What Financial Institutions Can Learn from the Global Tipping Points Report 2025 — and What Actions Can They Take Now?
10/30/2025
What do financial institutions have to do with Earth system tipping points? How can they take concrete action to address them? And can they, in fact, benefit from positive tipping points?
The recent Global Tipping Points Report, lead edited by Trex Chief Scientific Advisor Professor Tim Lenton, offers some compelling answers to these questions. The 374-page study unpacks the latest science on the Earth systems that are at high risk of ‘tipping’ into a cycle of severe degradation because of anthropogenic climate change, as well as the positive technological, market, and policy developments that could help prevent these thresholds from being breached.
The findings have the potential to trigger a paradigm shift in how banks, asset managers, and other institutional investors consider systemic change in their risk management and investment strategies.
The Financial Sector has a Critical Role to Play in Managing Tipping Point Impacts
The ability of the financial sector to help manage tipping point risks is emphasised throughout the report. In a key section, the authors explain how incorporating “tipping elements” into asset risk assessments is an important step in connecting finance with Earth system stability. This isn’t only critical for ecosystem protection. The authors say it is also the only way to “reflect the true scale of ecological risks” facing financial institutions. In other words, an appreciation of tipping points is needed if a firm is to have an understanding of the true nature of the threats challenging their portfolios.
It’s also the path to potentially reorienting capital flows to respond to, and perhaps even head off, tipping point breaches.
"Recognising such an endogenous role of the financial system in the construction of environment-related financial risk is a critical step … as it positions finance not as a neutral intermediary but as a structurally embedded force whose reorientation is necessary to support ecological sustainability – an imperative that also reinforces the long-term resilience of the financial system itself." (Global Tipping Points Report 2025, p.68)
However, actually incorporating long-term physical and ecological considerations into investment processes is a challenge for most investors. Complicating factors are the long-time horizons associated with these risks, a dearth of credible data connecting tipping points to investible assets, and a lack of awareness among senior decision makers and other stakeholders —just to name a few.
Nevertheless, there are some concrete steps investors can take today:
Prioritise understanding so-called ‘near-term’ tipping points over those further out. Coral reef collapse, permafrost melt, shifting monsoon patterns, and changes in the North Atlantic Subpolar Gyre may be relevant on a 10-year time horizon.
Map how these events impact assets, keeping in mind that the financial consequences may run through multiple transmission channels. For example, they could lead to: an overall drop in economic activity and, in turn, a lower demand for goods and services; damages to assets; disruption to supply chains; and upheaval in the labour force. These impacts are relevant for all major asset classes.
Identify investment opportunities and rebalance capital allocations to accelerate positive tipping points. Both low- and high-tech sectors — such as construction, dredging, agricultural innovation, and information technology — may prove vital in adapting to a ‘tipping’ world.
Integrate non-linear modelling into risk processes to understand the compounding effects of tipping points on asset values, rather than relying on linear scenarios.
Build board and executive committee literacy on tipping point financial implications, ensuring this risk category becomes a standing strategic agenda item.
Prepare for “tipping-point-aware” regulation and disclosure by mapping where current processes fall short of non-linear risk expectations.
At Trex, we are excited to be developing a measurement system that gives investors, insurers, and corporate clients a transparent, quantitative measure of how climate change could affect financial performance. By integrating physical, transition, and systemic tipping-point risks into company-level revenue projections, it supports strategic decision-making, risk management, and climate disclosure. We look forward to supporting our clients on taking pragmatic steps to build tipping point resilient investment strategies.
"By realistically pricing systemic risks, private finance has the potential to trigger [positive tipping points] by unleashing considerable financial flows towards decarbonisation and nature conservation." (Global Tipping Points Report 2025, p.179)
All Eyes on a Potential Regulatory Overhaul
As is often the case when thinking through systems change, it takes multiple actors acting in tandem to drive effective action. The report also offers important insights for financial watchdogs and public authorities. As tipping point risks escalate, their responses could transform the regulatory environment for financial institutions, and potentially reshape how they approach decision-making.
For example, the report describes how traditional regulatory approaches to climate and natural systems change are ill-suited to capturing the complexities of tipping point risks. Because of this, public authorities may miss how tipping point risks could unleash “cascading system failures and cross-sectoral disruptions” and in doing so foster a market environment where there is a “dangerous overconfidence in asset resilience.”
To correct for this, lawmakers and regulatory bodies may be incentivised to overhaul their approaches, with implications for statutory capital requirements, public disclosure rules, and risk management standards. These could all influence how institutions steer financial flows, and prompt a reassessment of which investment strategies are truly resilient to changes in the Earth system. We are already seeing examples of tipping points being embedded in prudential regulations, including by the European Banking Authority and the Bank of England. In light of these developments, it is sensible for regulated entities to prepare for increased prudential scrutiny on their management of tipping-point related impacts.
"Financial stability is a critical concern in the face of Earth system destabilisation, and the lack of consideration of nonlinear dynamics in risk analysis is a critical barrier to effective governance. Urgent reforms are needed to embed tipping dynamics into financial, insurance, and related corporate governance frameworks. A precautionary approach to financial regulation that embeds ecosystem resilience and tipping dynamics into regulatory frameworks is essential." (Global Tipping Points Report 2025, p.79)
How to Get Started
In the next 12–18 months, financial institutions should focus on:
Embedding tipping point considerations into enterprise risk management and long-term strategy.
Running non-linear 'climate-tipping' stress tests and integrating findings into ICAAP, ORSA, and capital planning.
Reviewing investment mandates and stewardship policies to align with 'tipping-point-resilient' capital allocation.
Using non-linear scenario analysis to identify underpriced investment opportunities in markets with positive tipping point potential
Join Trex's Tipping Point Scenarios User Group to Learn More
The Global Tipping Points report is packed with insights and guidance for all stakeholders in the Earth system. Financial institutions are no exception. The authors make clear that finance has an important role in accelerating both negative and positive tipping point risks, and that money managers of all kinds will be affected by the unfolding of these risks over time, too.
Investment professionals with an interest in staying ahead of market and regulatory changes are likely to find much to consider within its pages.
Those interested in learning more about the interrelationship of tipping points and financial risk management — and hearing directly from the report's authors — are further encouraged to join Trex’s Tipping Point Scenarios User Group (TPSUG).
The TPSUG is a monthly forum for senior investment, risk, and strategy professionals in financial institutions who want systems change scenarios that reflect real-world volatility, and capture non-linear dynamics such as climate and technological tipping points.