Systemic Physical climate risk in complex adaptive economies

2026-07-22

Globally climate change already manifests via physical risks – damages from floods, storms, wildfires, heatwaves, droughts, and sea-level rise. Concerns are rising that these risks may become systemic, adversely affecting the entire socio-economic system. Yet, there is no comprehensive understanding of key processes driving systemic physical climate risks, and surprisingly few quantitative assessments. Scientific progress is hindered by limitations of past data to represent future choices in a changing climate and by the inability of conventional economic models to capture non-linear tipping. To address this gap, SPHINX will fundamentally advance simulation methods and consolidate novel data to understand how systemic physical climate risks emerge in the socio-economic system, and to explore strategies to curtail their spiraling costs. The ground-breaking nature of SPHINX stems from its unique combination of: 1) Theory-based mechanisms hypothesizing causal links in socio-economic systems and decisions under risk; 2) Novel microdata on forward-looking expectations of households and businesses, including diverse views on a fair distribution of public adaptation resources; 3) Advances in agent-based modeling to trace dynamics of cross-scale risk contagion and feedbacks under adaptive expectations of heterogeneous agents; 4) Pioneering methods to integrate bottom-up risk transmission channels into established macroeconomic models conventionally used to trace cascading cross-sectoral and cross-border effects but able to handle marginal changes only. SPHINX lays the scientific foundations for a new way to account for non-linear tipping in socio-economic systems, significantly advancing methods to elicit systemic physical climate risks, while exploring proactive strategies to avert them for archetypes of European regions. Foreseen impacts reach beyond the domain of physical climate risks to other applications where socio-economic tipping points are crucial.

Netherlands

2025-10-01