Think it’s hot now? The next five years will smash records, UN says

The market is underpricing the compounding nature of climate volatility: this is not a one-off macro shock, it is a regime shift that increases the variance of input costs, crop yields, power demand, and insured losses simultaneously. The second-order effect is that even sectors not directly exposed to weather—retail, industrials, transport, consumer staples—will see margin instability through freight, inventory spoilage, and commodity-linked packaging/input costs, which should keep dispersion high across earnings seasons.

The most durable winners are the picks-and-shovels of adaptation rather than pure-play decarbonization. Grid hardening, cooling, water infrastructure, precision agriculture, and catastrophe-reinsurance analytics should see secular demand regardless of near-term policy noise, while reinsurers and primary insurers with concentrated U.S./Europe agricultural or property books face a multi-year repricing cycle that may lag loss realization by 1-3 renewals. The bigger hidden beneficiary is utilities and equipment tied to peak-load management: hotter summers and warmer winters raise electricity demand volatility, improving the economics of gas peakers, battery storage, transformers, and HVAC replacement.

Consensus tends to frame this as a long-duration ESG issue, but the tradable catalyst is nearer-term pricing power in food, power, and insurance. The key risk is policy offset: rapid commodity disinflation, emergency infrastructure spending, or climate mitigation subsidies can temporarily mask the earnings impact. Still, the probability distribution is skewed toward recurring shock events over the next 6-18 months, especially if El Nino extends and amplifies heat-driven supply disruptions.

The contrarian point: the headline threshold crossing may already be “known,” but the earnings and valuation impact is not fully reflected because investors are extrapolating last year’s catastrophe loss ratios and assuming normalization. That underestimates the nonlinear jump in tail risk when multiple geographies experience stress in the same season, which can overwhelm diversification assumptions inside insurers, food processors, and global shippers.