In this paper, we develop a methodology to calculate the potential damage associated with different types of physical risks at the asset level, and conduct a practical implementation for flood damages in the airport sector in the United States. We then use these results to analyse the relationship between airports’ capital costs and exposure to physical climate risk.

Using a new dataset of 470 airports, including over 1,000 runways and more than 800 terminal buildings, we use a 30-meter resolution flood model for a 50-year return period (2% probability) and an airport-specific damage function to calculate damage factors at the airport level.

Next, we look at the impact of physical risks on the cost of debt of infrastructure companies and whether investors in revenue bonds issued by airports price physical climate risks. Using a hand-collected dataset of 2,000+ revenue bonds issued by US airports, our analysis concludes that physical climate risk is not currently priced in the cost of debt of US airports.