In an article published this week, Flora Harley of Knight Frank dives into why climate change could be the catalyst for another financial meltdown - and how resilience, ESG strategy, and innovative tech like AI might be beneficial.
The Upside of Investing in Resilience
Harley highlights the UK’s Warm Homes Plan - a £13.2 billion scheme projected to cut £220 annually off energy bills for three million households. According to think-tank E3G, this could lift GDP by 0.08%, with ambitious extensions potentially doubling that to 0.17% over 20 years. The plan supports around 9,000 skilled jobs yearly, enhances public health, and yields an estimated £8.7 billion in wellbeing benefits.
The World Resources Institute notes that every $1 spent on climate adaptation yields $10.50 in returns - what they call the “Triple Dividend of Resilience”: avoided losses, economic opportunity, and social & environmental gains. Companies are increasingly reaping rewards too. A survey by Buro Happold and FT Longitude found 79% of firms reporting financial benefits from ESG initiatives - 40% saw improvements of at least 11%.
The Hidden Costs & Drag on Growth
Yet Harley warns the resilience benefit has a flip side: the ballooning costs of insurance and disaster recovery. In the US alone, Bloomberg Intelligence reports nearly $1 trillion spent in the 12 months to May 1, 2025 - about 3% of GDP. US premiums surged up to 22% in 2023, with another 6% expected this year. Since 2017, premiums have more than doubled. In high-risk zones, premiums are a staggering 82% above those in low-risk areas - costs often omitted from official inflation data. This overspend diverts consumer and government budgets, suppressing investment in infrastructure and stunting economic growth.
Systemic Risk: A Financial Shock Waiting to Happen
Harley links this to systemic financial vulnerability. As the Financial Times recently warned, rising insurance costs could disrupt property markets - the inability to insure may choke mortgage lending and depress asset values. In a Buro Happold/FT Longitude poll, 68% of executives said climate-related insurance issues are a growing concern for the next three years.
UK-focussed research by Knight Frank analysts noted that flood-exposed homes typically sell at an 8.1% discount - and high-risk coastal properties see declines over 30%. Though these effects can ease over time due to market “anchoring,” physical climate risks remain tricky to price.
Building Resilience: A Strategic Guide
Harley recommends practical measures from the UK Green Building Council’s resilience roadmap - like SuDS rain systems, green roofs, flood-resistant materials, passive shading, and water efficiency strategies.With 80% of buildings in 2050 already constructed, it's critical to retrofit existing stock.
AI
According to Harley, AI can slash global greenhouse gas emissions by 5.4 billion tonnes by 2035. It optimises grid usage, boosts renewable output, and enhances building energy management. AI is also revolutionising insurance modelling - enabling granular risk pricing and proactive resilience, which in turn could stabilise asset valuations.
Climate change is no longer a distant environmental concern - it is a present and growing financial threat. From escalating insurance costs and depreciating property values to the strain on public finances and investor portfolios, the economic implications are vast and systemic. Yet, within this challenge lies a significant opportunity. By investing in resilience - through retrofitting existing infrastructure, embracing nature-based solutions, and leveraging transformative technologies like AI - we can not only mitigate climate risk but unlock long-term economic and social value. The data is clear: proactive adaptation pays dividends, both in avoided losses and enhanced wellbeing.
Source: Flora Harley/Knight Frank, Iberdrola