The world has been warned that the pace and scale of climate change will create huge challenges for businesses and their insurers.

Climate scenario analysis provider for financial institutions, Ortec Finance, has released its updated 2026 climate scenarios which highlights the rising impact of climate risk on insurability and governments’ ability to access finance through sovereign debt markets.

“Physical climate-related risks are increasing the chances of triggering an insurability crisis, with the effects extending far beyond insurers to threaten overall global financial stability and sovereign debt markets,” said Maurits van Joolingen, managing director, Climate Scenarios & Sustainability at Ortec Finance. “In such a scenario, insurance premiums will become unaffordable, leaving many uninsured and governments left to fill the gap though sovereign debt issuance, acting as the insurer of last resort.”

The study revealed under two of Ortec Finance’s latest higher warming scenarios, nearly 30% of the US population will be living in a state where the median household is unable to afford insurance by 2050, rising to 50% by 2080. Insurers have already started withdrawing cover from high-risk areas such as California and Florida in the US as well as Australia.

The 2026 scenarios also show for the first time the potential impact of elevated physical climate risks on governments’ ability to access funding through sovereign debt issuance. The company’s updated high warming scenario shows that a decline in GDP could drive up debt-to-GDP ratios in the UK to 114% by 2050 from 102% in 2025, and to 151% from 121% in the US.

“Increased physical risk due to extreme weather events and climate tipping points being breached will lead to sharp and lasting declines in GDP, much reduced tax revenues and large uninsured losses. This added stress will cause an increase in sovereign debt risk premia as interest rates significantly increase across the developed world and trigger downgrades to sovereign credit ratings in the short to medium term,” added van Joolingen.

Delayed transition to net zero signals financial market disruption and sustained macroeconomic strain

Ortec’s annual analysis continues to indicate that achieving net zero by 2050 is no longer feasible, as highlighted in its 2025 update, pointing investors to focus towards its delayed net-zero scenario. That delayed transition scenario indicates that returns on European listed equities decline by over 15% and US listed equities by around 20% by 2030.

The lack of progress with implementing transition policy, compounded by the current geopolitical volatility and lack of commitment from major governments, suggests that investors must understand how sudden financial market disruption and sustained macroeconomic strain could materialize under a delayed transition.

Sophie Heald, senior climate specialist at Ortec Finance, concluded: “Climate risk is systemic, but it doesn’t impact all regions equally. This divergence underscores the need for region-sensitive investment strategies. We are proud to present the expansion of our coverage, which now includes the impact on sovereign debt. In our view, this has been an important missing link in the total portfolio assessment of climate change. Our framework enables evaluation of how physical and transition risks influence national GDP levels, their subsequent impact on debt-to-GDP ratios, and how these changes may affect interest rates.”