failure to respond to these changes,” may “strain or deplete infrastructure and response capabilities generally,” as well as “increase costs, including costs of insurance.”
The assessments play into investments in large infrastructure projects such as the data centers that power artificial intelligence. Apollo has been active in such deals, with investments including an agreement to buy a majority stake in Stream Data Centers.
“When looking at data centers, power is a key focus area given that it is one of the largest operating expenses,” Pribulsky said. “We assess energy efficiency and power sourcing while also evaluating how water is sourced, used and recycled, as design can materially influence costs, regulatory exposure and resilience.”
Wall Street lenders are also paying closer attention to such considerations, and producing research to support the need to treat extreme weather shocks as banks would view other financial risks.
Sarah Kapnick, global head of climate advisory at JPMorgan Chase & Co., says investors “need to start assessing how climate will affect their holdings in the same way that they would for inflation, or debt coverage ratios or political risk, as it can affect your cash flows and your costs.”
She says it’s a “realization” that’s “now starting to enter the financial markets and is making really smart investors understand they must have a view on how that’s going to evolve over time because it may erode their profitability.” On the flip side, she says “they may also be able to take advantage of certain opportunities.”
Investors intending to hold assets for several years need to pay particular attention to such risks, Kapnick says. That includes the average time horizon over which private market investors tend to hold on to an asset.
In a report published by MSCI last month, the market researcher noted that “physical risk isn’t tomorrow’s problem; it is already impacting portfolios.” In an analysis of $2 trillion of listed equities, MSCI found that 55% of companies “already face severe physical hazards today.”
Sectors impacted here and now include real estate, insurance, and utilities, according to a client note published this month by a team of Jefferies analysts led by Luke Sussams. The result is higher premiums, lower asset values, and reduced access to insurance. And in the event of a full-on catastrophe, supply chains can face immediate and devastating disruptions, adding to risks faced by businesses and their investors, the Jefferies analysts said.
Instead of assuming that physical risk is something to worry about “down the line,” JPMorgan’s Kapnick says that it’s increasingly clear that “investors are starting to see it priced into the market today.”
Photo: Homes surrounded by flood waters after Hurricane Beryl made landfall in Sargent, Texas. Photo credit: Eddie Seal/Bloomberg