Economic models ignoring climate shocks could trigger global financial collapse, experts warn

Leading economic experts are sounding the alarm that current financial modeling systems are dangerously inadequate for assessing climate-related risks, potentially setting the stage for a catastrophic global economic crash that could dwarf the 2008 financial crisis.

The warning centers on a critical flaw: governments and financial institutions are relying on economic models that fail to account for the devastating shocks from extreme weather events and climate tipping points. These outdated frameworks significantly underestimate the true economic costs of our rapidly changing climate, leaving the global financial system vulnerable to sudden, severe disruptions.

What makes this potential crisis particularly alarming is that recovery options would be severely limited compared to previous financial disasters. As experts bluntly put it, “we can’t bail out the Earth like we did the banks.” Unlike the 2008 crash, where governments could inject massive amounts of capital to stabilize markets, a climate-driven economic collapse would involve fundamental damage to the planet’s life-support systems—something that cannot be fixed with monetary policy or emergency funding.

The accelerating pace of climate change means these economic blind spots are becoming increasingly dangerous. From supply chain disruptions caused by extreme weather to agricultural failures triggered by shifting climate patterns, the real-world impacts are already testing economic assumptions. Experts argue that until financial models incorporate these climate realities, policymakers and investors will continue making decisions based on dangerously incomplete information, potentially steering the global economy toward an avoidable but devastating crash.