Climate Models Under Fire as Energy Imbalance Suggests Higher Warming

A recent study published in Science (June 2025) reveals that climate models with low estimates of human-caused warming struggle to match satellite observations of Earth’s energy imbalance. These findings propose that climate sensitivity to greenhouse gases may be higher than the lower end of IPCC estimates, suggesting that future warming may be more extreme. The study reinforces the urgency for deeper emissions cuts and highlights the need for financial and policy strategies to prepare for potentially greater climate risks.

Why This Matters

• If climate sensitivity is higher than expected projections for warming and extreme weather worsen, impacting corporate strategy and asset valuations.

• Underestimating warming poses financial and physical risks.

• Firms and insurers relying on low-warming projections may potentially undervalue climate exposure, and infrastructure investments could face more frequent and intense climate stress.

• If lower-sensitivity climate models fail to match real-world observations, then policymakers will have greater justification for advancing emissions reductions and climate resilience efforts. 

Policy in Practice: What the New Study Shows

1. Observations from NASA’s CERES satellite since 2001 show increases in absorbed solar radiation and outgoing heat, signaling a growing energy imbalance. 

2. Evaluating 37 CIMP6 climate models, the researchers found that lower sensitivity models fail to reproduce observed energy trends.

3. The data suggest higher sensitivity lies at the upper end of the IPCC range (~3-5°C), aligning with expert consensus and recent analysis. 

4. With climate sensitivty likely higher than some models assume, projections for future warming, specifically transient (TCR) and equilibrium (ECS), could be biased low, increasing physical and financial risk. 

Challenges

Even high-quality satellite datasets like CERES involve assumptions about atmospheric composition, surface reflectivity, and cloud radiative effects, introducing uncertain margins. Policy inertia remains uncertain. As evidence mounts for higher sensitivity and faster warming, global mitigation efforts remain inconsistent and underfunded even as evidence mounts for higher sensitivity and faster warm

Action Items

•       Reevaluate risk thresholds under higher warming scenarios.

•       Stress-test portfolios with elevated warming projections (3-5°C). 

•       Reassess long-term operating assumptions, supply chain vulnerabilities, and energy transition trajectories to reflect potentially sleeper climate pathways.