Built for yesterday’s climate

Why physical climate resilience is becoming part of prudent infrastructure underwriting

By Rhyadd Keaney-Watkins

Managing Director and Head of ESG

The first draft of this article was prompted by England’s record-breaking June heatwave. Before I had finished writing it, another had arrived, with parts of the country’s infrastructure – from rail services operating under heat restrictions to pressure on water networks – already showing signs of strain. Although the temperature was not quite record-breaking this time (thankfully), it was a remind er that what once felt exceptional no longer feels exceptional.

For many Britons, the benchmark re mains the summer of 1976, when weeks of exceptional heat and drought entered British folklore. Fifty years later, it remains the reference point whenever temperatures climb. The significance of this summer is not that it matched 1976, but that similar events are now unfolding against a warmer climate.

One hot summer proves very little; weather is inherently variable. Climate is something different altogether. It changes the likelihood and severity of the weather we experience over time. For infrastructure investors, whose assets are expected to deliver reliable services and cashflows for decades, that distinction matters.

The direction of travel is becoming harder to ignore. England experienced its warmest June on record in 2026 since records began in 1884.1 Three of England’s warmest Junes have now occurred within this decade. The Met Office projects hotter summers, more frequent heatwaves and more intense rainfall events over the life time of assets being financed today.2

The question, therefore, is no longer whether the climate is changing. It is whether the assumptions underpinning our infrastructure investments are changing with it. Infrastructure has always required long-term thinking. South Stafford shire Water, an Arjun portfolio company, traces its origins to 1853. Across Britain, reservoirs, railways, bridges and water networks conceived by Victorian engineers continue to pro vide essential services well over a century later. Later generations added motorways, electricity networks, digital infrastructure and renewable energy assets, each designed using the best understanding of future demand and operating conditions avail able at the time.

Today’s challenge is no different in principle. It is simply that one of those future conditions – the climate – is changing more quickly than many of us anticipated. That applies as much to new infrastructure as it does to existing assets. Whether investing in a Victorian water network or developing new solar capacity through Arjun’s UK solar platform, Enviromena, resilience should be designed in from the outset rather than retrofitted later.

Having spent more than two decades advising on environmental risk, I’ve seen engineering standards evolve significantly, incorporating improved climate data, revised rainfall allowances and updated design assumptions. Investors, however, have a subtly different question to answer. Compliance with engineering standards establishes the minimum acceptable standard. It does not necessarily determine the commercially optimal level of resilience over the full economic life of an asset.

Resilience is often assumed to mean additional capital expenditure. More often, it is about making better decisions earlier. Site selection, layouts, drainage strategy and equipment location can materially reduce operational risk before construction has even begun. Nature-based solutions, from wetlands and attenuation ponds to habitat features, can help manage surface water, reduce erosion and deliver biodiversity gains. Good resilience rarely begins with more concrete. It begins with better judgement.

Where additional engineering measures are justified – such as raising critical electrical equipment above anticipated flood levels, strengthening drainage infrastructure or increasing cooling capacity – they should be assessed like any other investment decision. Not simply by their cost to day, but by the costs they may avoid tomorrow.

"Engineering standards define what is acceptable. Investment judgement determines what is sensible over the next thirty years."

For much of the past decade, investment committees have understand ably focused on transition risk: policy, regulation and the pathway to net zero. That conversation has matured. Frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD) have helped establish a common language for assessing climate risk, and for many UK pension schemes and asset managers this is no longer simply good practice. TCFD aligned governance and reporting have been embedded across much of the UK institutional market since 2021 and is now evolving towards the UK’s Sustainability Reporting Standards. The next stage is more practical: understanding how physical climate risk influences operational performance, future capital expenditure and, ultimately, valuation.

When climate risks manifest, operational disruption affects revenues. Maintenance costs rise. Certain concession-based assets may incur availability deductions. Insurance be comes more expensive, or in some lo cations, more difficult to obtain. Lenders become increasingly interested when long-term resilience begins to influence future cashflows.

This is not yet widely reflected in how the industry prices risk. A 2023 survey of infrastructure investors by the EDHEC Infrastructure & Private Assets Research Institute found that 97% considered physical climate risk significant to their portfolios, while roughly two-thirds had carried out no formal and systematic evaluation of it themselves.³ That gap between perceived importance and actual assessment is itself worth a due diligence team’s attention.

Infrastructure does not have to fail to lose value. It simply has to become more expensive to own – whether through higher maintenance costs, insurance premiums or the cost of capital.

"The investment committee is not trying to outguess the engineer. It is trying to anticipate the questions that the next investment committee will ask"

Many infrastructure assets change hands after ten to fifteen years de spite operational lives extending well beyond thirty. The purchaser is there fore buying the next twenty years of cashflows, not simply today’s operational performance. If that purchaser concludes additional adaptation capital expenditure will be required, that expectation is likely to be reflected in valuation. Climate resilience is be coming a fundamental component of technical due diligence. The in vestment committee is not trying to outguess the engineer. It is trying to anticipate the questions that the next investment committee will ask.

Institutional investors do not need to become climate scientists. They should, however, expect their investment managers to demonstrate that physical climate risks have been assessed using credible future climate scenarios rather than historic weather records alone; that resilience has been considered throughout design and due diligence; and that adaptation forms part of long-term asset management planning rather than appearing as a paragraph in an ESG report.

Britain’s Victorian engineers built infrastructure for the future they expected. Today’s investors inherit the same responsibility.

We cannot predict precisely what Britain’s climate will look like in thirty years’ time, but we can be increasingly confident it will not look exactly like today’s. Good infrastructure investing has always involved making sensible decisions under uncertainty. Climate resilience is simply the latest expression of that discipline.

References: 1 Met Office (2026). England’s warmest June on record – the second warmest for the UK and Wales. | 2 Met Office. UK Climate Projections (UKCP18) – Headline Findings; Met Office, Royal Meteorological Society and National Oceanography Centre (2025) State of the UK Climate 2024, International Journal of Climatology. | 3 EDHEC Infrastructure & Private Assets Research Institute (January 2024). Physical Climate Risk Survey: Those in the Infrastructure Investment Industry are Concerned and Lack Data.

Extract from Private Markets Profile Magazine - August 2026