© Peter Prokosch / GRID-Arendal
Key points
- JP Morgan has become one of the first major banks to address climate tipping points in financial risk modelling, stressing that these non-linear and uncertain irreversible events will accelerate impacts on businesses and economies.
- Its recent report says companies must treat climate tipping points as an immediate cash loss risk rather than relying on standard discounted cash flow analysis, utilising tail-risk analysis and scenarios to combat deep uncertainty.
- Current economic and climate stress tests used by central banks and regulators are do not account for tipping points; however, private firms are pioneering non-linear macroeconomic modelling to bridge this gap.
- However, JP Morgan has been criticised for failing to mention fossil fuels – the main driver of tipping points – while remaining the biggest investor in the sector.
Banks deal with risk every day. But some risks, like climate tipping points, seem so out of reach and difficult to calculate that they are not considered in most financial models.
But that could soon change, as JP Morgan became one of the first banks to consider the potential financial impact of climate tipping points and how it fits into risk modelling.
“There’s no question that climate change will have business impacts,” Sarah Kapnick, global head of climate advisory at JP Morgan, wrote in the bank’s recent report on the topic.
Understanding climate tipping points
Climate tipping points are already being felt in some markets like insurance and real estate. And some climate tipping points may have been breached, according to a report from the University of Exeter.
Unlike climate change, which has been happening gradually for the past several decades, climate tipping points are irreversible events, in some cases happening suddenly and in other cases playing out over time. They would further accelerate the risks of climate change, Kapnick says.
This is a new area that company executives need to understand in order to prepare a business response, the JP Morgan report states.
“Climate tipping points are under-modeled … their lack of historical analogues and deeply uncertain nature make them difficult to plan for. However, scenarios and tabletop exercises, borrowed from other spheres of decision-making, can help prepare for emerging shifts,” wrote Kapnick.
How companies can respond to climate tipping points
In her report, Kapnick recommends that companies consider climate tipping points from a cash loss risk rather than discounted cash flow analysis.
The time horizon of climate change and tipping points is also mismatched, with executives often thinking they won’t see impacts for at least 15 years. But climate “tipping points are nonlinear and highly uncertain in terms of both timing and magnitude” making them difficult to price.
The report also cautions that repricing is likely to occur as scientific evidence and climate events accumulate.
“The practical implication is to refresh tail-risk analysis regularly as science evolves and inputs to risk calculations change, while still treating deep uncertainty with the appropriate decision framework rather than forcing false precision in more routine analysis,” the report states.
Why climate tipping points are not included in economic models
While central banks are aware of climate tipping points and their potential catastrophic impacts on economies, climate stress tests and other models don’t factor them in. Even the Network for Greening the Financial System has acknowledged this limitation in its short-term scenario analysis.
Several central bankers and economists say that current economic models simply can’t account for something as unknown and off-the-charts as a tipping point, and accounting for such events would require a complete recalibration of economics as it’s known today. And while that’s true, there are some who are rethinking how climate tipping points might be calculated, including rethinking how GDP is measured.
There has also been a private market response to the lack of modeling from central banks and governments. UK company Trex, for example, analyses climate scenarios and includes climate tipping points in its models, using non-linear macroeconomic modelling, system-level dynamics and asset-level data.
Joel Benjamin, financial policy and advocacy manager at Carbon Tracker, said that most tools used by economists use historical data in which there is no precedent for climate change and tipping points. As it stands, no financial institution is subject to a climate stress test that captures tipping points.
“Governments need to take a more active role in viewing scenarios by financial sector organisations used by governments and to improve the kind of economic research on which these reports are calibrated to better reflect the underlying science and the increasing level of risk,” he said.
No mention of fossil fuels in JP Morgan report
Tipping point experts and economists welcomed the JP Morgan report, seeing it as a good sign that banks are finally taking these issues seriously.
“It’s really important that these concepts are communicated in a way that the financial sector understands, and that a bank is as large as JP Morgan is taking them seriously, emphasising this kind of level of uncertainty and [the] level of impacts associated with them,” said Lydia Marsden, a research fellow at University College London.
Tim Lenton, a climate change professor at the University of Exeter and a scientific advisor for Trex, said the report was very clear and accurate on the science but that there were sections that could be more nuanced on the uncertainty aspects.
And while it touches on how the financial sector is acting on climate tipping points, they are assumed to be reacting, leaving governments and regulators like central banks to take the lead first.
He also noted that repricing of assets could still happen even if consequences play out slowly and instead urged companies to price in risk from the present rather than the future, as some of these climate tipping points are already happening.
“When you’re a risk manager presented with the possibility of an irreversible future loss and it’s uncertain … The uncertainty should be making you act more with more precaution or more decisively now to avoid the risk,” he said.
Still, for a report that talks about climate change, fossil fuels were not mentioned once.
“The majority of the things which are driving us to a position where tipping points are becoming increasingly inevitable are completely excluded from the report,” said Joel Benjamin, financial policy and advocacy manager at Carbon Tracker.
He added that “until we recognise we need to stop burning fossil fuels as quickly as possible”, then the report’s recommendation “don’t come anywhere close to cutting it”.
JP Morgan is the biggest investor of the fossil fuel sector, investing over US$192bn in 2024 alone, according to the Banking on Climate Chaos report.
The report makes a clear case for why regulators need to encourage the financial sector to reduce their exposure to the oil and gas sector, said Marsden.
“At the moment with the Iran war, we’re at an inflexion point where we have a decision to make on the pathway of the energy system and its financing. And I think it’s really important that we get this right,” she said.
This page was last updated May 14, 2026
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
