August 25, 2025
By Pathzero Insights Team
In recent years and as we’ve seen over the past month on the east coast, Australia has experienced a noticeable shift toward more intense and frequent heavy rainfall events, a trend increasingly attributed to climate change. According to observations from the New South Wales government, the intensity of heavy rainfall has risen by 10% or more since 1979.
Australia’s national science agency, CSIRO, projects that hourly extreme rainfall could increase by around 15% per degree of global warming. This chronic shift in weather patterns – characterised by heavier downpours during wet periods – represents a classic example of physical risks as defined under IFRS S2, the international sustainability standard on climate-related disclosures.
IFRS S2 categorises physical risks into acute (event-driven, like storms) and chronic (long-term shifts, such as altered rainfall regimes), both of which can erode asset values and disrupt operations.
An everyday challenge
These changes are not abstract: they manifest in practical, everyday challenges for buildings and homeowners. Many structures in Sydney, designed for historically milder conditions, are ill-equipped to handle sustained or extreme precipitation. Prolonged heavy rain leads to water ingress through roofs, walls, and foundations, often resulting in structural weakening and the need for costly upgrades. For instance, during the February 2025 storms, torrential rain caused widespread flooding, with gutters overflowing and water penetrating walls in commercial buildings like post offices, leading to immediate damage and business interruptions.
In residential areas, similar events have seen basements and car parks flooded, exacerbating issues in multilevel apartments where overflowing lift pits and leaking balconies are common.
Creeping financial implications
The financial implications are significant. Repairing water damage can range from $1,000 to $20,000 per incident, depending on severity, with average insurance claims reaching up to $30,000 in recent years. Beyond immediate fixes like roof patching or waterproofing, owners face ongoing expenses for reinforcements, such as improved drainage systems or resilient materials, to prevent recurrence.
Even private properties feel the sting in relatable ways. A simple leak from heavy rain can cascade into direct damage – ruined flooring, warped furniture, or electrical hazards –followed by longer-term threats like mould buildup. Mould thrives in damp environments created by untreated leaks, often invading walls, ceilings, and hidden spaces.
In Sydney, where humidity and rainfall combine to foster such conditions, homeowners report persistent issues after wet spells. Left unchecked, mould poses health risks, including respiratory issues, and can devalue properties by requiring professional remediation. These scenarios bring IFRS S2's physical risks to life, highlighting how climate shifts translate into tangible economic and personal burdens.
Emerging portfolio approach for asset owners
At Pathzero, we are observing an emerging approach among asset owners to address these challenges more effectively. Moving beyond initial screening of climate vulnerabilities, investors are adopting refined modelling techniques to quantify exposures, followed by a deeper assessment of residual risks. This includes evaluating mitigation actions undertaken by portfolio holdings – such as building upgrades or insurance enhancements – to build resilience against physical threats like Australia’s evolving weather patterns. By integrating such strategies, asset owners can better safeguard value in a changing climate.