Climate risks ‘no longer a distant threat’
Ahead of its annual meeting in Davos later this month the WEF (World Economic Forum) has warned that firms which fail to address climate risks now face substantial financial losses. Businesses that delay could see up to 7% of annual earnings wiped out by 2035, an impact the WEF argues is akin to COVID-19-level disruptions every two years[i].
Drawing together two newly released reports, the WEF argues that climate risks are no longer a distant threat; climate-related disasters have inflicted over $3.6 trillion in damage since 2000, and the organisation expects this to accelerate. It finds that climate hazards, such as extreme heat, 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.
The research singles out businesses in energy-intensive sectors, with those who fail to decarbonise set to face considerable transition risks, as global climate regulations tighten. The WEF argues that carbon pricing alone could slash up to 50% of earnings within the sector by 2030.
Business case for resilience strategies grows
Despite these risks the research finds that substantial growth opportunities do exist amongst the evolving climate landscape, where green markets are forecasts to grow from $5 trillion in 2024 to $14 trillion by 2030. Here early adopters are expected to gain competitive advantages in sustainable solutions and adaptation offerings.
The WEF also stresses that direct climate risks, coupled with wider impacts on supply chains, employees, and wider communities, underscore the critical need for resilience strategies. They find that those businesses who are already investing in adaptation, resilience and decarbonisation are seeing tangible returns. For example, recent research published by the Alliance of CEO Climate Leaders found that every dollar invested in climate adaptation and resilience can generate up to $19 in avoided losses.
The researchers therefore suggest that businesses conduct a comprehensive climate risk assessment, measuring physical and transition risks across their operations and value chains, alongside assessment of opportunities. From there, organisations will have a better view of where to allocate funding for adaptation and resilience.
Gim Huay Neo, Managing Director, World Economic Forum said: “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. 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."[ii]
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