Act on Climate Risk Today or Face the High Cost of Inaction

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Dec 11, 2024, 00:01 ET

The Physical Risks of Climate Change Could Threaten 5% to 25% of Corporate Profits by 2050
Without Taking Decisive Steps, Global GDP Could Be Up to 22% Lower by 2100 than with Effective Climate Action
In a Scenario of Accelerating Climate Action, Carbon Pricing Alone Could Lead To up to 50% of EBITDA in Additional Costs for Unprepared Businesses
Businesses That Act Now Can Unlock Competitive Advantage

BOSTON, Dec. 11, 2024 /PRNewswire/ -- Climate inaction is exposing businesses to escalating risks that threaten profits, operations, and long-term viability. For unprepared businesses, individual physical risks of climate change alone could put 5% to 25% of their 2050 EBITDA at risk, depending on sector and geography. This is in addition to other risks, such as the impact of slowing GDP on consumption and growth. Conversely, in a scenario of accelerated climate action and a "net zero 1.5°C path," the impact of carbon pricing alone could lead to up to 50% of EBITDA in additional costs in the most emissions-intensive sectors by 2030, in addition to significant write-downs of fossil assets. In a net zero scenario, 10% to 35% of the book value of gray assets could face write-downs by 2030.

These are among the findings of the World Economic Forum and Boston Consulting Group (BCG) report The Cost of Inaction: A CEO Guide to Navigating Climate Risk, published today.

"The costs of climate-related damage have more than doubled in the last two decades, to more than $1 trillion between 2020 and 2024" said Patrick Herhold, BCG senior partner and managing director, and co-author of the report. "While most companies are aware of the risk, they struggle to translate it into measurable business impact. However, there is significant upside to investing in climate action: there is a clear business case for adaptation and a better case for mitigation than most might think. Faced with this challenge, the urgency for CEOs to take ownership of climate risks and opportunities cannot be overstated."

Climate Investment Has a Significant Upside

The global business case for climate action is very strong: global investment in climate change mitigation can pay off up to five-fold. The world would need to invest around 2% of cumulative global GDP in mitigation measures to move onto a "below 2°C pathway," with another 1% needed to adapt to already unavoidable warming. But these investments could prevent 10% to 15% in losses to global GDP over this century. On a corporate level, companies that comprehensively assess their risk exposure reported to CDP that their current adaptation and resilience investments could yield between $2 and $19 for every dollar invested.

Decarbonization investments also often yield financial benefits. Many companies that reduce their carbon emissions benefit from lower spending on fossil energy, a lower risk profile of long-life assets, and stronger market positioning. Most industries could abate 10% to 60% of their carbon emissions at no to little cost by means such as efficiency, renewable power, and low-temperature heat electrification. With meaningful carbon pricing, almost all industries could economically abate over 50% of their emissions.

In addition, climate leaders can unlock significant growth and competitive advantage by tapping into the expanding market for green technologies. The latter is likely to reach $14 trillion by 2030 from an already sizeable $5 trillion in 2024. Sectors and value chains include alternative energy (49%), sustainable transport (16%), and sustainable consumer products (13%), all growing at annual rates of 10% to 20%, significantly above GDP.

"Climate risks are escalating, and the window to act is closing fast," said Pedro Gomez, Head of Climate and Member of the Executive Committee at the World Economic Forum. "This report shows that addressing these challenges isn't just about protecting businesses from disruption, it's about seizing transformative opportunities. By working together, governments and businesses can turn climate risk into a catalyst for innovation, resilience, and shared prosperity."

The report looks at a series of measures that companies can take to embed climate risk into their corporate strategy, creating business resilience, competitiveness, and the ability to capitalize on the growing demand for sustainable and resilient solutions. These include conducting comprehensive climate risk assessments; managing risks in the current business portfolio, including investing in adaptation, resilience, and decarbonization measures; and pivoting to unlock opportunities.

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About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

About the World Economic Forum

The World Economic Forum, committed to improving the state of the world, is the International Organization for Public-Private Cooperation.

The Forum engages the foremost political, business and other leaders of society to shape global, regional and industry agendas. (www.weforum.org).

SOURCE Boston Consulting Group (BCG)