Every Thursday, Youmatter deciphers CSR news in figures. This week, we look at the cost of climate change for businesses. And this is likely to be very high in the years to come, note two studies from the World Economic Forum carried out with the firms Accenture and BCG. Explanations.
The cost of inaction is far greater than the cost of adaptation. At the macroeconomic level, all studies show this. The demonstration is now being made at the company level. Businesses that fail to adapt to climate risks such as extreme heat could lose up to 7% of annual revenue by 2035, nearly half the impact of COVID-19, a published study estimates by the Word Economic Forum (WEF) with Accenture, Business on the Edge: Building Industry Resilience to Climate Hazards. Even more than 12% in 2055. Among the most exposed sectors: telecommunications, public services and energy. Their operations and/or supplies are in fact particularly sensitive to heat waves, hurricanes, droughts, forest fires and other extreme events which will multiply and intensify with climate change.
The figures highlighted in the report are dizzying: climate change has caused more than $3.6 billion since 2000 (in 2024 alone, economic losses caused by natural disasters will amount to $310 billion according to the first estimates from the reinsurer Swiss Re, i.e. +6% compared to 2023). And again, the exposure of reinsurers could be underestimated by 30 to 50% according to S&P Global.
At the same time, the impact of climate change on GDP is increasingly being revised upwards. In May, a working paper published by two economists from Harvard and Northwestern showed that 1°C of global warming would have an impact of 12% on global GDP after six years (see our newsletter of May 21, 2024). That is six times more than what was estimated by the 2006 Stern report. If we do not act, global GDP could fall by 22% cumulatively by 2100 in the case of a warming trajectory of more than 3°C, BCG now suggests.
Find out more: Climate risks weighing on businesses, in figures
$19 in losses avoided for $1 invested in adaptation or decarbonization
While increasing climate risks could lead to losses of stranded assets and lower profits, can companies afford to wait?, the WEF falsely asks. No of course. And yet, companies tend to underestimate the financial impact of inaction in the face of physical and transition risks and to overestimate the cost of action, regrets the WEF.
Too bad because those who invest in adaptation, decarbonization and resilience pay off. “Few companies comprehensively assess their risks and make adequate adaptation investments” such as economical (drip) irrigation or flood protection measures, note the WEF and BCG in their study The Cost of Inaction: A CEO Guide to Navigating Climate Risk. “But those that do and disclose returns to CDP report a very positive anticipated return on investment.” Depending on the sector, they avoid between $2 and up to $19 in losses for every dollar spent.
These figures should encourage companies to “develop a more scientific understanding of the risks they face” and to invest in information and prevention of these risks underlines the study. In fact, “By holistically and systematically addressing climate-related risks and opportunities, businesses can build stronger, more sustainable operations, safeguard and restore ecosystems, and foster long-term economic and social resilience in a globalized world.” increasingly complex and uncertain,” assures Gim Huay Neo, director general of the World Economic Forum. There’s more than…
Illustration : Canva
