Climate Risks Are Shifting Across Portugal’s Insurance & Pension Sectors

Key Takeaways

• Transition Risk Continues to Ease: Sovereign and corporate debt portfolios across insurers and pension funds show consistent year-on-year improvements in climate scores, indicating gradual alignment with climate transition objectives.
• Portugal’s Sovereign Climate Profile Improved: Portugal’s sovereign climate score increased from 5.9 to 6.1, reflecting broader portfolio exposure to issuers that are comparatively more advanced in their climate transition.
• Equity Risk Diverged Across Sectors: Insurers recorded a modest improvement in equity-related climate scores, while pension funds saw a deterioration, although overall impact remains limited due to the small share of equities in total portfolios.
• Physical Climate Exposure Is Rising: Insurers’ non-life exposure to physical climate risks increased to approximately EUR 1.01 trillion, driven primarily by higher insured values rather than changes in underwriting scope.
• Residential Property Anchors Climate Loss Risk: Housing dominates insured exposure to wildfires and floods, underscoring the growing social and economic consequences of climate-related events.

Deep Dive

The Portuguese Insurance and Pension Funds Supervisory Authority (ASF) has released the third edition of its Annual Report on Climate Risk Exposure, offering a grounded look at how climate transition and physical risks are shaping Portugal’s insurance and pension fund sectors. Developed throughout 2025 with data referenced to year-end 2024, the report shows that investment portfolios are gradually aligning with the climate transition, while the value of assets exposed to floods and wildfires continues to rise.

Rather than framing climate risk as a distant or abstract concern, ASF’s analysis reflects how these pressures are already embedded in balance sheets, underwriting practices, and long-term resilience planning.

On climate transition risks, the report points to steady, if incremental, progress. Sovereign debt holdings across insurers and pension funds are increasingly concentrated in issuers that score comparatively well under Bloomberg’s climate score methodology, which evaluates emissions reduction, energy transition progress, and climate-related public policies.

Among the five sovereign issuers with the largest relative weight in portfolios, only one now scores below the EU average. Portugal’s own sovereign climate score improved year-on-year, rising from 5.9 to 6.1 on a ten-point scale where lower scores indicate higher risk. That improvement mirrors a broader trend, with average climate scores increasing across insurers’ sovereign debt portfolios, unit-linked business, and pension funds.

Corporate debt exposure followed a similar trajectory in 2024. ASF attributes the reduction in transition risk to a growing share of bonds issued by companies with lower carbon intensity, those emitting less than 25 metric tonnes of CO₂e per USD million of revenue. These issuers now account for just over half of insurers’ corporate debt portfolios and 46 percent of pension fund portfolios. Exposure to highly carbon-intensive issuers remains limited, although ASF notes that a meaningful portion of holdings still falls into intermediate risk categories or lacks an environmental score altogether, highlighting ongoing data gaps.

Equity Exposure Remains Uneven but Contained

Equity investments present a more mixed picture. Both insurers and pension funds retain exposure to companies with intermediate levels of carbon intensity, creating what ASF describes as a degree of theoretical vulnerability. Environmental scores improved slightly for insurers, with fewer low-scoring equities than in the prior year. Pension funds, by contrast, saw a deterioration, with the proportion of equities scoring below four increasing markedly year-on-year.

The practical impact of this exposure is mitigated by scale. Equities represent a relatively small share of total assets, particularly for pension funds, where they account for just three percent of overall portfolios.

Physical Climate Risks Increase with Insured Values

Where the report strikes a more cautionary tone is on physical climate risks. ASF estimates that insurers’ exposure through non-life insurance coverages, primarily fire and multi-peril policies, rose from approximately EUR 904 billion in 2022 to around EUR 1.01 trillion by 2024. The increase reflects updated sums insured rather than an expansion in coverage, but it nonetheless means more value is exposed to climate-related hazards.

Residential property dominates this exposure, reflecting both household wealth distribution and underwriting practices. Building coverage, rather than contents, accounts for the bulk of insured value, reinforcing the materiality of housing stock in potential loss scenarios.

Wildfire risk analysis shows that most insured sums are still associated with lower risk levels, consistent with the concentration of insured properties in urban areas. However, ASF identifies persistent concentrations in inland and central municipalities, where structural hazard levels are higher. At the national level, the residential insurance portfolio corresponds to an overall “Medium” wildfire risk classification.

Flood risk exposure is assessed as broadly moderate, with most insured values tied to lower scores on ASF’s scale. The report stresses, however, that portfolio-based risk does not necessarily reflect the intrinsic risk of the territory itself. In highly urbanized areas such as Lisbon, diversified portfolios can produce moderate aggregate scores despite a history of significant losses linked to specific flood events.

From Measurement to Strategic Resilience

ASF frames this year’s analysis as a foundation for future strategic decisions, including discussions around national catastrophe coverage mechanisms and the development of more territorially aligned risk management practices. The report also emphasizes the need for greater geographic granularity, improved geo-referenced data, and ongoing methodological refinement as climate risks evolve.

Looking ahead, ASF places climate risk within a broader and more uncertain global context. Elevated geopolitical tensions and economic fragmentation, it notes, risk complicating environmental objectives and long-term climate commitments. At the European level, parallel efforts to simplify sustainability regulation (through the review of the Sustainable Finance Disclosure Regulation and changes associated with the Sustainability Omnibus Package affecting CSRD, ESRS, and CSDDD) are reshaping how sustainability and climate information flows from the real economy to financial markets.

The picture that emerges is one of cautious progress on transition risk set against a backdrop of growing physical exposure. As ASF makes clear, the challenge ahead lies not only in improving averages, but in aligning data, portfolios, and underwriting practices with the realities of where climate risk is already materializing.

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