Private equity holds an asset for three to seven years. Physical climate risk plays out over decades. The Fintech Times put that objection to Angela Brown, CEO of Risilience, which sells climate intelligence to investors, along with further written questions on whether climate capability is genuinely moving valuations or is mostly being talked about.

Her answers set out where a climate assumption actually lands inside an underwriting model, concede that public evidence of a valuation delta remains thin, and name the sectors where the argument does not hold. Six of the seven questions were answered.

It is both, but ultimately the two are becoming increasingly difficult to separate.

Private equity has never valued businesses based solely on today’s cash flows. It values future cash flows and future buyer expectations. Climate changes both. Physical risks are already affecting earnings through insurance, operating costs and supply chains, while the market’s understanding of those risks will increasingly influence exit valuations. Investors who ignore either side risk mispricing the asset.

What investors need to ask themselves alongside whether a climate event will occur during the hold period is whether the market at exit will recognise that risk and price it accordingly. Increasingly, buyers are asking for evidence that climate has been considered throughout the investment lifecycle, from underwriting through to value creation and exit. As our research shows, LPs are looking for evidence that climate risk is managed across the entire investment lifecycle, yet verifiable evidence of climate influence at exit remains
limited.

This is all about financial markets becoming better at recognising and pricing risks that already exist.

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