Facing Climate Risk: Finance, Disclosure and Resilience

Climate change isn’t just an environmental issue – it’s reshaping the way money moves around the world. Four recent studies, conducted by researchers from Henley and collaborating institutions, shed new light on how climate risk is reshaping financial markets, investor behaviour and policy priorities. They reveal how weather extremes are already influencing company values, mortgages, bonds and small businesses. The studies highlight where financial systems are vulnerable and what can be done to make them stronger.

‘Climate adaptation disclosure: Does it bring home the Green?’

In this study, with co-authors Alessio Venturini and Len Shaffrey, we examine how companies are under growing pressure to tell investors how they’re dealing with climate change. But does more disclosure actually help?

Looking at UK annual reports, we found that when firms reveal their physical climate risks – like storms, floods or droughts – investors reward them. Valuations rise because uncertainty drops.

But adaptation disclosures – the bits about how firms plan to deal with future risks – don’t deliver the same benefit. In some cases, they create more confusion. The lesson? Regulators should push for clear, standardised physical risk reporting, while giving better guidance on adaptation so investors don’t misinterpret the details.

‘Drowning in debt? Forbearance policies and mortgage defaults in European flood zones’

Next, we turned to housing. With Monica Billio and Runhua Pan, we analysed over 13 million mortgages across eight European countries and saw how floods affect households.

In the UK, France and Ireland, heavily indebted households in flood-prone areas were more likely to default. But Spain and Italy stood out for their resilience. Why? They had proactive forbearance and relief policies that kept homeowners afloat.

Targeted support after disaster matters, as well as the critical role of insurance design in safeguarding financial stability. EU-wide co-ordination could make mortgage markets sturdier in the face of climate stress.

‘Greenium fluctuations and climate awareness in the corporate bond market’

Green bonds are supposed to make it cheaper to fund eco-friendly projects. Investors accept a small ‘greenium’ – a lower yield – because they want their money to do good. But our study (with Massimo Dragotto) showed that greenium isn’t constant.

It widens when climate change dominates public conversation and shrinks when attention drifts. Certified green bonds hold up better, proving that trust and standardisation count.

For policymakers and investors, the message is clear: transparency and certification help stabilise the market, but climate sentiment – the mood of the moment – still plays a powerful role in pricing.

‘Rain or shine: Exploring the climate-default nexus in small and micro-firms’

Our research with Lara Cathcart, Zhenghong Ding and Ludovico Rossi zoomed in on Europe’s small businesses. They’re the backbone of the economy, but also highly exposed to weather shocks.

Our research showed that both heatwaves and heavy rain increase the risk of default, especially for micro-firms with limited cash reserves. Lost productivity, damaged premises and fewer resources to adapt leave them especially fragile. Banks and regulators should factor these risks into stress tests and create support schemes designed with small firms in mind.

The bottom line

Put these studies together and a clear message emerges. Climate change is already shaping financial systems, from household mortgages to bond markets. To stay resilient, we’ll need smarter regulation, clearer disclosures and stronger safety nets.

Climate change isn’t just about the weather – it changes the way money works

Authors