Reports: Firms failing to adapt to climate risks likely to lose up to 7% of annual earnings

16 / 12 / 2024

• Knowledge Bank
• news

Businesses that fail to adapt to climate risks like extreme heat could lose up to 7% of annual earnings by 2035, nearly half the impact of COVID-19, with telecommunications, utilities, and energy sectors most exposed.

Businesses must act now to address growing climate risks or face steep financial losses, according to two new reports released today by the World Economic Forum.

The reports— Business on the Edge: Building Industry Resilience to Climate Hazards, produced with support from Accenture, and The Cost of Inaction: A CEO Guide to Navigating Climate Risk, produced with support from Boston Consulting Group (BCG) —provide a roadmap for companies to navigate climate risks and unlock long-term value through decarbonization, safeguarding nature, adaptation and building resilience.

Extreme heat and other climate hazards are expected to cause $560–610 billion in annual fixed asset losses for listed companies by 2035, with telecommunications, utilities, and energy companies most vulnerable. Companies in energy-intensive sectors that fail to decarbonize face mounting transition risks as global climate regulations tighten, with carbon pricing alone potentially slashing up to 50% of earnings by 2030.

These risks, combined with cascading impacts on supply chains and communities, underscore the critical need for resilience strategies.

In contrast, businesses that invest in adaptation, resilience and decarbonization are already realizing tangible returns. Research from the Alliance of CEO Climate Leaders, which includes 131 global CEOs representing 12 million employees, shows that every dollar invested in climate adaptation and resilience can generate up to $19 in avoided losses, based on data from CDP, which helps companies and public authorities disclose their environmental impact It offers a blueprint for CEOs and their companies to navigate the risks and seize the opportunities with evidence that most industries could abate over 50% of their emissions cost economically in a fast-transition scenario.

Despite the risks, the evolving climate landscape presents substantial growth opportunities. Green markets are set to grow from $5 trillion in 2024 to $14 trillion by 2030, with early movers gaining competitive advantages in sustainable solutions and adaptation offerings. These markets span sectors and value chains, with the largest segments being alternative energy (49%), sustainable transport (16%) and sustainable consumer products (13%). All are growing well above GDP.

“Pathfinders leading the charge on net-zero transitions and nature positive solutions are showing how businesses can create value while improving the environment and supporting the communities,” said Gim Huay Neo, Managing Director, World Economic Forum. “By holistically and systematically addressing climate-related risks and opportunities, businesses can build stronger and more sustainable operations, safeguarding and restoring ecosystems, and fostering long-term economic and social resilience in an increasingly complex and uncertain world.”