Worst-case analysis in climate risk assessment

A study published today changes the risk calculus for every long-horizon decision being made across the Atlantic world. The Atlantic Meridional Overturning Circulation (AMOC), the ocean current that regulates climate across Europe, Africa, and the Americas, now has a greater than 50% probability of collapse, according to the new research which uses real-world ocean observations to validate climate models. ... and the impacts are: 🌊 50–100cm of additional sea-level rise along Atlantic coastlines. ❄️ Extreme cold winters and severe summer droughts across Western Europe . 🌧️ Collapse of the tropical rainfall belt across Sub-Saharan Africa and South America ⏱️ The tipping point — the moment collapse becomes irreversible — could arrive by mid-century. That is within current infrastructure cycles, bond maturities, and institutional investment horizons. The models producing these projections do not yet include Greenland meltwater, meaning the real risk is likely still higher. The WMO State of the Global Climate 2025 confirmed the trends feeding this: record ocean heat for the ninth consecutive year, accelerating ice loss from Greenland and Antarctica, and the highest Earth energy imbalance ever recorded. The physical system is moving faster than our risk frameworks. Any climate risk assessment that treats AMOC collapse as low-probability is now out of date and should be revised. Any coastal infrastructure investment not pricing in accelerated sea-level rise is built on obsolete assumptions. Any food and agricultural security strategy for Europe, Africa, or South America that ignores potential circulation collapse is incomplete. What is your organisation's AMOC scenario? Source: Portmann et al., Science Advances, April 15 2026 https://lnkd.in/e4HRQM6X

New research models the likelihoods of different climate scenarios. It shows that 3°C isn’t a worst-case. It’s the most likely. Up until now, climate scenarios have been treated as narrative pathways without assigned probabilities. Climate scientists have resisted giving scenarios a likelihood because of deep uncertainty. That is, the full range of outcomes due to physical, social, political and technological changes can't be known, and therefore, probabilities cannot be reliably estimated. Climate scenarios were described as exploratory tools, not forecasts and were designed to illuminate plausible pathways, not predict them. But... intuitively, we know that some climate futures are more likely than others. This information is helpful for business decision-making. This new paper from the EDHEC Climate Institute challenges the idea that probabilities can't be assigned to climate scenarios and provides two robust, data-driven methods to do it. The first is an 'informative method', which starts with economists’ views on the social cost of carbon (SCC). In effect, it converts wishful thinking into plausible expectations. The second is a 'maximum entropy method'. It makes as few assumptions as possible, using current carbon prices and basic policy constraints as the only inputs. What’s remarkable is that both approaches produce results that are very similar. Does this mean that some climate pathways are more locked in than we think? Model outputs: 🔸 The most likely temperature anomaly in 2100 is between 2.8–3.0ºC 🔸 There is a 35–40% chance of exceeding 3.0ºC 🔸 There is just a 1% chance of staying below 1.5ºC The model was also tested using Oxford Economics scenarios. The results were even more shocking. 🔸 The ‘Climate Catastrophe’ carries a likelihood of 57.5%. 🔸 The ‘Climate Distress’ scenario carries a likelihood of 35% 🔸 Together, they make up 92.5% of the total These high temperatures increase the likelihood of triggering irreversible tipping points, for which standard damage functions no longer apply. This is dangerous territory. 𝗠𝘆 𝗧𝗮𝗸𝗲 Most companies use climate scenarios that treat all futures as exploratory scenarios. But this doesn't allocate future risk efficiently. Without probabilities, we cannot optimise capital allocation between mitigation (transition risk) and adaptation (physical risk). Assigning probabilities to scenarios changes the conversation. It equips firms to weigh investment in risk reduction not just by severity but also by likelihood. Personally, I believe this is a critical next step in climate risk planning. Assigned likelihoods should be accompanied by uncertainty bounds—so decision-makers can assess not just what’s likely, but how confident we can be in those estimates. Source: https://lnkd.in/exy5TDS8 _____________ 𝘍𝘰𝘭𝘭𝘰𝘸 𝘮𝘦 𝘰𝘯 𝘓𝘪𝘯𝘬𝘦𝘥𝘐𝘯: Scott Kelly

Exclusive: Report by risk experts says previous assessments ignored severe effects of climate crisis, reports sandra laville. https://lnkd.in/e6H3FX47 Global economic growth could plummet by 50% between 2070 and 2090 from the catastrophic shocks of climate change unless immediate action by political leaders is taken to decarbonise and restore nature, according to a new report. The stark warning from risk management experts the Institute and Faculty of Actuaries (IFoA) hugely increases the estimate of risk to global economic wellbeing from climate change impacts such as fires, flooding, droughts, temperature rises and nature breakdown. In a report with scientists at the University of Exeter, published on Thursday, the IFoA, which uses maths and statistics to analyse financial risk for businesses and governments, called for accelerated action by political leaders to tackle the climate crisis. Their report was published after data from the EU’s Copernicus Climate Change Service (C3S) showed climate breakdown drove the annual global temperature above the internationally agreed 1.5C target for the first time in 2024, supercharging extreme weather. Without urgent action to accelerate decarbonisation, remove carbon from the atmosphere and repair nature, the plausible worst-case hit to global economies would be 50% in the two decades before 2090, the IFoA report said. At 3C or more of heating by 2050, there could be more than 4 billion deaths, significant sociopolitical fragmentation worldwide, failure of states (with resulting rapid, enduring, and significant loss of capital), and extinction events. HT Dagmar Droogsma

Important new study in 'Nature' showing that extreme climate impacts are possible even at 2°C of warming. Current risk assessments often focus on “most likely” average outcomes, but this can give a misleading sense of security. Looking beyond averages, the study finds that even at 2°C, plausible outcomes for extreme rainfall in populated areas, drought in key agricultural regions, and wildfire-conducive conditions in forests can exceed the average projections associated with 3–4°C warming. In other words, also at 2°C there is a meaningful probability of extreme outcomes, as climate risk is not linear and not well captured by averages alone. 👉 In many domains, businesses routinely plan against plausible worst-case scenarios. Time to also do exactly that for climate risk...

The utterly plausible case that climate change makes parts of the world catastrophically *colder*… It was great talking to the Financial Times as background for this piece on the risks of a climate change-induced collapse in the Atlantic Ocean circulations. The UK would be on the frontline, with disastrous consequences for the security of our food supply, health, economic stability, and so on. And not just the UK… This is because the consequences of climate change could shutdown a key mechanism that brings heat northward. It’s one of the reasons why the UK is warmer than it might otherwise be considering it northerly position. Yet these risks have not been properly assessed by the government and other key institutions. A recent Strategic Climate Risks Initiative report explored these ‘blind spots’ in the assessment and management of the the security consequences of climate change. Professor Tim Lenton from the Global Systems Institute, University of Exeter was one of our coauthors and is quoted in the FT piece. As we warned in the report, there is a critical blind spot on tipping points, like AMOC collapse. These need to be closed in order to educate our collective climate efforts, so they are enough to ensure that the unmanageable - like AMOC collapse - can be avoided. But we also need better climate risk assessment and management to spot the things that are now potentially unavoidable and would have to be managed. As we warned in the report - and this is getting more attention (see my past posts) - this might include the collapse of a subset of the AMOC in the North Atlantic subpolar gyre. You can read our report here (co-published with IPPR, Global Systems Institute, University of Exeter and Chatham House): https://lnkd.in/eVwUTzTG https://on.ft.com/4aitOk7

In its 2024 Climate and nature disclosures Norges Bank Investment Management included the results of new, internal top-down modelling to stress test the exposure of its US equity portfolio under the NGFS 3C Current Policies Scenario. The findings were significant: "We find that the present value of average expected losses from physical climate risk on our US equity investments under a Current Policy scenario is 19 percent (and 27 percent at the 95th percentile) when using the top-down approach" NBIM also concluded that the 19% loss was an underestimate due to: ⛔ Very limited inclusion of acute impacts in the NGFS damage function ⛔ Exclusion of "feedback loops between the climate system and the natural carbon cycle, and between the real economy and financial markets" ⛔ Exclusion of "tipping points and other cascading effects" ⛔ Exclusion of "climate impacts on natural resources and ecosystem services" ⛔ Exclusion of "the amplification effects of multiple climate and non-climate shocks happening concurrently i.e. polycrises" NBIM should be commended for these efforts to strengthen its approach to portfolio stress testing AND for acknowledging the known blind spots in its analysis so openly. We look forward to seeing what the fund does next to both act on the findings and to strengthen them further. See link in comments. Martin Norman Dimitri Lafleur Australasian Centre for Corporate Responsibility (ACCR)

Climate change could cut global GDP by 50% between 2070 and 2090 🌎 A new report from the Institute and Faculty of Actuaries (IFoA) warns that climate change could cause a 50% drop in global GDP between 2070 and 2090 due to escalating climate shocks. The study, developed with the University of Exeter, argues that current economic models underestimate the financial risks of rising temperatures, extreme weather, and ecosystem breakdown. It criticizes widely used assessments for failing to capture systemic risks, leading to misleading projections and delayed policy responses. The report highlights critical flaws in conventional risk models, which assume gradual climate impacts and ignore tipping points. If global temperatures rise by 3°C or more by 2050, it warns of state failures, severe economic fragmentation, and long-term capital losses. These disruptions could trigger widespread financial instability as migration crises, resource shortages, and political unrest destabilize markets and industries. The IFoA argues that current risk assessments underestimate these cascading effects, creating a false sense of security. The concept of "planetary insolvency" describes a scenario where environmental degradation undermines the basic systems that support economies, including food production, clean water, and stable infrastructure. The report calls for a new economic approach that accounts for planetary boundaries and long-term stability rather than short-term growth. This requires integrating climate adaptation, carbon removal, and ecosystem restoration into economic planning. Businesses and financial institutions must reassess how they model climate risk. Many strategies still assume minimal financial disruption, but a 50% drop in GDP would cause severe market instability. Companies need to embed climate resilience into governance, supply chains, and investment strategies to mitigate exposure. The IFoA proposes a "Planetary Solvency Risk Dashboard" to track risks and help align corporate and policy decisions with sustainability constraints. The findings highlight the urgent need for economic reforms. Governments and businesses must update risk frameworks to reflect climate-related financial threats. Decarbonization, nature restoration, and stronger climate governance are critical to prevent systemic economic decline. The longer action is delayed, the higher the financial risks. #sustainability #sustainable #business #esg #climatechange #climatecrisis