We estimate the impact of climate-related physical risks on the one-year default probability of Italian non-financial firms, focusing on hydrogeological risks due to the increasing threat posed by floods and landslides. To capture hydrogeological risks exposure, we assemble a detailed dataset that integrates firms’ financial data with the geographic locations of their primary and local business units, mapped against hazard levels from the Italian Agency for Environmental Protection and Research (ISPRA) mosaic risk maps. Using this data, we develop a discrete risk indicator and risk-adjusted firms’ financial statements and PD to account for climate-related physical risks. We show that 38% of Italian non-financial firms are exposed to hydrogeological risk, with significant heterogeneity across regions and sectors. While this exposure leads, on average, to a slight deterioration in firms’ PDs, the overall economic impact remains limited, and the effect on collateral is negligible. However, firms located in high-risk areas experience a more pronounced decline in creditworthiness.