Climate Risk is Silently Squeezing ASX Profits

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Impacts from changing climate and weather patterns are increasingly showing up in corporate earnings releases. A sign investors should not ignore.

• Floods, fires and fees are increasingly impacting on corporate profits
• 2025 insured losses from major disasters is second-highest total among developed markets in nearly five decades
• For affected companies, changing climate is emerging as unavoidable cost
• Over time, valuations for property and companies might be de-rated

By Lily Brown

In early 2025, torrential rain swept across New South Wales and Queensland, submerging towns, cutting off tens of thousands of residents, and damaging more than 100,000 properties.

On the other side of the continent, Cyclone Zelia tore through Western Australia’s Pilbara region as a Category 5 storm, inflicting hundreds of millions of dollars in damage.

Globally, the pattern is familiar. Typhoon Bualoi ravaged Southeast Asia, catastrophic floods hit Brazil, and wildfires spread across Europe, driving worldwide disaster losses to roughly US$131bn in the first half of 2025, US$80 bn of which were insured.

These are not anomalies. They mark a new normal in which climate volatility is beginning to seep into corporate balance sheets everywhere.

Australia’s insurers are already absorbing the strain. The Insurance Council of Australia (ICA) reports -$1.3bn in insured losses from major disasters in 2025, the second-highest total among developed markets in nearly five decades. As Munich Re board member Thomas Blunck put it:

“Disasters… have become more likely due to global warming and they teach us a very important lesson: people, authorities and companies must all adapt to new circumstances.”

For ASX-listed firms —especially across property, utilities, energy and agribusiness— that adaptation is becoming an urgent financial exercise.

Climate risk is no longer a disclosure line in an ESG report; it’s an emerging cost centre. Rising insurance premiums, self-insurance decisions and resilience capex are now showing up in P&Ls, but are not yet fully priced into valuations.

Below, we examine how these pressures are translating into margin compression across key sectors – and why investors who factor insurance and resilience costs into forecasts may see risk (and opportunity) before the market does.

Property Trusts: Insurance Premiums and Asset Vulnerability

The ICA estimates around 1.4 million Australian properties face flood risk, underscoring how geography increasingly dictates value.

Commercial parks in western Sydney, retail centres near river systems, and coastal logistics hubs sit at the intersection of yield and exposure.

For property trusts, this is translating into a slow but structural drag. Insurance and maintenance costs are rising faster than rents or valuations can adjust –- particularly for assets in high-risk corridors.

Insurance Costs Eating Into NOI

Disclosures from GPT Group ((GPT)), Dexus ((DXS)), and Stockland ((SGP)) show the trend clearly.

Dexus’s FY24 Sustainability Data Pack notes higher management costs tied to climate-risk mitigation, while GPT’s 2024 Climate and Nature Disclosure Statement points to “increased operational expenses from higher insurance premiums” and anticipates further rises “due to stricter regulations.”

These costs feed directly into Net Operating Income (NOI), eroding returns even when occupancy and rents remain stable.

Some managers are absorbing higher deductibles or self-insuring smaller assets to keep coverage affordable, but that only shifts risk from insurer to balance sheet.

Resilience Capex and Distribution Pressure

Beyond premiums, landlords are investing more heavily in resilience upgrades; flood barriers, cooling systems, and fire-resistant retrofits.

These don’t feature in headline numbers but are increasingly reshaping capital allocation.

Stockland’s FY25 earnings call captured the tension: the group trimmed its payout ratio target to 60–80% of funds from operations (FFO) from 75–85% to preserve flexibility amid cost pressures.

Investor Takeaway

For investors, the narrative has shifted: climate risk is now a valuation input, not a disclosure formality.

Analysts are gradually incorporating higher insurance and maintenance assumptions into REIT models, but if premium inflation continues to outpace rent growth, FY26–27 earnings forecasts could prove optimistic.

In a yield-focused sector, the key differentiator will increasingly be insurability –- a test many portfolios have yet to face.

Utilities: Infrastructure at Risk

For Australia’s listed utilities, climate exposure has evolved from a sustainability topic to a core operational and balance-sheet risk.

Energy networks including APA Group ((APA)) and Origin Energy ((ORG)) have reported higher outage-related expenses and maintenance costs. The early-2025 floods alone caused substation shutdowns and unplanned repairs that will flow through FY25 results.

The Australian Energy Market Operator’s 2025 Electricity Statement of Opportunities highlights the trend: extreme weather events are driving more frequent network constraints, especially in the northern and eastern states.

That translates directly into higher opex and accelerated depreciation as older infrastructure is rebuilt ahead of schedule.

The Insurance Premium Squeeze

According to Aon’s 2025 Climate and Catastrophe Insight, insurers are re-pricing exposure to energy infrastructure in high-risk zones. APA Group disclosed a 15–20% rise in reinsurance premiums in FY24, citing “natural peril exposure” as a key driver.

While regulators allow partial cost pass-throughs, these adjustments lag real-time expenses, creating short-term margin compression even in regulated returns.

Generation Assets Under Pressure

Thermal plants are also showing vulnerability. February’s record heat forced temporary curtailments of gas turbines and reduced cooling efficiency at coastal stations, while severe storms damaged wind and solar farms in Queensland and South Australia.

These events erode reliability scores and inflate maintenance budgets; costs that are now frequent enough to matter in valuation terms.

To reduce some of this vulnerability, insurers are advocating for and rewarding higher building standards, climate-resilient materials, and smarter geographical planning.

Some, like AusNet, are paying heed. The company’s 2023 Task Force on Climate-related Financial Disclosures (TCFD) report states:

“Managing physical climate-related risks is not new to AusNet and we have managed it as part of our core business for many years.”

Investor Takeaway

For investors, the takeaway is clear: utilities are becoming frontline assets in a changing climate, where maintenance intensity, insurance pricing, and resilience capex are now key valuation variables.

Agribusiness: Climate Volatility Meets Modernisation Costs

Agribusiness remains the clearest intersection of climate risk and capital cost. While strong livestock prices lifted the sector’s gross value toward record highs, volatile weather kept crop yields and export quality uneven.

Operational and Insurance Costs Rising

Listed names such as GrainCorp ((GNC)) and Elders ((ELD)) have flagged higher logistics and maintenance costs due to weather disruptions. Insurance expenses are also climbing, with the ICA warning “premium prices are rising because of the escalating costs of natural disasters”.

At the same time, insurers are adapting: new parametric products and risk-based pricing models are emerging, but affordability in high-risk zones remains a constraint. Many producers still self-insure or underinsure, heightening cash flow volatility.

Supply Chains Under Strain — and Modernising

While floods and heat disrupted freight routes earlier in 2025, the medium-term story is one of adaptation.

Government infrastructure upgrades and digitised supply-chain systems are improving resilience and traceability, even as they introduce new exposures —from cyber risks to automation breakdowns— that insurers are still learning to price.

Investor Takeaway

For listed agribusinesses, the convergence of climate volatility, insurance inflation and financing differentiation is reshaping the earnings profile.

Expect greater variance in seasonal results, elevated working-capital needs, and widening valuation dispersion between diversified operators and regionally concentrated peers.

In short, climate resilience is fast becoming the new measure of quality in this sector.

Energy & Resources: Transition Meets Physical Risk

In energy and resources, the climate challenge is twofold: decarbonisation on one side, physical disruption on the other.

Physical Impacts on Production

Recent weather extremes have been materially visible in production reports. BHP Group’s ((BHP)) FY25 operational review cited cyclone-related interruptions in the Pilbara and heavy rainfall in Queensland coal mines, while Rio Tinto ((RIO)) flagged reduced iron ore output due to cyclone damage.

Sustained heat has also hampered LNG operations, lifting maintenance and power costs for Woodside Energy ((WDS)) and Santos ((STO)).

Rising Insurance and Self-Retention

The global reinsurance market for energy and mining assets remains tight. Premiums and deductibles continue to climb, prompting several ASX miners to self-retain more risk, effectively turning weather volatility into a direct balance-sheet item.

Investor Takeaway

Investors have long priced policy risk; now they must price weather-adjusted reliability. Persistent disruptions can erode utilisation rates, inflate opex and mute production growth even in a commodity upcycle.

In valuation terms, that means reassessing assumed operating stability and factoring resilience spending directly into cost curves. For long-duration projects, insurability itself is emerging as a gating factor for future expansion.

Climate as a Valuation Variable

The thread running through all these sectors is clear: climate risk has become a line item, not an afterthought.

Insurance costs, self-insurance provisions, and resilience capex are steadily rising. The companies that plan for them early will preserve margins and valuation headroom.

For investors, the next step is practical:

• Stress-test portfolios for physical and financial climate exposure;
• Track insurance cost trends and resilience spending;
• Reassess dividend models that assume static operating costs.

Ignoring these factors risks underestimating true cash flow volatility. Those who price climate correctly won’t just avoid surprises; they’ll spot resilience before it’s re-rated.

Because in today’s market, climate isn’t just a background risk. It’s a valuation variable.

FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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