How Extreme Weather Events Redefine Risk Assessment in Investments

Extreme weather represents one of the biggest challenges for portfolio managers today. The recent winter storm Fern that occurred earlier this year demonstrated how adverse weather phenomena can cause sharp movements in financial markets, affecting both institutional investors and individual investors. These types of events force us to rethink how we assess the resilience of our investment strategies.

The reality of extreme weather phenomena and their impact on markets

Risk management experts, such as Kristina Bratanova, Senior Risk Manager at FactSet, have analyzed in detail how different types of extreme weather affect the behavior of financial indices. It’s not just winter storms. Wildfires in Southern California, atmospheric depression systems like Storm Uri in Texas, and catastrophic events like Hurricane Harvey have left visible marks on investment returns.

Each type of weather event produces distinct impact patterns depending on the sector and industry involved. While wildfires mainly affect insurance and energy companies, severe storms impact infrastructure, transportation, and essential services. Hurricane Harvey, for example, caused significant losses across multiple sectors simultaneously, showing how extreme weather can act as a risk multiplier.

Historical events: lessons from the market during climate crises

These historical cases are not merely anecdotal. They represent real scenarios that can be replicated to assess the vulnerability of specific portfolios. FactSet has documented how different levels of impact—from the overall index to specific industry segments—behave under extreme pressure.

Using these precedents as references allows portfolio managers to anticipate market responses to new severe weather events. The market history during climate crises thus becomes a valuable data laboratory for decision-making.

Analytical tools to assess resilience to climate risks

FactSet’s Portfolio Analysis platform offers the ability to run stress tests based on these historical scenarios. Investors can simulate how their investments would react under conditions similar to those faced during Storm Fern, California wildfires, or Hurricane Harvey.

This approach transforms historical data into a preventive strategy. By understanding how different assets behave during extreme weather events, managers can rebalance positions, diversify exposures, or implement more effective hedges. Resilience assessment is not an academic exercise but a practical necessity in a world with increasing climate volatility.