Ortec Finance releases its 2025 scenario updates in partnership with Cambridge Econometrics
The latest climate scenario updates from Ortec Finance in partnership with Cambridge Econometrics reveal that the physical and transitional risks related to climate change remain a major source of uncertainty for institutional investors.
As the world economy continues to grow along with high levels of GHG emissions, the quantification of the climate related transition and physical risks remain a relevant task for risk management. These updated climate scenarios cover a wide range of possible outcomes, with varying levels of plausibility.
Through ClimateMAPS, Ortec Finance and Cambridge Econometrics offer seven pathways for investors to explore physical and transitional risk of climate change on their portfolios.
The scenarios realistically assess a broad range of temperature pathways by 2100 and their associated systemic macroeconomic and financial market outcomes, simulating both a successful low-carbon transition, disorderly, or failed transitions.
Climate Scenarios
- Net Zero (NZ): Evaluates the risk and opportunities under a highly ambitious but orderly transition with climate adaptation.
- Net-Zero Financial Crisis (NZFC): Evaluates the resilience to sudden repricing, triggering market dislocation centered on high-emitting stocks.
- Net-Zero Financial Crisis (NZFC Stress): A stress version of the NZFC scenario that evaluates the impact of extreme disruption from financial markets.
- Delayed Net-Zero (DNZ): Evaluates the resilience when a sudden step-up in policy action in 2030 drives a sentiment shock in financial markets.
- Limited Action (LA): Evaluates how falling short of meeting emissions targets and pledges would drive high exposure to physical risks.
- High Warming (HW): Evaluates implications of a future without any further policy action to limit climate change, triggering multiple climate tipping points and very severe physical risks
- High Warming (HW Stress): A stress version of the HW scenario that evaluates a complete system collapse driving a worst-case outcome.
On the High Warming pathway the economic risks are concentrated on the physical risk side, where higher average levels of global temperatures are leading to climate outcomes that we haven’t seen before. This brings new uncertainty around droughts, storms, floodings and wildfires, opening up potentially irreversible climate events with unseen impact on the economy and the financial sector.
With the exception of the High Warming pathway, the other six pathways which assume a stronger emphasis on emissions mitigation, lower physical risks and more pronounced transitional risks reveal that the way and speed at which low-carbon technologies are being rolled out globally will have a major impact on business and governments around the world.
Additionally, fossil fuel producers and importers, manufacturers of low-carbon technologies, and users of renewable energy will all be affected by the wide range of regulations implemented by governments across all pathways.
Head of Sustainable Investment János Hidi comments
2025 marks Cambridge Econometrics’ eighth year of updated climate scenario releases in exclusive partnership with Ortec Finance through ClimateMAPS. Over that time, our climate risk analysis generated through our macroeconomic model E3ME has consistently revealed each year the increasingly uncertain paths that investors must face. The scenarios cover a wide range of possible outcomes for emissions trajectories, sectoral and macroeconomic indicators. A range of regulatory interventions, low-carbon technology adoption in power generation, transportation, heat, and steel sectors are represented. A high level of granularity by sector, by geography, and by type of regulation, offers the possibility for investors to assess their exposure to climate related risks and opportunities across geographies and economic sectors.
Inflation set to continue rising as GDP plummets
Increased physical risk will boost consumer price inflation. The High Warming scenario indicates that by 2050, price levels will be 11% higher in the US and 6% higher in the UK in comparison to Ortec Finance’s baseline expectations.
The High Warming scenario also assumes the 2024 temperature spike will persist in the long term, further heightening chronic physical risk and negatively impacting GDP.
Senior Economist Zsofi Kőműves comments
The impact of the physical risks of climate change on consumer price inflation is a growing challenge with effects already being felt in 2025. The High Warming Scenario indicates a strong increase in food prices due to warming. The impact of this would be most severe on developing countries, which are already the most vulnerable to climate risk, and low-income populations, which spend a high proportion of their budgets on food and energy. In an interconnected global economy, however, there are no big winners from climate change. Even colder regions will experience negative impacts, from higher price levels, disrupting trade links to uncertainty and potential societal change.
Investment returns from low-carbon and renewable energy technologies are more resilient across all successful low-carbon transition scenarios
The results across all scenarios reflect shifts in the prevalence and adoption of low-carbon technologies, particularly renewable energy and electric vehicles.
Since the previous iteration, the uptake of renewable energy has exceeded expectations, accompanied by a dramatic decline in costs. The gap in projected equity returns because of different sector exposures to transition risk has never been more pronounced and creates opportunities for investors to realign portfolios to mitigate any fallout from the transition.