Climate risk mispricing under spotlight at London Climate Action Week

Sovereign physical risk

Halfway across town, at a parallel event hosted by EDHEC Climate Institute, similar questions were being raised. EDHEC’s experts took aim at a ‘pricing blind spot’ in sovereign markets.

“Climate risks remain partially priced”, said EDHEC Climate Institute’s director Camille Angué in her opening remarks.

Scientific Climate Ratings – a venture by EDHEC – released new data yesterday highlighting sovereign physical risk exposure across 2035 and 2050. The US for instance, is estimated to face climate risk losses of 4.6% GDP per capita loss by 2035 and 10.4% loss in 2050.

SCR chief executive Rémy Estran-Fraioli says these new tools offer a missing link between warming and losses.

“Climate change is a global phenomenon, but climate risk is local and financial. Our framework captures the structural, compounding output losses caused by chronic warming at the regional level and aggregates them into sovereign-level impacts,” he explained, “It provides the missing transmission channel between climate warming and sovereign fundamentals, identifying structural exposure before spreads fully adjust”.

Researchers associated with the dataset noted its capacity to act as an early signal – mapping sovereign exposure before market spreads price them in.

LCAW 2026 has thus far put the spotlight on why, how and to what degree climate risks are being mispriced by financial markets. Across different pools of institutional capital, a consensus that underestimated risks and mispriced valuations need redressal seemed reflective of the realities of physical risk on display in London.