Climate Risk and Infrastructure: Why Financial Systems Must Adapt Now
Climate Week in New York highlights the growing gap between corporate climate targets and physical infrastructure readiness, warning financial institutions to assess operational and climate risks prior to investment decisions.
What is the value of a revenue forecast for a data center if it remains unclear when it will be connected to the power grid, where the necessary cooling water will come from, and whether the facility can be insured under reasonable terms? This question, while sounding engineering-related, is fundamentally a business and financial issue. It also illustrates one of the core messages that emerged from Climate Week, which concluded recently in New York: addressing climate change will be measured by the quality of execution and the ability of economic systems to finance resilient infrastructure.
Climate Week in New York is held annually alongside the United Nations General Assembly, bringing together governments, corporations, investors, and civil society organizations. It is easy to get lost among hundreds of sessions, announcements, and reports. However, a clear thread emerged from this year's discussions: many companies have already set targets, technologies are advancing, and capital is seeking appropriate investments, but power and water grids, licensing and insurance frameworks, and supply chains do not always evolve at the same pace. The gap between the target and the infrastructure is where climate ambition turns into financial risk.
A report published ahead of the event by the international renewable energy initiative RE100 illustrated this gap. A total of 408 companies reported to the survey, with an average of 59% of their electricity consumption already coming from renewable sources. Despite this progress, the primary barriers cited by companies were limited or expensive supply, a lack of options to purchase renewable power, and regulatory constraints. Business demand exists, but without an adequate grid, clear market rules, and efficient connection processes, even a determined company cannot meet its self-imposed target alone.
From this stems a broader conclusion. Climate risk does not enter the balance sheet simply as a headline in a sustainability report. It arrives through a factory producing less due to power limitations, through an asset whose insurance is becoming more expensive, through a raw material whose supply is disrupted, or through an investment dependent on an unassured water source. The damage begins with operational continuity, moves to revenues and expenses, and from there to cash flow, debt-repayment capacity, and the value of collateral. When this vulnerability repeats across many clients, it ultimately reaches the losses of financial institutions and the capital required against risk.
The connection between technology and infrastructure stood out in discussions concerning artificial intelligence. Behind the algorithm lie data centers, chips, electricity, and cooling systems. According to a report published in February 2026 by the Taskforce on Nature-related Financial Disclosures (TNFD), 45% of the world's data centers are located in areas where water demand is high and there is a risk of scarcity or supply restrictions. This is a fact of profound economic significance. Technology demand forecasting is not enough—one must also examine grid connection timelines, electricity and water availability, cooling alternatives, and the cost of backup in the event of a shutdown.
The Role of the Financial System in Climate Risk
This is where the financial system enters. The question for a financial institution is not limited to whether a client has published a sustainability report or set an emission reduction target. It must understand where physical exposure intersects with the client's cash flow, how it might affect the value of collateral, and what its cumulative impact on credit exposure will be. Sector mapping is a starting point, but risk management requires drilling down to the specific site, asset, supplier, and infrastructure upon which repayment capacity rests.
Financing has an active role to play in this context. A financial institution can wait until the damage appears in arrears, declining value, or provisioning, or it can help the client act beforehand. Financing energy efficiency, electricity storage, economical cooling, water reuse, flood protection, supplier diversification, and business continuity plans can improve business resilience and repayment capacity. It is also possible to align the financing term with the investment's lifespan and tie part of the financing conditions to measurable milestones of risk reduction. This does not mean abandoning the financial institution's judgment—on the contrary. This is financing that better understands the business it supports.
Implications for the Israeli Economy
This message is particularly relevant to the State of Israel. A small economy dependent on national infrastructure, a few ports, and long supply chains cannot separate climate resilience, operational resilience, and national resilience. Nor do threats arrive separately. A heat wave, a grid failure, infrastructure damage, or a supply disruption can compound each other and extend recovery times. Therefore, risk mapping must examine not only the probability of each event but also the interdependence between systems and the ability to continue providing essential services.
Corporate boards must demand a clear picture at the level of material assets and processes, management must translate them into investments and work plans, and the financial institution must connect them to underwriting, pricing, collateral, and credit terms. The state has a parallel role in accelerating infrastructure, setting standards, and removing barriers. Responsibility does not rest on a single entity, but every entity must have authority, a budget, and a timeline.
Climate Week in New York made it clear that the discussion does not end with the question of how many emissions we will save in twenty years. It begins with the question of which systems must function tomorrow morning, and what needs to be done today so they do not collapse under load, scarcity, or extreme events. A financial institution that identifies risk only after cash flow has been impaired is not managing risk; it is measuring loss. Risk must be met beforehand, at the stage of investment and financing decisions.
