Climate hazards could reduce corporate earnings by up to 7 percent annually by 2035

12/11/2024 - Businesses that fail to adapt to climate risks like extreme heat could lose up to 7 percent of annual earnings by 2035, an impact comparable to nearly half of the economic losses caused by COVID-19. This is shown in a new report by the World Economic Forum, with contribution by PIK director Johan Rockström. The report aims to build a bridge between the latest scientific findings on the Earth system and their consequences for the economy.
Climate hazards could reduce corporate earnings by up to 7 percent annually by 2035
Companies without resilience strategies risk significant profit losses by 2035 – in cities like Seoul, increasing heatwaves could disrupt business activities. Photo: Lifeforstock/ Unsplash

Without resilience strategies, especially increasing heat will cause companies significant profit losses by 2035, shows the report "Business on the Edge: Building Industry Resilience to Climate Hazards". That means 560 to 610 billion US-Dollar in annual fixed asset losses for listed companies, with telecommunications, utilities, and energy companies most vulnerable. Companies in energy-intensive sectors that fail to decarbonize will face mounting transition risks as global climate regulations tighten, states the report. Carbon pricing alone could potentially reduce earnings up to 50 percent by 2030.

As climate hazards disrupt every stage of supply chains, the longevity of economies depends largely on a functioning earth system. That is why leading researchers, among them Johan Rockström from the Potsdam Institute for Climate Impact Research PIK, warn that five Earth systems are already approaching irreversible tipping points, including the ice sheets of Greenland and West Antarctica.

In contrast, another paper with the title “The Cost of Inaction: A CEO Guide to Navigating Climate Risk” shows that every dollar invested in climate adaptation and resilience can generate up to 19 US-Dollar in avoided losses. Also, green markets are set to grow from 5 trillion in 2024 to 14 trillion US-Dollar by 2030, with companies that adopt sustainable solutions and adaptation strategies early gaining competitive advantages. Together the two reports provide companies with a guide on how to decarbonize and build resilience strategies in the face of growing climate risks.

 

Link to report "Business on the Edge: Building Industry Resilience to Climate Hazards":

https://www.weforum.org/publications/business-on-the-edge-building-industry-resilience-to-climate-hazards/

Link to report "The Cost of Inaction: A CEO Guide to Navigating Climate Risk”:

https://www.weforum.org/publications/the-cost-of-inaction-a-ceo-guide-to-navigating-climate-risk/

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