When severe floods struck Valencia in late 2024, the damage quickly spread beyond the affected neighbourhoods. Infrastructure was disrupted, insurance claims surged and supply chains were hit across the region. Within days, the financial implications were clear. Events like these illustrate how sudden climate shocks can rapidly enter financial markets.

For many people, this matters more than they might think. Pension funds, insurance portfolios and long-term savings are heavily invested in companies, infrastructure and energy systems exposed to climate risk. As extreme weather events become more frequent and environmental pressures intensify, the way financial markets react to climate risks increasingly affects the economic security of savers.

Yet not all climate risks provoke the same reaction from investors. Sudden events such as floods, storms or even climate-related lawsuits (such as the landmark case brought by green groups against oil giant Shell in the Netherlands) can quickly influence market expectations.

Slower environmental changes – things like rising sea levels, prolonged drought or gradual ecosystem degradation – rarely produce the same immediate financial response. But their long-term economic consequences may ultimately be just as significant.

Understanding why financial markets react unevenly to different types of climate risk leads to an emerging area of research known as neurofinance. This field combines insights from neuroscience and........

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