According to researchers, the consequences of such a collapse would be much harder to reverse, as environmental systems cannot be stabilised through emergency interventions in the way financial institutions once were.

As global temperatures edge closer to 2C above pre-industrial levels, the likelihood of extreme weather events and abrupt climate tipping points is rising sharply. Yet many of the models relied upon by governments, central banks and financial institutions fail to account for these risks. Instead, they project future economic impacts based largely on gradual temperature increases, assuming economic systems will respond smoothly as they have in the past.

Scientists argue this assumption is deeply flawed. The continued burning of fossil fuels is pushing the climate into conditions without historical precedent, increasing the risk of sudden and irreversible disruptions. These include the potential weakening of major ocean circulation systems or large-scale ice sheet loss, events that would have far-reaching consequences for food systems, infrastructure and global trade.

Researchers involved in the analysis warn that overlapping climate disasters — such as heatwaves combined with floods or prolonged droughts — could overwhelm national economies and destabilise financial systems. While the precise timing of tipping points remains uncertain, evidence suggests several may already be approaching critical thresholds.

The report concludes that policymakers and financial regulators must place far greater emphasis on low-probability but high-impact climate risks. It argues that preventing irreversible damage through rapid emissions cuts would be significantly less costly than attempting to manage the fallout once ecosystems and economies begin to fail.

"Current economic frameworks are not equipped to deal with cascading failures and compounding shocks," said Dr Jesse Abrams of the University of Exeter. "The climate scientists we consulted were clear that the models being used today fail to capture the risks that matter most in a warmer, more volatile world."

Abrams added that the scale of disruption being overlooked goes well beyond routine economic adjustments. "This isn't a repeat of past financial crises. Once large-scale ecosystem breakdown occurs, there is no bailout option."

Mark Campanale, head of the Carbon Tracker Initiative, said misleading economic projections have fostered complacency among investors and policymakers. He warned that some government institutions downplay climate risks to avoid politically difficult decisions, despite the potentially devastating long-term consequences of delay.

Financial sector voices echoed those concerns. Hetal Patel of Phoenix Group, which oversees roughly £300bn in long-term investments, said ignoring physical climate risks distorts investment strategies while obscuring the real-world harm that will ultimately affect societies and economies alike.

Previous actuarial analyses suggest that unchecked climate shocks could reduce global economic output by as much as 50% between 2070 and 2090 — far exceeding earlier estimates based on conventional models.

The report draws on assessments from 68 climate scientists working across research institutions and government agencies in Europe, North America, Asia and beyond. One central finding is that while economic damage is often linked to changes in average temperatures, the most severe impacts stem from extreme events such as floods, droughts and heatwaves.

Another concern raised is that gross domestic product fails to reflect the true cost of climate damage. Loss of life, declining public health, social instability and ecosystem degradation are not adequately captured, and reconstruction spending can even create the illusion of economic growth after disasters.

Rather than waiting for perfect risk models, the authors argue, decision-makers should focus on worst-case scenarios and systemic vulnerability. Investors, they add, have a fiduciary responsibility to accelerate the shift away from fossil fuels to avoid mounting future losses.

Some existing projections suggest relatively modest economic losses even under high levels of warming, but scientists say such estimates are unrealistically optimistic. "There is a stark disconnect between economic forecasts and physical reality," Abrams said. "At extreme levels of warming, societies and markets would struggle to function at all."

Laurie Laybourn of the Strategic Climate Risks Initiative warned that regulatory frameworks remain dangerously misaligned with the pace and scale of climate-related threats. "We are living through a fundamental shift in risk," she said, "yet many policies still reflect assumptions that no longer hold."