The number of natural disasters has been increasing for decades, but lately, driven by climate change, managing that risk has become a serious concern for investors.

Scores of art treasures at the Getty Center in Los Angeles were literally in the line of fire last month as a blaze forced the renowned museum to close its doors to the public. Farther north, the larger Kincade fire triggered evacuations in Sonoma County, the heart of California wine country. And while the state’s largest utilities cut power to millions to avoid blazes, scores of homes were destroyed. 

“Natural disasters have gotten more and more expensive,” Kristiane Huber, a resilience fellow at the nonprofit Center for Climate and Energy Solutions, told Karma. “It’s a combination of the climate changing and also us having people and buildings in places that are risky, like flood plains and forests that are full of wildfire fuel.”

Rising temperatures are a particular concern for investors with real-estate portfolios. 

In a report published last month researchers at MSCI analyzed almost 24,000 private commercial assets worth more than $800 billion from five regions to see how they would fare in a world where each country is tackling impact of climate change. 

They looked at hurricanes in the U.S., water stress in Australia and South Africa, and flooding in the U.K. and the Netherlands. And this month, MSCI launched two climate benchmarks that would go a step further and allow investors to both hedge climate-transition risks and direct their investments “towards opportunities related to the energy transition.”

Climate risk comes in two varieties, transition risk and physical risk. Transition risk is driven by policy or technology and associated with the shift to a low-carbon economy, because of regulatory requirements, for example. 

Physical risk is the threat to structures and other assets because they’re built in areas that are subject to floods, wildfires or other changes to nature.

Much of the early focus on climate risk has centered on Europe because of a more proactive regulatory environment and because many European locations are already seeing the impact of climate change. 

Take the Netherlands: With a third of its land mass below sea level, the country has been managing physical flooding risk for centuries. But in a climate-change era, the stakes have grown and the risk of coastal flooding is rising, the MSCI report showed. 

The U.K., the third-largest property market in the world after the U.S. and Japan, is also at increased threat of flooding, with a special focus on London.

Most of the push toward evaluating and protecting against climate risk has come from the work of the Task Force on Climate-Related Financial Disclosures, which has a set of principles and matrixes which can be used to check and communicate an entity’s risk.

“We have seen increased risk in physical risk-related issues over the past several years driven by things like the TCFD,” said Yoon Kim, director of client services for Four Twenty Seven, which provides data, market intelligence and analysis related to physical climate risks, told Karma. European regulators, credit-reporting agencies, corporations and local governments are taking notice of the risks, he said. 

Before a business can figure out how to manage its risk, it has to evaluate its exposure. Once that’s done, it must decide how actively to manage that risk, according to the MSCI report by Gillian Mollod and Will Robson. Options for real estate assets include selling the property, transferring the risk to an insurer, mitigate the risk through capital projects and screening assets based on potential exposure and their compliance with environmental, social and governance (ESG) standards.

The potential risks to a business are real, from higher operational costs and insurance premiums to property devaluation and the possibility of a total loss. Investors, corporations, regulators and credit-reporting agencies have all begun to pay attention. And that’s where companies like Four Twenty Seven and Jupiter Intelligence come in.

Four Twenty Seven, which was acquired by Moody’s Corp. earlier this year, uses a scoring system for risk factors to quantify exposure, and its data cover more than 2,000 listed companies and a million global corporate facilities. Jupiter, an analytics startup led by CEO Rich Sorkin,provides asset-level risk predictions to shield infrastructure from weather dangers and climate change. The company’s outlooks, built using artificial intelligence and other technology tools, cover timeframes from an hour to decades away.

Heightened interest in climate-risk analysis is “an acknowledgement of the fact that climate-change risk is relevant for financial and economic decision making and there’s a need to take better account of these issues,” said Kim, from Berkeley, California-based Four Twenty Seven.

While much of the existing data on physical risk involves water damage — from things like hurricanes in the U.S. South and floods along the Thames River in London or low-lying areas of the Netherlands — it also includes things like the recent wildfire threat in California.

“If you’re and you’re having to submit a 10-K to the SEC and you’re just not bothering to screen for climate risk, that would be a very risky way to go about doing your financial filings,” Huber said. “That sounds like a lot of exposure to lawsuits in the future.”