Climate decision-making requires acting on long-term scientific signals with imperfect estimates of financial and societal impact, sometimes well before markets fully price in the risks. Leaders make strategic choices under this uncertainty, which may only become visible to the broader market years later, writes Dr Sarah Kapnick, Global Head of Climate Advisory, Commercial & Investment Bank, J.P. Morgan.

In her report, she points out that while corporate leaders make decisions today that may affect the future of their business beyond their tenure, they will not necessarily navigate through an eight-year-plus future world in their current seat. They want to know how the climate will change and how it will flow through their daily work life. It requires translating climate science into direct impacts within their specific time horizon.

However, it also requires thinking how perceptions of the future may shift as more is known in climate
science and markets price in both cumulative and future climate change. In essence, what they want to do is make sure they time the (climate) market.

These climate tipping points have emerged as a phenomenon of concern but also deep uncertainty and scientific debate in recent years. We need to try to bridge this gap to truly prepare businesses for deeply consequential climate events that may occur against highly uncertain timelines. Nevertheless, elements of tipping point risk are beginning to be incorporated into certain decisions for capital allocation and investment strategy. This report dives into climate tipping points, what they are, who is pricing them in, and how to make decisions under deep uncertainty.

She says that tipping points are potentially impactful but under-modelled. Scenarios and tabletop exercises, borrowed from other spheres of decision-making under deep uncertainty, can help prepare for new science or emerging shifts.