In collaboration with

Boston Consulting Group

The Cost of Inaction:

A CEO Guide to Navigating
Climate Risk
ANNUAL REPORT
DECEMBER 2024
Images: Getty Images, Pexels

Contents
Foreword 3
Executive summary 4
1 Climate inaction could severely harm the world economy 5
1.1 Impacts of climate change are increasing and will accelerate with further warming 9
1.2 Climate-related economic costs have more than doubled over the past 20 years 11
1.3 Further warming could put an increasing strain on the world economy 12
2 Corporate cost of global inaction: physical risks on the rise in the next two decades 14
2.1 Climate change poses substantial physical risks to private sector15
2.2 Physical risks will translate into material costs within the next two decades16
2.3 Companies recognize physical risks but likely underestimate their impact18
2.4 Corporate adaptation investments have an increasingly positive business case20
3 Corporate cost of own inaction: transition risks are increasing 22
3.1 Companies that do not decarbonize may face increasing transition risks23
3.2 If transition risks materialize, they could translate into material financial losses26
3.3 Companies seem to underestimate these financial losses and overestimate29
the cost of action
4 Unlocking new growth by advancing the climate transition 32
4.1 
Climate leadership still pays off 33
4.2 
In heavy industry, climate leaders play a long-term game 34
4.3 
The warming climate is creating a market for adaptation solutions 35
5 The CEO Climate Leaders Guidebook 36
Step 1 Conduct a comprehensive climate risk assessment 38
Step 2 Manage risks in the current business portfolio 41
Step 3 Pivot your business to unlock opportunities 44
Step 4 Monitor risks and report on progress 45
Enabler 1 Upgrade climate risk governance 46
Enabler 2 Integrate climate risk into business-as-usual  47
Enabler 3 Develop effective climate risk systems 47
6 How corporates and governments can rise to the challenge 48
Appendix 51
Contributors 53
Endnotes 55

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interpretations and conclusions expressed herein are a result of
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© 2024 World Economic Forum. All rights reserved. No part of this
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The Cost of Inaction: A CEO Guide to Navigating Climate Risk 2

December 2024 The Cost of Inaction:
A CEO Guide to Navigating Climate Risk

Foreword
Patrick Herhold
Pim Valdre
Managing Director Head, Climate Action,
& Senior Partner, World Economic Forum
Boston Consulting Group

Climate risks are no longer distant threats – they are transforming world. Businesses face intensifying
materializing today, with impacts already felt across physical risks and transition risks that will likely
industries and regions. Companies and societies reshape industries, but within these challenges
must now confront a new reality: the world we lies the potential for growth, innovation and
operate in today will look quite different tomorrow. competitive advantage to shape a growing climate
Last year, we called for systemic global change adaptation market.
to combat the climate challenge. This year, we
focus on something equally critical: how corporate Featuring innovative case studies and
leaders should step up to manage climate-related comprehensive frameworks for managing climate
risks and seize opportunities as we navigate this risks, this report equips CEOs and their companies
complex landscape. with a blueprint to take decisive steps towards
climate transformation, ensuring resilience,
Climate inaction comes at a cost, even for innovation and long-term success.
businesses. The companies that fail to act
could face substantial operational, financial and The World Economic Forum’s Business on the
reputational risks in the near term, while early Edge: Building Industry Resilience to Climate
movers are already realizing tangible benefits from Hazards further explores how resilience strategies
adaptation and decarbonization. For those who take can be embedded across the C-suite.
bold steps, there is a path to sustained success.
Now is the time for business leaders to act boldly
This report is a call to action for CEOs to redefine and decisively. The decisions made today will
their approach to climate risks and seize climate- not only shape the future of individual businesses
smart opportunities. Climate leadership is not about but will also determine the trajectory of the global
avoiding risks – it is about building resilience for economy and the future of our planet for decades
businesses and societies and unlocking value in a to come.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 3

Executive summary
All companies will face a cost of climate
inaction: how their leadership prepares for
a warmer or greener world will determine
whether they thrive or fall behind.

Rising climate risks are already impacting the Corporate inaction also comes at a cost: there
global economy and the business case for is a clear business case for adaptation and a
collective action is clear. Intensifying climate better case for mitigation than most might think.
events will cause significant economic costs in Companies report that their current adaptation and
the next two decades. However, climate inaction resilience investments could yield between $2 and
could cost far more than global action, as climate $19 for every dollar invested. On mitigation, while
adaptation and mitigation investments could be full decarbonization across sectors comes at a cost,
“repaid” five to six times in avoided losses and sustainability leaders can still find cost-efficient ways
damage in the long run.1 to reduce emissions in the short term. Addressing
these risks also informs companies how to navigate
Physical risks of climate change are becoming the transition and adaptation opportunities and
material for businesses, putting significant value develop innovative offerings fit for a warmer and
at risk and increasing potential opportunity costs greener world.
in the medium term. Under the current climate
trajectory, companies are becoming increasingly Companies need to change the way they
exposed to both systemic risks arising from lower manage climate risks and opportunities, as
global economic growth and individual physical outlined in the CEO Guidebook presented at the
risks threatening supply chains and operations. For end of this report. Climate-related incidents and
unprepared businesses, individual physical risks market shifts are hard to predict and discontinuous,
alone could put 5% to 25% of their 2050 EBITDA but have potentially high-impact consequences.
at risk, depending on sector and geography, with While many companies are aware of these risks,
infrastructure-heavy sectors being most exposed. most are insufficiently prepared:
The cascading effects of such losses would
ultimately disrupt communities, with impacts on jobs, – Climate risks and opportunities should be a
lives, livelihoods and the cost of goods and services. critical component of company strategy, guiding
risk management, financial, strategic and
Transition risks for businesses are also operational decisions at all levels. Understanding
significant. After a decade of very significant (albeit climate risks is key for maintaining business
insufficient) progress, ambitious climate action has resilience, unlocking opportunities and ensuring
recently seen more public resistance, triggering a competitive edge.
doubts about the pace of decarbonization and the
future course of climate policies. But as climate – Businesses need to ramp up scenario thinking
change affects the life and wealth of people and to be prepared well ahead for both a 3°C world
businesses more seriously, relying on the status and a future with accelerated decarbonization.
quo is a risky bet to make and businesses need to
prepare for a broader range of developments. – Climate transition and resilience plans to
manage these risks should be informed by a
In a scenario of accelerating climate action, quantified assessment of underlying climate
unprepared companies risk significantly higher risks across a range of scenarios.
cost pressure from carbon pricing or comparable
regulation, write-downs on their fossil asset base – Capital allocation should match climate risk
and a much faster-than-expected demand decline strategy, balancing short-term profits with long-
for fossil fuels and technologies. Under a “well below term strategic resilience and optionality.
2°C path”, the impact of carbon pricing alone could
create additional costs equivalent to 50% of EBITDA – Climate risk management should become part
in certain emission-intensive sectors. As capital of business-as-usual for all employees, as these
markets respond to long-term threats to future impacts are far reaching and likely to influence
performance, early signals of heightened transition many aspects of business operations.
risks could affect company valuations well before
those risks fully materialize.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 4

1 Climate inaction
could severely harm
the world economy
Climate change has caused over $3.6 trillion
in damage since 2000. Without urgent
action global GDP could drop by up to 22%
cumulatively by 2100.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 5

 FIGURE 1 Atmospheric CO2 is increasing

Atmospheric CO2 concentration across millennia … and since the industrial revolution
parts per million (ppm) parts per million (ppm)

June 2024: June 2024:

427 ppm 427 ppm

1959:
316 ppm

800 700 600 500 400 300 200 100 0 1750 1800 1850 1900 1950 2020

Millennia before today

Sources: National Oceanic & Atmospheric Administration (NOAA), NASA’s Goddard Institute for Space Studies.

FIGURE 2 Our planet is getting warmer

Temperature anomaly
°C
+1.2°C in 2024

1875 1890 1905 1920 1935 1950 1965 1980 1995 2010 2024

Annual mean

Note: Global average land-sea temperature anomaly relative to the 1961-1990 average temperature.
Source: Met Office Hadley Centre.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 6

 FIGURE 3 Frequency and intensity of extreme events rise with temperature

Increase in frequency and intensity of extreme events1 under different warming scenarios
x for increase in frequency, °C for increase in temperature, % for increase in precipitation intensity
9.4x

Hotter
+5.1°C temperatures

5.6x
Current temperature
increase 4.1x +2.6°C
2.7x
2.8x +1.9°C
Increase in
+1.2°C 1.7x +30% precipitation
1.5x
1.3x
1.0x
+14%
+7% +10%

0°C +1°C +1.5°C +2°C +4°C

(1850-1900 average)
Global warming scenarios

1. Vs. 1850-1900 average; variation in frequency and intensity for extreme heat event or 1-day precipitation event that occurred on average once every 10 years in
a climate without human influence.
Source: Intergovernmental Panel on Climate Change (IPCC).

FIGURE 4 Some regions will suffer more than others – a glimpse of a 3°C world

Average temperature Change in total annual precipitation

Temperature (0C) Change in precipitation (mm)

No data -30 — 0 1—7 8 — 14 15 — 25 26 — 31 32 — 60 No data < -100 -100 — -51 -50 — -26 -25 — +24 +25 — +49 +50 — + 100 > +100

Likelihood of 1 year-plus droughts Change in frequency of historical “1-in-100-year” storm

Annual likelihood (%) Times more/less frequent

No data 0 — 10 11 — 33 34 — 50 51 — 67 68 — 90 91 — 100 No data <1 1 2 3—4 >4

Source: Adapted from the Probable Futures climate tool.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 7

 FIGURE 5 Several earth systems tipping points risk accelerating warming irreversibly

0.8 - 3°C 1.4 - 5°C

Meltdown of Greenland ice sheet Boreal forest
southern dieback 1 – 2.3°C
Boreal permafrost
abrupt thaw

1.1 – 3.8°C
Standstill of North
Atlantic subpolar gyre 1 - 1.5°C
1.4 - 8°C Warm-water
Standstill of Atlantic coral reefs die-off
meridional overturning
1.5 - 3°C circulation (AMOC)
Andes glacier retreat
2 - 6°C
Amazon rainforest dieback
>5°C
1 - 3°C
East Antarctic
West Antarctic
ice sheet collapse
ice sheet collapse Confidence levels High Medium Low

Note: Earth system tipping points are displayed as a function of temperature increase, although other factors (e.g. deforestation, precipitation levels, water salinity)
also play a significant role in triggering them. Five Earth systems (highlighted) are at immediate risk of tipping into irreversible decline, accelerating warming on a
planetary scale.
Source: Global Tipping Points Report, Lenton, T. et al., Boston Consulting Group (BCG) analysis.

FIGURE 6 The next three decades of emissions will shape the temperature of the next 10 millennia

Atmospheric CO2 concentration

parts per million (ppm)
Anthropocene

2100 (RCP 8.5) ~5°C

~4°C
~3°C
~2°C
Holocene
Today

-20,000 -15,000 -10,000 -5,000 0 5,000 10,000

Years vs. today

Note: RCP 8.5 scenario represents a high-emissions “business-as-usual” scenario characterized by sustained increases in greenhouse gas emissions.
Source: Clark, P. et al.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 8

 1.1 Impacts of climate change are increasing
and will accelerate with further warming

Carbon dioxide The effects of human-induced climate change 580,000 people. Human-induced climate change
concentrations in are already being felt today made this event twice as likely and increased its
summer 2024 hit a intensity by 6% to 9%.10
level not previously Since the beginning of industrialization, about 2,300
billion tonnes (gigatonnes or Gt) of anthropogenic As global temperatures continue to rise, so will
seen in at least 3
CO2 have been released into the atmosphere,2 with the rate and severity of extreme weather events
million years.
over 900 GtCO2 (approximately 40% of that total)
added within the last three decades.3 This pushed As long as humanity continues to add greenhouse
the CO2 concentration beyond 427 parts per million gases to the atmosphere, global temperatures will
in the summer of 20244 — a level not previously continue to increase. This will not only increase
seen in at least 3 million years5 (see Figure 1). the frequency but also the intensity of extreme
weather events. Warmer temperatures shift
As a result, average global temperatures have historical weather patterns, resulting in increasing
already increased approximately 1.2°C versus evaporation, lower soil moisture, worsening drought
pre-industrial levels6 (see Figure 2). Meanwhile, conditions and a greater risk of devastating wildfires.
according to the World Meteorological Organization, Warmer oceans provide more energy for storms,
the frequency of natural disasters such as extreme intensifying both their frequency and strength.
heat, floods, droughts, storms and wildfires has Warmer air can hold more moisture, increasing
increased five-fold over the past 50 years.7 rainfall amounts and flooding risks. The world will
also experience more frequent extreme heat events,
While it is difficult to attribute any one individual with higher peak temperatures (see Figure 3).
disaster to climate change, there is very high
certainty that the increasing frequency has been These events already cost lives, increase damage
strongly influenced by man-made emissions.8 For to infrastructure and threaten global food systems
example, the European 2019 heatwave, which (see Table 1). They also make our societies more
caused approximately 2,500 excess deaths across unstable by disrupting livelihoods, displacing
the continent, was made 10 to 100 times more populations and straining resources. The likely
likely by human-induced climate change.9 Extreme resulting political instability would make global
rainfall in Brazil (Rio Grande do Sul) in April and May climate-related challenges even more difficult
2024 led to catastrophic flooding, displacing over to solve.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 9

 TA B L E 1 Climate hazards will increasingly disrupt our way of living

A glimpse of 2050 Global scientific projections Socio-economic impact

300m+ people could be affected by 1-in-1,000-day hot extremes 5x as ~60k deaths in European heatwave
Extreme heatwaves in India1 likely with 0.85°C warming7 (2022)8
heat

5x increase in annual flood losses 70% of population could face 5x 2021 flooding losses were $18.4bn
Flood expected in EU2 surge in flood impacts at +4.0°C9 in China & $3.2bn in India10

80% chance of decade-long Current 1-in-100-year droughts Food lost to drought can feed 81m
Drought droughts in the US starting 20503 could occur every 2-5 years11 people daily12 (= population of
Germany)

~1.3m Bangladeshis could forced Global mean sea level expected Jakarta is sinking ~28 cm yearly14
Sea-level to migrate due to sea-level rise4 to rise 1m by 100 per RCP8.513 & facing $186m p.a. in flood
rise damage15

3x increase in annual probability of Hurricane frequency could double ~8,500 FTE jobs & $1.5bn of value
Storm typhoons in Tokyo5 by 205016 lost in Cyclone Debbie (2017)17

~35% increase in area burnt yearly Wildfires likely to increase Canadian wildfires displaced 230k
Wildfire by bushfires in Sydney6 by a third18 people & claimed 8 lives (2023)19

Note: RCP 8.5 scenario represents a high-emissions “business-as-usual” scenario characterized by sustained increases in
greenhouse gas emissions; FTE = full-time equivalent. Sources: 1. University of Cambridge, 2. European Environment Agency,
3. NASA, 4. De Lellis, P. et al. and New York University, 5. Bloemendaal, N. et al., 6. Hotspot Fire Project, 7. Fischer, E. et al.,
8. Multiple sources estimate 55,000-72,000 death toll, 9. Alfieri, L. et al., 10. World Meteorological Organization (WMO), 11.
Naumann, G. et al., 12. World Bank, 13. Kulp, S. et al., 14. National Geographic, 15. Budiyono, Y. et al., 16. Bloemendaal, N. et
al., 17. Lenzen, M. et al., 18. United Nations Environment Programme (UNEP), 19. BBC.

Rainfed Some regions will suffer more than others Today, five Earth systems are at immediate risk
agriculture covers of tipping into irreversible decline, accelerating
95% of cultivated Although contributing the least to global warming, warming on a planetary scale (see Figure 5):13
land and accounts low- and middle-income countries will generally these include the melting of the Greenland and
be hit hardest (see Figure 4). These countries face West Antarctic ice sheets, the thawing of boreal
for 10%-70% of
the highest average risk of extreme weather; but permafrost, the extinction of warm-water coral reefs
the GDP of most
compounding this risk, they have economies that and the standstill of the North Atlantic subpolar
local economies. are more dependent on vulnerable activities such gyre (part of the Atlantic Meridional Overturning
as outdoor manual labour and agriculture, their Circulation or AMOC), which plays a vital role in
infrastructure tends to be weaker and they have regulating the climate of Western Europe as well as
fewer resources to invest in adaptation. In Sub- global weather patterns.
Saharan Africa, for example, 160 million people
already live with water scarcity today;11 this is When global temperatures surpass 1.5°C above
expected to worsen as warming intensifies. At the pre-industrial levels, irreversible warming will become
same time, vulnerable rainfed agriculture currently a reality as some of the Earth’s landscapes turn
covers 95% of cultivated land and accounts for into net emitters of carbon (such as permafrost) or
10% to 70% of the GDP of most local economies.12 accelerators of heating (such as the loss of sea ice).
The World Economic Forum publication Business
However, developed nations will also be increasingly on the Edge: Building Industry Resilience to Climate
Today, five Earth
affected. In the Southwest of the United States Hazards provides a detailed briefing on Earth system
systems are at
(US), rising temperatures and more frequent tipping points14 and their implications for business
immediate risk droughts are expected to increase competition for risk across landscapes, supply chains and societies.
of tipping into water resources, affecting cities, agriculture and In this new era of the Anthropocene, the warming
irreversible decline, energy production, while the Southeast is likely to triggered over the coming decades will shape
accelerating be hit by more regular storms and floods, becoming Earth’s climate for millennia (see Figure 6), making
warming on a a threat to life and infrastructure and depreciating it a global imperative to understand and respond to
planetary scale. values of real estate. Earth systems disruption.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 10

 1.2  limate-related economic costs have more
C
than doubled over the past 20 years

Climate-related Climate change is already causing significant to more than $1 trillion between 2020 and 2024
disasters have economic costs (see Figure 7). Early estimates for Hurricane Helene,
caused more than which wreaked havoc in Southeastern US states
$3.6 trillion in According to EM-DAT’s international disaster in September 2024, indicate that this event alone
database, climate-related disasters have caused might be responsible for over $100 billion worth of
economic damage
more than $3.6 trillion in economic damage since damage,16 making it one of the costliest hurricanes
since 2000, more
2000, more than half of which is attributed to in US history. An increasing frequency and intensity
than half of which storms.15 This figure very likely underestimates of such events would mean that costs are likely to
is attributed to actual costs, as it primarily reflects direct damage escalate further.
storms – this such as infrastructure destruction, insured
figure very likely losses and immediate economic impacts, while The impact of future disasters can
underestimates excluding indirect effects such as longer-term already be felt
actual costs. health consequences, loss of productivity and
natural resource depletion. The economic strain of Insurance premiums for climate resilience and
climate change is already massive, with a significant protection from “natural catastrophes” are
portion, especially the unaccounted indirect effects, estimated to increase by around 50% until 2030,
currently borne by society at large. reaching a total of $200 billion to $250 billion.17
As companies pull back coverage in vulnerable
Since the turn of the century, average damage areas, properties in certain parts of the world are
costs have more than doubled essentially becoming uninsurable.18

The costs of climate-related damage increased

from around $450 billion between 2000 and 2004

FIGURE 7 Economic cost of climate-related disasters has more than doubled since 2000

Economic cost of climate-related disasters1

($ billion) five-year sum of reported cost of disasters from 2000-20242
1,023

914 247

192
746
664 621
317
599
115

458 482

150
343

244

106
52
26 12 66 66
15 20 35 39
23 10 10 5 9
2000-2004 2005-2009 2010-2014 2015-2019 2020-20242

Over two decades Floods: 1.7x Storms: 2.6x Droughts: 4.1x Wildfires: 2.6x Others:3 0.4x

1. EM-DAT’s database categorizes and shares economic data across: floods; storms; extreme temperature events; droughts; “mass movement (dry and wet)”
– i.e. landslides & mudslides; wildfires; volcanic activity; and earthquakes. Disasters related to volcanic activity and earthquakes are excluded here as they are
not directly linked to climate or climate change. 2. Data is extrapolated for 2024’s disasters, based on 2020-2023 averages, to show the trend for five years from
2020-2024. 3. “Others” include extreme temperatures and mass movement (dry and wet); data for these fluctuates due to reporting.
Notes: Graph uses 2023 adjusted dollar figures across the analysis for parity; pre-2000 figures have reporting biases, hence excluded from analysis. These costs
are only a subset of total damage from physical risks and hence underestimate likely total impacts and costs.
Sources: EM-DAT’s international disaster database, hosted by the Centre for Research on the Epidemiology of Diseases (CRED), UCLouvain; BCG analysis.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 11

 1.3  urther warming could put an increasing
F
strain on the world economy

By investing Climate change is slowing down global Severe macroeconomic impact could
2-3% of cumulative GDP growth already be felt in the next decades
global GDP in
mitigation and Compared with the physical impacts of warming, Numerous studies that have attempted to quantify
its systemic effects on GDP are more difficult to the impact of climate change warn it could already
adaptation
quantify. Climate-related events have many indirect put a material strain on global GDP in the coming
measures,
consequences that are almost impossible to decades. By 2100, the current 3°C trajectory could
humanity could measure. At the same time, it is hard to project to reduce global cumulative GDP by 16% to 22% – that
prevent 10-15% in what degree economic systems self-adapt. Even is 10% to 15% more than on a trajectory of less than
GDP losses over in cases where the immediate consequences are 2°C. 21 Some recent estimates, such as Kotz et al and
this century. clearer, such as property damage after increased the fifth vintage of NGFS’ macroeconomic climate
flooding, the sustained strain on GDP is often scenarios, indicate that the impacts on GDP of current
less obvious. emissions could be even greater and felt sooner.

Global warming has several impacts that slow down Global climate action very likely has a positive
GDP growth by reducing economic output and/or economic business case
funnelling resources away from growth-orientated
activities. For example: Several studies indicate that humanity would need
to invest around 2% of cumulative global GDP in
– Reduced labour productivity: Extreme heat mitigation measures to move onto a “below 2°C
reduces productivity, especially in outdoor pathway”. On top of this, around 1% of cumulative
manual labour such as construction and global GDP needs to be invested to adapt to already
agriculture. According to the International unavoidable warming.22 Given these investments
Labour Organization (ILO), by 2030, heat stress could prevent 10% to 15% in losses to global GDP
alone could reduce global work hours by 2%.19 over this century, they would jointly pay off up to
fivefold (see Figure 8). These investments will require
– Lower agricultural yields: Increasing droughts government mandates and incentives, as voluntary
and extreme precipitation events reduce business actions alone are unlikely to be sufficient.
agricultural productivity. In recent years, affected
regions have seen up to a 10% reduction in Any delay to emissions reduction in the present
yields during extreme weather.20 will cost humanity dearly in the future both in hard
economic terms and through long-term impacts that
– Infrastructure and property damage: could fundamentally reshape our societies, such
Climate-related disasters repeatedly destroy as the increasing risk of mass migration, increased
infrastructure and property, diverting public mortality, biodiversity loss and conflicts over
and private funds from productive investments resources. There will also be a greater risk of reaching
towards costly repairs. critical environmental tipping points, where damage
to lives, nature and the economy would become
– Ecosystem decline: The collapse of key even more significant. While the long-term benefits
ecosystem services, such as wild pollination, of climate action far outweigh the immediate costs,
marine fisheries and timber, would further human behaviour is prone to overvaluing short-term
impact GDP, particularly in countries reliant on expense and underestimating future gain. This mental
natural resource exploitation. discounting cognitive bias leads to hesitation, even
when the positive net present value of climate action
is clear and urgent change is economically justified.

In too many businesses, climate risks are wrongfully perceived

as a pure compliance topic. The most advanced companies are
looking at them from a financial perspective to inform strategy,
risk management and disclosure assurance at the highest levels.
Sarah Barker, Managing Director, Pollination Law, Co-Chair of the
World Economic Forum’s Climate Governance Community of Experts

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 12

 FIGURE 8 Climate inaction would cost far more than climate action globally

Climate change investments & loss avoided

(% cumulative GDP by 2100)

Investing ~3% of cumulative

GDP into mitigation and
adaptation saves 10%-15% Impact avoided with
in net GDP loss mitigation 11-13%

Mitigation
investments <2%
Impact avoided with
Adaptation adaptation 4%
investments <1%

Investments required to GDP loss avoided

achieve "below 2°C” (“below 2°C” scenario
vs. BAU 3°C pathway)

Notes: All effects relative to hypothetical baseline without climate effects – 2023 GDP with IPCC AR6 WGIII growth assumptions (global GDP growth (ppp)
range from 2.5 to 3.5% per year in the 2019–2050 period and 1.3 to 2.1% per year in the 2050–2100 (5–95th percentile). Rounding to nearest tens/hundreds.
Temperature scenarios refer to 2100.
Source: Benayad, A. et al. (2024). Why Investing in Climate Action Makes Good Economic Sense, BCG.

Businesses will need to carefully navigate risks Chapter 3: Transition risks are reshaping
associated with climate change (see Figure 9). industries at the same time, driven by factors such
The following chapters of this report analyse both as changing regulations, asset write-downs and
physical and transition risks to businesses, as well shifting customer and investor perceptions.
as the opportunities that adaptation to climate
change can bring. Chapter 4: Opportunities. These challenges also
bring opportunities for higher revenues, lower
Chapter 2: Physical risks are becoming more operational costs through energy efficiency and the
significant, contributing to lower revenues caused preservation of assets by adapting early.
by supply chain disruptions and higher operational
and capital expenses due to structural damage.

FIGURE 9 Corporates need to navigate a new array of risks and opportunities

Corporate cost of global inaction Corporate cost of own inaction Action opportunity

Physical risks (acute and chronic) Transition risks (legal, technology, New products and services, new
– Lower revenue due to downtime, market, reputation) markets, resilience, resource
productivity loss and supply – Higher OpEx due to changing input efficiency and more affordable
chain disruptions prices and new regulation energy source
– Higher CapEx due to restoration – Value adjustments on investments – Higher revenue & margins from
of structural damage to facilities terminated prematurely commercialization of new offers
– Higher OpEx due to increasing input – Lower revenue due to declining – Preserved assets due to proper
prices, insurance premiums demand on grey portfolio adaptation and conscious
– Lower capitalization due to shift investment decisions
in investor perception – Lower OpEx due to energy and
resource efficiency
– Lower cost of capital
– Easier hiring and retention
Sources: Task Force on Climate-Related Financial Disclosures (TCFD).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 13

2 Corporate cost of global
inaction: physical risks
on the rise in the next
two decades
With climate inaction increasing the frequency and
intensity of extreme weather events, companies face
mounting physical risks that could put up to 25%
of their EBITDA at risk within the next two decades
if they do not prepare.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 14

2.1  limate change poses substantial
C
physical risks to private sector

The physical impacts of climate change put displaced millions and saw 800 people perish,26
companies’ operations, infrastructure and devastated a key industrial corridor and
supply chains at risk severely disrupted global supply chains. Toyota
estimated its operating profits were reduced by
Headlines about storms, floods, fires, heatwaves and approximately $1.6 billion over the year.27
droughts are now routinely followed by reports of their
impacts on individual companies’ assets, revenues or In addition to these acute events, chronic climate
costs. For example, consider the following: impacts such as water scarcity, rising sea levels
and prolonged heatwaves are also becoming
– Due to a 2022 drought, Sichuan’s hydropower more frequent.
generation dropped to about 20% of its typical
capacity, forcing Toyota and Foxconn to halt As warming continues to accelerate, these risks
production at their plants, while supply chain will materially increase
disruptions extended to Tesla and SAIC Motor.23
Each of these events was a shock at the time, but the
– Heavy flooding in Germany in 2021 inflicted conditions that triggered them will become increasingly
$1.4 billion in damage to the tracks, bridges, likely down the line. As global warming drives more
stations and other assets of railway operator frequent and extreme weather conditions, the risk
Deutsche Bahn.24 of physical damage to assets and infrastructure
rises, along with reduced worker productivity and
– Two years of wildfires in California led to the disruptions to supply chains that are vulnerable to
2019 bankruptcy filing of PG&E (Pacific Gas & natural hazards. An in-depth analysis of the ways in
Electric Company), with the utility reporting that which physical risks might trigger value chain and
it faced $30 billion in liabilities.25 societal losses are available in the World Economic
Forum’s report Business on the Edge: Building
– The historic 2011 floods in Thailand, which Industry Resilience to Climate Hazards.28

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 15

 2.2  hysical risks will translate into material
P
costs within the next two decades

Climate risks could already trigger material of unchecked climate change (>3°C pathway),
losses in the next two decades companies in these sectors could find an additional
5% to 25% of their EBITDA at risk by 2050. Under
Figure 10 shows how companies in different major a Paris-aligned scenario, these costs would be
sectors would be impacted by physical climate risks materially lower.
under different temperature scenarios. In a scenario

FIGURE 10 Physical risks could harm 5-25% of EBIDTA under current trajectory (by sector and region)

Average financial impact of physical risks by 2050

% yearly EBITDA at risk vs. today in a >3°C (current trajectory) vs. <2°C (Paris-target) scenario

>3°C scenario >2°C scenario

e e
ur ur
es u ct es u ct
rvic str rvic str
se ra se ra
n inf ge
s
n inf ge
s
tio & a tio & ra
ion er ion e
ica ct ev e ica ct ev e
un ls b s ar als un ls b s ar als
m ies stru e ria d
& ga lthc stri m ies stru e ria d
& ga lthc stri
t t
Com Utili Con M
at
F oo Oil & Hea Indu Com Utili Con M
at
F oo Oil & Hea Indu

Europe 10-15% 10-15% 5-10% 5-10% 5-10% <5% <5% <5% 5-10% 5-10% <5% <5% <5% <5% <5% <5%

North America 10-15% 10-15% 5-10% 5-10% <5% <5% <5% <5% 5-10% 5-10% <5% <5% <5% <5% <5% <5%

South America 15-20% 15-20% 10-15% 10-15% 5-10% 5-10% 5-10% 5-10% 5-10% 5-10% <5% <5% <5% <5% <5% <5%

Asia-Pacific >25% >25% 10-15% 10-15% 5-10% 5-10% 5-10% 5-10% 10-15% 5-10% 5-10% <5% <5% <5% <5% <5%

Africa &
>25% >25% 10-15% 10-15% 5-10% 5-10% 5-10% 5-10% 5-10% 5-10% 5-10% <5% <5% <5% <5% <5%
Middle East

Sector
20-25% 15-20% 10-15% 10-15% 5-10% 5-10% 5-10% 5-10% 5-10% 5-10% <5% <5% <5% <5% <5% <5%
average

Notes: Estimates include economic impact from asset damage and business interruption from wildfire, heat, coastal flooding, fluvial flooding, cyclones, water
stress and droughts vs. historical baseline normalized to today; >3°C scenario is based on SSP3.7-0, which is a moderate- to high-emissions scenario projecting
temperature increases of 1.7-2.6°C by 2050 and 2.8-4.6°C by 2100. Translation of impact from % of asset value to EBITDA margin is carried out using sector
benchmarks on median fixed asset turnover ratios (FAT) and EBITDA margins assuming sector and regional composition in 2050 is identical to current levels.
Individual company impact estimates can vary vs. sector estimates shown here depending on differences in e.g. share of fixed assets and EBITDA margins vs.
benchmarks. See Appendix for methodology and sources.
Sources: Swiss RE, S&P Global Sustainable, Oxford Economics, Capital IQ, BCG analysis.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 16

Exposure to climate risks varies significantly and 2016. Reduced coffee production led to
across sectors price increases of over 50% for arabica and
40% for robusta beans, with an estimated
Companies with extensive physical assets, complex cost to Nestlé of CHF 0.8 billion to 1.0 billion
supply chains and/or operations in high-risk (approximately $925 million to $1.15 billion).30
areas are generally more vulnerable. The exact
exposure is of course highly individual and not Companies operating in emerging markets will
always apparent. Companies with similar business be more impacted
models can be impacted differently, depending on
their specific circumstances. But few companies The Asia-Pacific region, home to six of the 10
are unexposed given the numerous ways in which countries most affected by extreme weather
climate change can impact corporate operations. events and disasters,31 along with many emerging
The following examples of more strongly impacted economies in Africa, the Middle East and Latin
sectors show why: America carry higher-than-average exposure risk to
climate impacts, while at the same time struggling
– Communication services and utilities. Cell to finance the resilience projects needed to protect
towers, communication lines, data centres and their societies and economies. Companies that
other extensive communication infrastructure are exposed to these regions – either directly or
can be severely damaged by storms, floods, through their supply chains – would therefore face
fires and other extreme weather events, leading greater financial impacts. However, these impacts
to service interruptions and increasing repair are not limited to emerging economies and certain
costs. The same goes for power plants and regions in developed markets will also be exposed
transmission lines, which are costly to repair. to significant losses.
Prolonged power outages can also expose
utilities to fines and significantly reduce their On top of physical risks, companies will be
revenue. For example, Australia’s 2020 bushfires impacted by slowing overall GDP growth
caused widespread communication outages
and inflicted millions of dollars of damage to the If unchecked climate change limits the world
infrastructure of Telstra, the country’s leading economy’s ability to grow, this would also be
telecom player, with 36 cell towers affected.29 detrimental to the top-line growth of businesses,
but is more difficult to adapt to this scenario.
– Food and beverages. More frequent extreme
weather events and growing water stress would Companies at the forefront of climate risk
reduce crop yields and increase costs for management are building a comprehensive view of
irrigation and protective measures, particularly their exposure and vulnerability to various hazards
in water-intensive sectors. In a CDP (Climate across their full value chain. This can lead to
Disclosure Project) report, Nestlé detailed the surprising discoveries, both in terms of new risks
impact on its operations of exceptional droughts and the scale of existing risks and where they are
in Brazil’s arabica coffee regions between 2014 located (see Case Study 1).

CASE STUDY 1
Why are these costs so high? Case study from a European
highway operator

A case study from a European highway operator of weather events such as extreme precipitation
illustrates why future cost risks are so high, even in might only increase by 10% to 15% over this
the short to medium term. The company historically period. The reason is that such events will not only
incurred average annual costs of 5% of EBITDA to become more frequent, they will also become more
deal with physical damage to its infrastructure from severe and spread over larger geographical areas.
natural hazards. In a scenario of unchecked climate As a result, assets that were previously unexposed
change, the company expects these costs to now face greater potential risks and high-damage
roughly double by 2050, even though the frequency infrastructure events in the future (see Figure 11).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 17

 FIGURE 11 Seemingly small changes in risk can create disproportionately more damage

Example: EU highway operator

Impact of climate-related physical risks, % EBITDA
Illustration

Today 2050 in a 2.7°C scenario

Heavy precipitation
damage to bridges 1.2% EBITDA
to cover precipitation damages
+10%
more frequent precipitation
>2% EBITDA
at risk as more bridges affected
to bridges
+10% & suffering heavier damage
(+70% overall)
larger average area of rainfall

+10%
More intense in shorter time

+40%
more damage

~5% 8-12%
Total impact across
physical risks
EBITDA EBITDA
to cover repairs from all physical at risk from precipitation, flooding
hazards (e.g. floods, hail, frost) on and hail across bridges, tunnels
all assets (e.g. bridges, tunnels, & highways
highway segments)

Note: Total EBITDA lost compared to today’s financial baselines.

Source: BCG analysis.

2.3  ompanies recognize physical risks

C
but likely underestimate their impact

Companies increasingly recognize physical assess the full impact across a company’s value
risks, but likely underestimate the financial chain and integrate climate risks into traditional
impact of these risks planning processes.

In response to CDP’s annual climate change The relatively few that do attempt to quantify
questionnaire in 2023,32 72% of the largest climate-related business risk (and report their
thousand or so respondents across eight sectors financial exposure) report lower figures on average
indicated that they identified physical climate than analysis conducted for this report would
risks which could substantially impact their indicate (see Figure 13). One reason for this could
business (see Figure 12). Yet many companies be that many businesses currently identify only their
struggle to translate broad climate scenarios most immediate risks and treat them in isolation.
and general physical impacts into measurable However, as global inaction increases the threat and
business risks. Climate risk data is often diversity of exposure, this approach is increasingly
fragmented and inconsistent, making it difficult to inadequate for most businesses.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 18

 FIGURE 12 More than 70% of companies see significant impact from physical risks

Companies identifying physical climate risks with potential to have a substantive impact on their business
% of CDP respondents

86% 85%
82%

72% 72%
70%
66%
64%
59%

Total Communication Utilities1 Food & Industrials Construction & Materials Healthcare Oil & gas
services beverages infrastructure
n = 1,011 n = 35 n = 88 n = 84 n = 412 n = 50 n = 207 n = 74 n = 61

1. Utilities include power grids.

Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire.

FIGURE 13 Companies likely underestimate the financial impact of physical risks

Company self-perceived financial impact of physical risks

% annual EBITDA at risk

2-13%

1-7%
6%
0-5% 0-4%
0-4%
2% 0-3%
0-2% 0-1%
2% 2% 2%
1% 0%
1%

Food & Materials Construction & Industrials Utilities1 Oil & gas Communication Healthcare
beverages infrastructure services
n = 22 n = 47 n = 16 n = 123 n = 24 n = 13 n = 14 n = 17

Sectoral estimate based on comprehensive physical risk assessment

Company self-perceived impact as reported to CDP (quartiles 1 to 3)

Company self-perceived impact as reported to CDP (median)

1. Utilities include power grids. 2. CDP questionnaire sample size: n = 276.

Note: Based on companies’ reported potential maximum financial impact from identified physical climate risks at medium- and long-term time horizons.
Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 19

 2.4  orporate adaptation investments have
C
an increasingly positive business case

Companies Investments in adaptation and resilience measures – Fortifying assets, such as installing flood
can reduce their can reduce companies’ financial exposure. These protection barriers and/or reinforcing critical
exposure to solutions can be divided into three categories: facilities to withstand extreme weather. Nature-
physical risks strategic, financial and operational. based solutions, such as mangrove plantations,
can economically buffer against natural hazards
through a mix of
Strategic solutions involve adjustments to the while enhancing the security and livelihoods of
strategic, financial
business model to enhance long-term resilience. surrounding communities.
and operational This includes increasing the role of service-based
measures. revenue streams and/or reducing reliance on – Resource security, such as investing in water
physical assets such as owned real estate. conservation technologies, for example drip
irrigation or energy storage systems to ensure
Financial solutions involve managing climate operational continuity. Additional strategies
risks through financial strategies. Companies can include onsite water reuse systems and nature-
transfer risk via innovative financial tools – such based solutions such as permeable surfaces
as catastrophe bonds or parametric insurance and retention ponds to manage flooding and
which provide rapid pay-outs based on predefined support continuous operations.
events – or retain risk through designated budget
allocations for climate contingencies. – Supply chain resilience, as highlighted in the
World Economic Forum’s report From Disruption
Operational solutions focus on protecting and to Opportunity: Strategies for Rewiring Global
enhancing the resilience of key assets and operations. Value Chains. Leading companies are already pre-
This can include both physical infrastructure qualifying new suppliers as standby options and
improvements and nature-based solutions to mitigate building globally connected, multi-local supply
climate risks, including the following: chains to enhance resilience and flexibility.33

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 20

 Companies that do make such investments Resilience Partnership, highlights a benefit-to-cost
report a very positive business case ratio of 2x to 7x from flood protection measures
and 2x to 6x for water efficiency collection
Few companies comprehensively assess their technologies such as drip irrigation and other
risk exposure and make adequate adaptation low-flow technologies, with even greater returns
investments. Those that do and disclose the returns in emerging markets.34
to CDP report a very positive anticipated payback,
ranging from $2 to $19 for every dollar invested (see The message from these figures seems clear:
Figure 14 ). Climate adaptation investments pay off companies should develop a more scientific
across a range of different measures: an analysis understanding of the risks that they face and invest
by the US Agency for International Development in adapting to them, both for their own benefit and
(USAID), in collaboration with BCG and the Global to help mitigate rising global costs from inaction.

FIGURE 14 Many companies see a positive business case for adaptation

Company self-perceived benefit-to-cost ratio of adaptation and resilience measures

Benefit-to-cost ratio
8-35x

1-26x
10-25x

2-23x

2-21x 3-20x
19x

2-18x

14x

7x 0.5-4x
5x 6x 6x
5x
2x

Food & Healthcare Oil & gas Materials Industrials Communication Construction & Utilities1
beverages services infrastructure
n = 22 n = 17 n = 13 n = 47 n = 123 n = 14 n = 16 n = 24

Company self-perceived benefit-to-cost ratio as reported to CDP (median)

Company self-perceived benefit-to-cost ratio as reported to CDP (quartiles 1 to 3)2

1. Utilities include power grids. 2. CDP questionnaire sample size: n = 276.

Notes: Based on companies’ reported potential maximum financial impact from identified physical climate risks at a medium- and long-term time horizon and
the associated cost of responding to the risk. Considerable complexity underlies these numbers: first, the companies use a variety of methodologies in their
calculations; second, the nature of the returns on adaptation investments is a challenge. The investments require capital expenditures today, whereas the returns
are often a mix of avoided losses (such as prevention of costly damages and business interruptions) and potential opportunities (such as enhanced operational
efficiency, access to new markets, or improved reputation) that are realized in an uncertain timeframe and are not as bankable as traditional cashflows.
Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 21

3 Corporate cost of own
inaction: transition risks
are increasing
As global climate regulations tighten,
companies that fail to decarbonize would face
rising transition risks, with potential EBITDA
impacts of up to 50% from carbon pricing
alone in energy-intensive sectors by 2030.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 22

 3.1  ompanies that do not decarbonize
C
may face increasing transition risks

Global climate Global climate commitments, regulations and – China has reinforced its ETS in 2024,
commitments, incentive schemes have significantly accelerated adding stricter penalties and a revamped
regulations and in the last decade, particularly since the Paris emission reduction market, while at the same
incentive schemes Agreement was adopted in 2015. While the world time pouring billions into the expansion of
have significantly is far away from achieving the 1.5°C ambition, renewables, EVs and hydrogen.
significant progress has been made across the
accelerated in
world, albeit at different speeds. The following Accelerating climate action creates transition
the last decade. actions are the most notable: risks for companies. The Task Force on Climate-
Related Financial Disclosures (TCFD) identified four
– Over 140 countries, including China, the main types of transition risks:36
European Union (EU), India and the US,
covering 88% of global emissions, have made – Policy and legal, such as carbon pricing rules
national net-zero commitments.35 At COP30 and the risk of litigation.
in Brazil, many countries are expected to
strengthen their commitments further. – Technological, such as lower-carbon
ways to make steel or power big ships that
– In the EU Green Deal, Europe has followed disrupt incumbents.
up its net-zero commitment with the most
ambitious emission reduction legislation globally, – Market, meaning shifts in supply and demand
including initiatives such as tightening the for commodities, products and services.
emissions cap of its Emissions Trading System
(ETS), introducing an emission trading scheme – Reputation, stemming from negative
for non-ETS sectors (ETS II), banning new stakeholder perceptions of a company’s
internal combustion engine (ICE) car sales by climate actions.
2035 and enacting rules to drive the adoption
of sustainable fuels and hydrogen. Similar to physical risks, transition risks can
materialize through additional financial costs.
– The US introduced its Inflation Reduction They are equally difficult to predict because they
Act in 2022, which drives billions of dollars of depend on future government decisions, future
investments in green technologies such as technological innovation and other unknowns.37
electric vehicles (EVs), renewables, hydrogen and
carbon capture, utilization and storage (CCUS).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 23

 FIGURE 15 Transition is underway – at different speeds

Price of carbon around the world,1 Oil demand evolution,

$/tCO2e % change from 2018 to 2023

Price range Demand evolution

<$20 $20-$40 $40-$60 $60-$80 >$80 >12% 4 to 12% -4 to 4% -12 to -4% <-12%

De facto ban of new ICE passenger car sales,2 Countries phasing out operating coal plants,
target year target year

Target year Target year

2025 2030 2035 2040 2050 No existing coal3 2030 or earlier 2031-2040

2041-2050 Under discussion

1. Map shows jurisdictions with carbon taxes or emissions trading systems implemented, under development or under consideration. 2. Map shows jurisdictions
with set targets, signed pledges or announced plans to phase out sales of gasoline and diesel cars by a concrete date. Governments include national, provincial
and state governments; China and US have phase-out targets in specific provincial and state governments only. 3. No existing coal due to no legacy coal,
regulation already pushing for phase-out, operators deciding to shut down platforms.
Sources: World Bank Group, Energy Institute, International Council on Clean Transportation (ICCT), A2Z Coalition, Coltura, Statista, Powering Past Coal, Beyond
Fossil Fuels, Bloomberg Global Coal Countdown, BCG analysis.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 24

 Whether transition risks are increasing is path, let alone a well-below 2°C path, and today’s
uncertain, but it still seems prudent to assume policies are insufficient for meeting even those
they are targets. Making the assumption that global progress
will stagnate or slow down is equivalent to assuming
Ambitious national targets present tough choices that humanity will not even try to address its most
and regulations are often contentious. They can also existential threat, despite all the enormous impacts
be non-linear when different political parties fail to already described. From a sound management
agree on the need for ambitious climate action. The perspective, therefore, it seems prudent to assume
US pulling out of the Paris Agreement was a very that global progress will accelerate.
visible example of this and Trump’s re-election will
likely result in more climate headwinds. Beyond the Shifts in public sentiment could also drive more
US, Australia repealed and later reintroduced carbon rapid progress on climate policy. Demand for
pricing under its Safeguard Mechanism in 2016.38 action may be triggered by a series of catastrophic
The EU pushed forward with a very ambitious heatwaves or deadly floods, or from new data
regulation agenda, but now key policies face delays revealing significantly greater short-term risk from,
and resistance from incumbents. In the corporate for example, the slowing of the Atlantic Meridional
world, some businesses, including four major banks, Overturning Circulation (AMOC), or more specifically
have recently withdrawn from climate initiatives such from a massive US class action lawsuit against the
as SBTi (Science Based Targets initiative). fossil fuel industry from homeowners facing damage
due to storms and floods.
However, we still live in a world where current
national targets are insufficient to achieve a 2°C

Tipping points in public opinion shifts are difficult to predict.

You need to anticipate future trends, or you might be late and
forced to catch up under pressure.
Pascal Soriot, Chief Executive Officer, AstraZeneca

BOX 1 Litigation risks

Litigation and reputational risks are becoming roadmaps that clearly outline areas of uncertainty,
increasingly significant. Class action lawsuits dependency and known implementation gaps and
seeking compensation for escalating climate credibly pursue their targets,” says Sarah Barker,
impacts, including a failure to manage relevant Managing Director, Pollination Law.
physical or economic risks, are becoming
more likely. “Superfund laws”, which legislate Anti-adaptation litigation is also becoming a key
responsibility for the cost of climate adaptation legal risk. Companies are increasingly being
onto large emitters, are being enacted in certain held liable for failing to address physical climate
US states. Additionally, companies with climate risks. In a 2021 report, the United Nations
targets face reputational and legal risks if they fail Environment Programme (UNEP) Financial Initiative
to meet their commitments. highlighted how legal action can drive better
climate adaptation, with lawsuits serving both as a
“For diligent and well-advised companies, the consequence and catalyst for action. For example,
perceived legal risks of missing climate targets McVeigh v. REST set a precedent for fiduciary
often exceed the reality. In many jurisdictions, responsibility by holding an Australian pension
liability depends on whether there were reasonable fund accountable for not managing and disclosing
grounds for the targets at the time they were the climate risks, including physical climate risks,
set. Businesses must develop transparent to its investments.39

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 25

 3.2 If transition risks materialize, they could
translate into material financial losses

Demand for An accelerating transition could trigger financial Since the Paris Agreement, carbon pricing
fossil fuels or losses in several ways mechanisms have expanded steadily and are now
technologies covering around a quarter of global emissions,41
could decline Today, returns of fossil fuel business models still with Europe leading the charge. By 2030, ETS I
benefit from substantial government subsidies – & II are expected to cover nearly all emissions in
much earlier
up to $7 trillion globally in 2022, according to the Europe,42 with prices reaching $90 to $150/tCO2e,43
than companies
International Monetary Fund.40 As they accelerate while similar schemes are beginning to emerge in
currently expect, decarbonization, governments would need to reduce North America and Asia-Pacific. To meet “well-
putting entire or eliminate these subsidies and are more likely to below 2°C” goals, both coverage and price levels
business models price in negative externalities. As a result, increasing would need to rise further. This would strengthen
at risk. carbon prices or other forms of penalizing climate the business case for green technologies but
regulation could increase operational costs. Fossil expose companies that have delayed action until
fuel-based assets may have to be prematurely the regulation is in place to additional costs – and
written down. Demand for fossil fuels or technologies a potential loss in competitiveness if they pass
could decline much earlier than companies currently them through. In particular, fossil utilities and
expect, putting entire business models at risk. energy-intensive sectors such as materials, metals
and chemicals that do not decarbonize could risk
Carbon pricing is key to accelerating the low- significant cost increases, potentially up to a level
carbon transition, but it is a risk for companies equivalent to 50% of their EBITDA by 2030 (see
that do not decarbonize Figure 16).

FIGURE 16 Transition risk of 20+% EBITDA for some sectors in a rapid transition

Average annual financial impact of carbon pricing by 2030, by scenario

% annual EBITDA at risk
Rapid transition Slow transition

ng ng
ini ls ini ls
ls m
ica ials s ls m
ica ial
s s
e ria a l& m t ies str ga e ria a l& m tie
s str ga
at et e ili u l& at et e ili u l&
M M Ch Ut Ind Oi M M Ch Ut Ind Oi

Europe >50% 20-30% 20-30% 10-20% 5-10% 5-10% >50% 20-30% 10-20% 10-20% 1-5% <1%

North America 30-50% 30-50% 20-30% 30-50% 5-10% 5-10% 1-5% 1-5% 1-5% 1-5% <1% <1%

South America >50% 20-30% 10-20% 5-10% 5-10% 5-10% 1-5% <1% <1% <1% <1% <1%

Asia-Pacific >50% 30-50% 10-20% 30-50% 1-5% 5-10% 20-30% 1-5% 1-5% 1-5% <1% 1-5%

Africa &
Middle East >50% 30-50% >50% >50% 5-10% 1-5% <1% <1% <1% <1% <1% <1%

Sector
>50% 30-50% 30-50% 30-50% 5-10% 5-10% 20-30% 5-10% 1-5% 1-5% <1% <1%
average

Notes: Europe data excludes Russia; slow transition scenario is based on average share of emissions taxed per region (excluding EU where sectors under ETS
and future share of free allowances are used) and price of carbon per country; net-zero emissions scenario is based on IEA assumptions for carbon prices by
country type and BCG estimates for share of emissions taxed (advanced economies: $140/ton, 70%; emerging markets & developing economies with net-zero
commitment: $90/ton, 50%; emerging markets & developing economies without net-zero commitment: $24/ton, 20%); translation of impact from share of carbon
costs to EBITDA margin is carried out using EBITDA margins assuming sector and regional composition in 2030 is identical to current levels; individual company
impact estimates can vary vs. sector estimates shown here depending on differences in e.g. EBITDA margins and carbon intensity vs. benchmarks; carbon
intensity is averaged by top 25 companies per sector in the region (per tons of carbon emitted per $ million); see Appendix for methodology and sources.
Sources: International Energy Agency (IEA), company filings, Oxford Economics, Capital IQ, BCG analysis.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 26

 Accelerating climate regulation would increase significant risk of not reaching the end of their
the risk of premature write-downs to fossil economic lifetime (which typically ranges from 20
fuel assets to 25 years). Under a “well-below 2°C pathway”,
this would increasingly be the case globally: world
Many companies underestimate the impact coal demand would have to drop by 90% by
that faster climate transformation can have on 2050,44 preventing any coal plant commissioned
long-lifetime assets. As restrictions on asset after 2010 from reaching the end of its lifetime.
exploration, transportation or burning fossil fuels Thirty-five percent of the book value of upstream
tighten, their useful lifespan shortens. In developed oil assets would have to be written down by 2030.
economies that seek to be Paris-aligned, many Many industrial assets would also be affected (see
new investments in fossil fuel assets already carry Table 2).45

We are actively assessing the material financial implications

arising from climate-related risks related to changes in the useful
life of assets, residual values and changes in the fair valuation of
assets as a result of our energy transition.
Bronwyn Grieve, Director of Global Sustainability
and External Affairs, Fortescue

TA B L E 2 Companies face risk of write-downs of up to 30% on their grey assets46

Asset write-downs on grey assets by 2030 (% of 2030 stock value)

Upstream Blast Heavy fuel Steam

oil fields1 Coal plants1 furnances1 vessels2 crackers3

Slow transition

0% 0% -3% 0% 0%
Medium-paced
transition
-20% -2% -5% -5% -5%
Rapid transition

-35% -20% -15% -10% -10%

1. Decommissioning assumptions for coal plants, upstream oil fields and blast furnaces are based on IEA & Mission Possible
Partnership consumption provision for STEPS, APS and NZE production forecasts. 2. Heavy fuel vessels are expected to
be decommissioned by 2050 in a net-zero scenario and by 2053 in an announced-pledges scenario. 3. Steam crackers are
expected to be decommissioned by 2045 in a net-zero scenario and by 2049 in an announced-pledges scenario.
Notes: This analysis uses the following IEA scenarios: STEPS – Stated Policies Scenario (slow transition); APS – Announced
Pledges Scenario (medium-paced transition); and NZE – Net Zero Emissions by 2050 Scenario (rapid transition); see Appendix
for methodology and sources.
Sources: IEA, GlobalData, S&P Global, European Commission Joint Research Centre (JRC), NexantEca, Rystad Energy, Ucube,
Clarkson, Mission Possible Partnership, BCG analysis, BCG UDI database.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 27

 Accelerating climate regulation could decrease under current policies, the market for new internal
demand for fossil fuels and technologies combustion engine cars could decline by at least
15% by 2030 (and more than half by 2035). Under
As the low-carbon transition accelerates, demand a net-zero pathway, it would even have to drop
for fossil fuels and related products will start to by 70%. Across major industries, 10% to 70% of
decline. In many sectors, fossil fuel technologies are demand for fossil fuels or technologies could be at
already on track to be replaced. For example, even risk (see Figure 17).

F I G U R E 17 Up to 70% demand volume at risk on grey portfolios in a rapid transition

Global demand evolution of grey & green portfolios in 2030 vs. 2023,1 by scenario
% volume change by 2030

Automotive Utilities Oil & gas Cement Ammonia Steel2

10% 10%

0% 0%
Grey portfolio

-5% -5% -5%

-10% -10% -10%
-15% -15%
-20%
-25% -25% -25%

-35%

-70%
vs. green
portfolio3
+185%-220% +80%-140% +15%-20% +235%-3,800% +10%-1,675% +75%-1,450%

Slow transition Medium-paced transition Rapid transition

1. 2022 data used for steel, oil & gas, utilities. 2. Approximated by iron consumption. 3. For oil & gas sector, green portfolio is biofuels, ammonia, synthetic oil etc.
Note: Scenarios here are based on IEA STEPS, APS and NZE, corresponding respectively to slow, medium-paced and rapid transition.
Sources: IEA World Energy Outlook 2023, World Bank Group, CW Group, Global Cement and Concrete Association, IEA Ammonia Technology Roadmap 2021,
UBS, BCG analysis.

The impact on capital markets could hit utilities hardly felt the initial impact in their business
even sooner results. But once financial markets grasped the
longer-term implications of a growing share of
Companies could be misjudging how quickly the renewables and pressure on wholesale power
impact of seemingly distant developments can be prices, many companies lost significant market
felt on capital markets. Investors are forward looking value within only a few years.47 If the transition also
and a significant portion of companies’ valuations accelerates in other sectors, returns of fossil-based
lies in expectations for future performance. When business models could therefore turn much less
the energy transition started in Europe, incumbent positive than they appear today (“grey discount”).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 28

 3.3  ompanies seem to underestimate these
C
financial losses and overestimate the cost
of action

Companies are aware of transition risks median-reported EBITDA impact from transition
but seem to underestimate their impact risks did not exceed 4% (apart from the materials
sector, with a median of 27% impact on EBITDA).
Of around 1,000 respondents to CDP’s 2023
climate change questionnaire, 86% anticipated This disconnect – high awareness of transition
significant transition risks for their business (see risks but an estimate of their scale that is modest
Figure 18), compared with 72% for physical risks or perhaps a work in progress – is linked to the
(see Figure 12). However, those that quantified the challenge of predicting how risks might unfold in a
impact of these risks did not seem to anticipate fast-changing environment of disruptive technologies,
dramatic changes. Even in sectors highly dependent policy shifts and litigation. Nonetheless, it could well
on fossil fuels – such as oil and gas, energy- happen – and it will need to happen if the world is to
intensive industrials and partly-fossil utilities – the keep temperature rise at or below 2°C.

FIGURE 18 Companies recognize transition risks but estimate limited financial impact

Companies identifying
transition risks with potential Company self-perceived financial Company self-perceived benefit-to-cost
impact on business impacts of transition risks ratio for mitigation investments
(% of CDP respondents) (% yearly EBITDA at risk, quartiles 1 to 3) (benefit-to-cost ratio, quartiles 1 to 3)

Oil & gas

98% 3% 1-25% 4x 1-14x
n=61

Construction 94% 2% 0-5% 10x 3-22x

& infrastructure
n=50

Communication
services 91% 1% 0-3% 7x 2-17x
n=35

Materials
n=207 88% 27% 4-42% 5x 2-19x

Industrials
88% 4% 1-12% 6x 0-16x
n=412

Utilities1 84% 2% 1-12% 2x 0-11x

n=88

Food &
beverages 82% 2% 1-7% 1x 1-4x
n=84

Healthcare
65% 0% 0-1% 3x 0-5x
n=74

Median Median
Avg. 86%

1. Utilities, including power grid.

Note: Based on companies’ reported potential maximum financial impact from identified climate transition risks at a medium- and long-term time horizon.
Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 29

 Most industries Decarbonization investments often yield emissions – and some could even reach net zero,
could abate financial benefits as Figure 19 demonstrates.48
between 10%
and 60% of Many companies that reduce their carbon This does not mean that decarbonization is not
emissions benefit from lower spending on fossil challenging. Companies that have already “picked
their carbon
energy, a lower risk profile of long-life assets the low-hanging fruit” often struggle to internally
emissions without
and sometimes stronger market positioning. justify much higher spending for long-tail levers.
additional costs. Levers such as efficiency, renewable power and Moreover, companies in emission-intensive
low-temperature heat electrification are already industries often have to accept significantly higher
economical today. As a result, most industries costs for implementing immature technologies such
could abate between 10% and 60% of their as hydrogen or CCUS. Nonetheless, these figures
carbon emissions without additional costs. If (or give more reason for optimism than a lot of the
in regions such as Europe, when) carbon prices conventional wisdom that seems to prevent many
climb beyond $110/tCO2e, most companies could companies from accelerating emission reductions
economically abate more than half of their current more aggressively.

FIGURE 19 Companies could cost-efficiently cut a large share of their emissions

Cost-efficient scopes 1 & 2 abatement levels at different carbon prices, by industry

% of total emissions

100%

85%

Additional cost-efficient
abatement at $110/tCO2e1 40%

20%
70%

60%

55% 55%4

50%

45%

35%

Cost-efficient abatement 40%

at $15/tCO2e2 60% 65%
40%
55%
25%

15%

25% 25%

15%
10% 10%

Retail Healthcare Agriculture Automotive FPPP3 Ammonia4 Steel Cement

1. $110/tCO2e is based on estimated price of carbon for EU in 2030 . 2. $15/tCO2e is based on estimated lowest price of carbon in 2030 for countries
currently with carbon pricing systems implemented. 3. FPPP = forest, pulp, paper & packaging. 4. Dependent on availability of affordable carbon transport
options (e.g. pipelines).
Sources: BCG’s decarbonization tool, BCG case experience.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 30

Many companies already realize these benefits streams, these companies risk underestimating
the financial consequences of transition risks
A number of sustainability leaders across a variety and missing the economic value in making
of sectors are able to find cost-efficient mitigation bolder, forward-looking adjustments. Additionally,
investments and report median benefit-to-cost companies must account for the broader socio-
ratios (BCRs) of 1x to 10x (see Figure 18). Moreover, economic costs of an imbalanced transition, which
25% of respondents to a recent BCGxCO2 AI extend far beyond immediate financial losses from
survey reported material decarbonization benefits.49 regulatory and technological changes.50
These include tangible improvements such as lower
operating costs (cited by 44% of respondents) and
increased revenues (37%), along with intangible
advantages such as reputational gain (46%) and Years ago, we moved to seize the
enhanced supply chain resilience (42%).
opportunity to work with our high carbon-
emitting clients on their sustainable
Companies often focus too much on short-
term risks, potentially neglecting longer-term
transition, swiftly shifting our mix of
transition challenges traditional fossil fuels activity towards
sustainable finance-related business,
In fact, approximately 80% of companies reporting especially in renewables. The transition
transition risks to CDP only disclose short-term has been profitable, and we are on track
implications. This short-term view may prevent to generate $1 billion annually in income
fossil-dependent business models from fully from sustainable finance.
questioning the long-term sustainability of their
portfolios. By overlooking how market shifts and Bill Winters, Group Chief Executive,
evolving regulations could impact future revenue Standard Chartered Bank

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 31

4 Unlocking new
growth by advancing
the climate transition
Climate leaders can unlock significant
growth and competitive advantage,
tapping into the $14 trillion market for green
technologies by 2030, while capitalizing
on emerging adaptation opportunities.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 32

 The climate transition presents one of the most headed for nearly $14 trillion by 2030.51 It spans
significant long-term opportunities for growth in sectors and value chains, with the largest segments
modern history being alternative energy (49%), sustainable
transport (16%) and sustainable consumer products
Much like the internet revolution, which created a (13%). All are growing well above GDP, at annual
wave of winners and losers, this transition promises rates ranging from 10% in consumer products to
even greater change. Companies that lead the charge 20% for alternative energy.
are not only opening new growth opportunities,
but also creating lasting competitive advantages, Companies are seeing successes and setbacks
disrupting legacy business models in the process. – no surprise given the landscape of regulatory
change and uncertainties, technology competition
BCG estimates the market for green technologies and evolving consumer preferences.
and solutions at more than $5 trillion in 2024,

4.1 Climate leadership still pays off

Sustainability The advantages of being an early mover start scope 1 and scope 2 emissions can be
frontrunners with growth, but do not end there eliminated at no net cost.
are positioned
to create clear These advantages were explored in more detail – Reduced regulatory risk: The EU’s carbon
in the World Economic Forum’s 2022 report border adjustment mechanism (CBAM) will
advantages in
Winning the Race to Net Zero: The CEO Guide take full effect by 2026. Companies reducing
a range of areas.
to Climate Advantage.52 emissions by 55% could see EBITDA margins
improve by 2-6 percentage points by 2030
Overall, green premiums seem to be persisting compared with those that take no action.55
today but can be hard to realize amid uncertainties
around the expansion of green policies, inflation and – Lower cost of capital: Top environmental
geopolitical implications – as well as amid the need performers benefit from a lower weighted
to access new customers outside existing customer average cost of capital (WACC) compared with
segments, develop new product propositions and their peers.56 However, the gap has narrowed
establish novel, green pricing. For certain hard- since 2022, making it harder to measure the full
to-abate industries, transitioning to low-carbon financial benefit with certainty.
operations will present significant challenges and
risks, but underestimating the risks of inaction is However, the pace and scale at which opportunities
dangerous. Companies that delay action risk not develop will vary significantly in different scenarios
only falling behind more proactive competitors but and industries, particularly where legacy grey
also missing out on the economic opportunities tied assets and infrastructure are deeply embedded.
to climate leadership. New markets, such as hydrogen, also face higher
financing costs due to higher interest rates and
Sustainability frontrunners are positioned to create risks tied to unproven projects. In these sectors,
clear advantages in a range of areas (see Figure the transition will likely require incremental steps
20), including the following: and may progress more slowly as risks and
opportunities materialize. Companies transitioning
– Deeper talent pools: Sustainability is a from grey assets to greener technologies must
magnet for top talent, with 24% percent of job carefully navigate this balance, ensuring that
candidates reporting that they would reject investments in green technologies and assets are
offers from what they perceive as unsustainable aligned with the scale and timing of future risks
companies.53 and policy shifts across various climate scenarios.

– Top-line growth: Green products often

outperform, with sustainable consumer goods
growing at 9.9% CAGR, driving one-third of Within IKEA and through the Alliance
consumer goods growth despite being only of CEO climate leaders, we are
18.5% of the current market.54 demonstrating the financial upside of
climate-smart strategies, showing that
– Saving cash and carbon: Operational climate transformation can reduce costs
efficiencies alone can cut emissions by 10%,
and drive significant returns.
reducing costs as carbon prices rise, even
for carbon-intensive sectors. Across sectors, Jesper Brodin, Chief Executive Officer,
approximately half of companies’ operational Ingka Group (IKEA)

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 33

 FIGURE 20 The green advantage can still exist for those who act

Cheaper
financing

Lower -18 bp
WACC for top
regulatory risks environmental
performers

Save cash +2-6 pp

EBITDA margin after
and carbon EU carbon border tax2
for companies abating
Higher 55% of emissions
revenues ~10%
of emission reduction
Easier hiring, with cost optimization1

retention +4%-70%
CAGR of sales growth
for “green” products
24% +36%
of talent seek
sustainability Median upside in price
premiums across
35 CPG sub-categories

1. Abatement level for cost optimization without considering any carbon price. 2. Based on a €75/tCO2e carbon price assumption for 2030.
Note: CAGR = compound annual growth rate, CPG = consumer packaged goods, WACC = weighted average cost of capital, pp = percentage point,
bp = basis point (0.01%).
Sources: 2023 BCG/The Network/The Stepstone Group proprietary web survey, IEA World Energy Outlooks (2016-2023), European Environment
Agency, Statista, Plant Based Foods Association, IEA Global EV Data Explorer, Our World In Data, NYU Stern Centre for Sustainable Business, EU
announcements, LSEG Data & Analytics, Capital IQ, BCG benchmarks, BCG analysis.

4.2 In heavy industry, climate leaders

play a long-term game

While consumer products can bring sustainable producing steel for customers such as Volvo
offerings to market in a few years, leaders in Group, positioning SSAB as a European green
hard-to-abate industries such as steel and aviation steel leader as it prepares for future regulatory
operate on longer timeframes, often collaborating and market demands.
with value-chain partners and governments to
scale-up game-changing solutions. In aviation, Airbus expanded its sustainability efforts
in 2024 by becoming the anchor investor in a $200
For example, the Swedish steel company SSAB million fund for sustainable aviation fuel solutions.
recently reached a milestone in its years-long effort The company aims to decarbonize the sector
to bring green steel to the market. In April 2024, with clean hydrogen, targeting the first hydrogen-
the company announced the next phase for its powered commercial aircraft by 2035, while building
HYBRIT partnership with miner LKAB and energy a green hydrogen network in the Asia-Pacific
company Vattenfall: construction of a fossil-free region.57,58 These investments are key to staying
mini-mill in Lulea, Sweden, with a start-up planned competitive and securing the industry’s future in a
in 2028. Formed in 2016, the partnership is already low-carbon world.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 34

 4.3  he warming climate is creating
T
a market for adaptation solutions

Certain As climate impacts intensify, governments and – Holcim’s Hydromedia, a permeable concrete,
companies are businesses are increasingly turning to adaptation enables construction of a water management
positioning solutions to protect communities, infrastructure and system combining concrete with advanced
themselves as supply chains. These solutions range from building drainage technology to reduce the risk of
seawalls and reinforcing infrastructure to withstand flooding by absorbing rainwater from streets,
climate change
floods and storms, to creating climate-resilient supply parking lots and structures, driveways
winners by
chains and improving water management with smart and walkways.
developing irrigation and recycling technologies. For example,
innovative to instil rural resilience, Timor-Leste has built flood Food and beverages:
solutions to help protection structures, including roads, bridges and
mitigate climate drainage systems, to withstand extreme weather – OCP Group is encouraging farmers to transition
risks in their value events such as floods and landslides. Similarly, to regenerative agriculture practices, thereby
chains, unlocking community-based resilience initiatives, such as improving soil health and water retention while
new markets wetland restoration and urban green spaces, also boosting yields and building resilience against
along the way. help protect neighbourhoods, assets and operations. climate change. This initiative leverages carbon
China’s Sponge City Program helps cities manage credit markets to incentivize smallholders to
floods by allowing excess water to be absorbed make this transition and provides advanced
naturally, reducing the burden on drainage systems. technology for rigorous monitoring, reporting
and verification of credit quality.
Certain companies are positioning themselves as
climate change winners by developing innovative – John Deere’s production and precision
solutions to help mitigate climate risks in their value agriculture unit is developing technologies
chains, unlocking new markets along the way. that help farmers adapt to changing climate
conditions and improve yields by optimizing
The World Economic Forum’s 2023 report water use and reducing soil erosion. In 2023,
Accelerating Business Action on Climate Change the unit generated $27 billion in net sales, up
Adaptation,59 highlighted examples in a variety 22% from the previous year.
of sectors:
Financial services and insurance:
Energy:
– Swiss Re has launched a parametric
– Schneider Electric partnered with AiDash in insurance solution to protect coral reefs in
2023 to launch a service that helps utilities Mexico’s Yucatán Peninsula. Developed in
build climate-resilient electrical grids by collaboration with The Nature Conservancy
forecasting storm- and wildfire-related outages and local governments, this policy provides
and damages. pay-outs when hurricane wind speeds exceed
set thresholds, enabling rapid ecosystem
Construction materials: recovery efforts.

– Vetrotech by Saint-Gobain produces hurricane-

and fire-resistant glass, offering additional
resilience against such hazards.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 35

5 The CEO Climate
Leaders Guidebook
CEOs need to embed climate risk into their
corporate strategy, as failing to act will severely
undermine business resilience, competitiveness
and ability to capitalize on the growing demand
for sustainable and resilient solutions.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 36

 quo is at greater risk of becoming outdated by
Companies must embed climate
either physical or transition impacts.
risks and opportunities into their
overall strategies The strategic approach to managing climate risk
should be tailored to each company’s specific context.
Climate risks and opportunities are no longer a
peripheral concern; addressing them is a critical For industries that are reliant on long-term trends
component of a company’s overall corporate for their success and stability, proactive yet gradual
strategy. Physical and transition risks and business evolution can be the most sensible
opportunities increasingly impact all aspects of way forward.
corporate strategy.

We incorporate climate risk assessments

Our corporate philosophy is that into our investment decisions to ensure
sustaining our business for the long long-term resilience and alignment with
term requires us to protect the planet. regulatory standards.
Climate adaptation and mitigation are Mark Konyn, Group Chief Investment Officer,
central to our strategy as we strive to AIA Group
reduce our environmental footprint
and develop solutions that address the In more dynamic environments, companies may
increasing impact of climate change on choose a flexible, adaptable positioning that allows
human health. them to seize opportunities and manage volatility.
Thomas Wozniewski,
Global Manufacturing and Supply Officer,
Takeda Pharmaceutical Company
We are investing in diverse energy
solutions like biomethane
and hydrogen-ready turbines to navigate
Risks are already materializing market fluctuations while positioning
and accelerating, with potentially ourselves for future growth
drastic impacts even in the Pierre-Alain Graf, Chief Executive Officer,
short term GETEC
Companies with the scale and risk appetite to
Escalating climate events could ultimately make influence their market can also take decisive actions
certain regions economically unsustainable as to shape market trends and lead the transition of
businesses struggle to cope with increasing physical their sector.
risks. In California, rising wildfire risks have driven
insurers to withdraw from high-risk areas, increasing
costs for businesses. Similarly, regulatory actions can
prompt fast sunsetting of so-far prosperous markets. Our strategy is to take leadership in
In the European Union, for example, regulatory shifts
decarbonizing shipping through an
such as the ban on internal combustion engine
ecosystem-wide effort.
vehicles by 2035 are reshaping industries.
Vincent Clerc, Chief Executive Officer,
A. P. Moller-Maersk
Companies should not operate
This guide is designed to position climate risks
under the illusion of a continued and opportunities as a central component of
business-as-usual approach corporate strategy, elevating them as core CEO
priorities. With both downsides and upsides
Losses and damage to properties, operations at stake, climate risk should no longer be a
and supply chains will seriously impact people’s compliance effort. It should sit at the heart of
and businesses’ wealth. This, in turn, may trigger the leadership agenda, permeating all levels of
substantial and fast changes in public opinion and organizations, so companies can safeguard their
more drastic climate-related policies are becoming long-term resilience while unlocking value in new,
conceivable. As time progresses, the current status sustainable markets (see Figure 21).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 37

 FIGURE 21 The CEO Guidebook to Managing Climate Risks

Conduct a comprehensive Manage risks in current Pivot your business to Monitor risks & report
climate risk assessment business portfolio unlock opportunities on progress

– Measure physical risks – Invest in adaptation – Reshape business portfolio – Set up climate risk
– Evaluate transition risks & resilience – Capitalize on physical monitoring
– Decarbonize assets resilience – Disclose material exposure
– Identify climate-related
opportunities & operations – Align capital allocation with – Disclose adaptation
– Decarbonize business climate strategy activities
portfolio

Integrate climate risk into

Upgrade climate risk governance business-as-usual Develop effective climate risk systems

– Establish or adapt risk, financial – Create a culture of climate risk – Build & adapt tools to measure climate
& strategic governance awareness & innovation risks & opportunities
– Embed climate risk into decision – Cascade climate risk ownership – Build capacity & know-how to
processes throughout business units & functions understand new types of risks
& opportunities

Source: BCG analysis

Step 1

Conduct a comprehensive climate

risk assessment

In past years, global leaders have consistently ranked Measure physical risks
extreme weather events and climate disasters
In past years, among the top five global risks.60 Cascading effects
global leaders such as the failure of climate action, biodiversity The assessment of climate hazard threats to a
have consistently loss and critical changes to earth systems have company’s key assets should be performed by
ranked extreme recently risen to prominence, reflecting the growing applying different warming scenarios and time
weather events recognition of longer-term impacts. horizons. Both exposure (how likely are hazards?)
and vulnerability (how severe could the damage be?)
and climate
Climate risk assessment should be firmly grounded should be considered – across asset types, value
disasters among
in scenario-based analysis across three key areas: chain steps including the supply chain, and types of
the top five measuring physical risks, evaluating transition risks hazards such as floods, droughts and wildfires.
global risks. and identifying climate-related opportunities. To
build a comprehensive view, companies should Once identified in a structured way, risks can be
assess these dimensions in the context of their quantified either by using a scoring approach or a
own exposure, their supply chain and the broader more precise (and more complex) financial approach:
societal and economic impacts.
Quantification by scoring uses vulnerability
matrices and climate hazard data to generate risk
scores based on the vulnerability of an asset type.
It enables companies with limited prior knowledge
of their climate risks to identify high-risk hotspots
that need deeper consideration (see Case Study 2).

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 38

 CASE STUDY 2
Most material physical risks of a biopharma company

Using a scoring approach, a biopharmaceutical Using a hazard, exposure and vulnerability

company is building resilience against business framework, the company identified high-risk areas
disruptions across its value chain. The company and then short-listed the sites that needed deeper
assessed critical assets in its own operations as assessment for quantification of potential financial
well as those of its key suppliers. Having mapped impact and entered into discussions on adaptation
out the relevant assets, the company analysed measures with high-risk suppliers.
them against climate hazards such as flood, heat,
frost, wind and wildfires.​ Source: BCG.

Financial quantification relies on more complex

calculations and asset-specific input. The
economic impact is estimated using damage As climate change reality hits, it’s
functions in a three-step approach​: critical for any company to integrate
climate-related scenario analysis into
– For each location, obtain data on the distribution its risk management framework and
of climate hazards across several warming assess both the physical risks and
scenarios, time horizons and probabilities (e.g. transition risks and opportunities over
distribution of flood depth for a so-far “1-in-100- the short, medium, and long term.
year” flood in Europe by 2050 under a severe We are committed to developing and
warming scenario).​ implementing the necessary strategies
for ourselves and our customers.
– For each asset, assess the damage caused for
different levels of the climate risk hazard (e.g. Olivier Blum, Chief Executive Officer,
percent of asset value damaged due to flooding)​. Schneider Electric

– For each asset, calculate the economic impact

(e.g. asset restoration cost, revenue loss, extra
maintenance cost)​.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 39

Evaluate transition risks

As with physical risks, transition risks are best Financial System (NGFS),61 which regularly updates
identified using scenario-based analysis. One its analysis of how climate policy and technology
source of scenarios is the Network for Greening the trends could shape these risks in different futures.

We are working to quantify transition risks using scenarios

including those of IEA and NGFS to understand the impact of
carbon pricing and regulatory changes on our operations. We
recognize that transformation risks and opportunities will have
significant impacts, including on our clean ammonia strategy.
Bernhard Stormyr, Vice President, Sustainability Governance,
Yara International

CASE STUDY 3
Quantification of transition risks in the construction supply chain

Using a scenario-based framework, a major synthetic risk scores based on the exposure and
construction player found that one of its most vulnerability assessments in order to compare
significant risks was the potential high cost and risks. It found that the cost and availability of
low availability of green construction materials. green construction materials was among the most
The company assessed its exposure towards risk material risks.
by translating it into measurable metrics under
different transition scenarios. Finally, the company estimated the economic
impact of the most significant risks in order
One identified risk was high cost/low availability to assess the magnitude of transition risks
of green construction materials. The company and projected that the higher cost and lower
measured its vulnerability to these risks by availability of green construction materials
using related CO2e emissions as a proxy. For could reduce EBITDA by about 1.5% by 2030,
the green materials risk, this was tied to Scope considering all known transition factors.
3 value chain emissions abated through green
materials adoption. The company then derived Source: BCG.

Identify climate-related Improving internal operations, through increased

resilience, resource efficiency and an optimized
opportunities energy mix, can set a company apart from its peers.
Navigating the transition skilfully builds muscle
By thoroughly assessing and efficiently managing for offering new green products and services
climate risks, companies can position themselves and expanding into new markets.
for opportunities in both severe warming and faster
transition scenarios.

On top of transition finance to support

the decarbonization of our clients,
Climate risks reveal opportunities to adaptation financing represents a
create more efficient, resilient and cost- cost-saving and revenue-increase
effective properties. By addressing those, potential. Insuring against physical
we aim to enhance the value and usability risks also presents a significant
of buildings. business opportunity.
Guy Grainger, Global Head of Sustainability Javier Rodríguez Soler,
& ESG Services, JLL Global Head of Sustainability and Corporate
& Investment Banking, BBVA

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 40

 Step 2

Manage risks in the current business portfolio

Having adequately assessed relevant climate also allows companies to respond dynamically,
risks, companies can invest in adaptation and minimizing adverse effects.
decarbonization to keep them under control.
As part of a successful adaptation plan, companies
should collaborate with local authorities to ensure
Invest in adaptation and resilience efforts are compliant, appropriate and consistent
with local adaptation planning.

Companies need a comprehensive adaptation

and resilience plan developed across three levels:
We regularly assess and enhance our
– Strategic (e.g. shifting the business model to
protection measures like the construction
increase service revenue or reduce reliance on
of flood barriers and storm-proof
real estate)
buildings. We also cooperate with
– Operational (e.g. creating backup logistics local authorities to ensure that our risk
plans or installing flood barriers) management strategies align with broader
resilience efforts locally.
– Financial (e.g. using insurance for risk transfer Stefan Klebert, Chief Executive Officer,
or setting budgets for risk retention)
GEA Group
An operational adaptation and resilience
plan typically includes investing in resilient These efforts and investments support the resilience
infrastructure, systems and crisis protocols of a business and secure competitive advantage
to ensure business continuity. Implementing over peers that may need to shut down production
predictive mechanisms and early warning systems as a result of extreme events.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 41

 CASE STUDY 4
Utility leveraging resilience to better serve customers

Using customer outcomes to define success, The plan developed by the company focused on
a major utility created an adaptation and resilience three areas: strengthening the grid to withstand
strategy to strengthen its electrical grid against severe weather events, modernizing it to
expected increases in damaging storms. Key minimize the impact of disruptions, and ensuring
performance indicators require the company swift power maintenance during and after major
to minimize interrupted customer minutes, events. For every $1 invested in the plan, the
post-event recovery costs and the number of company was able to save $2 to $3 in net utility,
critical customers without power during a major customer and community benefits over the life of
weather event. the investment.
Source: BCG.

Decarbonize assets
and operations We go beyond tender requirements
by using the Open-es platform to help
Reducing carbon emissions is now critical for SME suppliers enhance their own
businesses not just to meet climate goals but also sustainability through ESG tools, training
to ensure long-term resilience. Some early levers and certifications, allowing them to rank
that industries can pull include improving energy higher in our tenders and building climate
efficiency, integrating renewable energy sources and
resilience across our supply chain.
transitioning to low-carbon technologies and fuels.
Concetta Testa, Head of Sustainability,
While companies are reducing scopes 1 and 2 Autostrade per l’Italia (ASPI)
emissions, tackling scope 3 emissions – which are
often more than 10 times greater than scopes 1
and 2 combined – remains a significant challenge. Climate leaders are making headway on their scope
Companies have limited control over suppliers and 3 upstream emissions by cascading ambition
customers, while small and medium businesses in and support to suppliers. Procurement teams are
their value chains may lack the ability to decarbonize. spearheading these efforts, integrating climate goals
Addressing scope 3 requires deep collaboration with into purchasing decisions and using their influence
suppliers and customers across the value chain.62 to push for cleaner technologies and sustainable
practices across supply chains.

To support such ambitions, the World Economic

To achieve our net-zero target by 2040, Forum’s Net-Zero Value Chain Support Hub,63
it is essential to reduce suppliers’ developed by the Alliance of CEO Climate
emissions. We are starting to ask major Leaders in partnership with BCG, offers a practical
suppliers to aim for net-zero scope 2 starting point with resources and tools to help
emissions by 2030 and plan to support procurement and sustainability professionals
measure, reduce and set targets for upstream
their capacity building.
emissions. In certain transition scenarios, financial
Shiro Kambe, Senior Executive Vice support for decarbonizing suppliers can be a cost-
President, Corporate Executive Officer, efficient move.
Sony Group Corporation

CASE STUDY 5
A biopharma company’s case for decarbonizing the supply chain

A biopharma company assessed the risk chain was ~2-3x the cost of supporting supplier
associated with a pass-through of a carbon tax decarbonization under likely climate scenarios.
across its upstream value chain. It estimated
that the cost of not decarbonizing the supply Source: BCG.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 42

Decarbonize the business
portfolio By investing in our decarbonization and
circularity, we are not just mitigating risks;
For many industries, downstream s cope 3 we are opening up new revenue streams
emissions present the biggest strategic risk with customers seeking to decarbonize.
and challenge, requiring fundamental changes
in product portfolio and design. Companies in Dan Futter, Chief Commercial Officer,
high-emission sectors such as fossil fuel-based Dow Inc.
products, automotive and heavy industry are
particularly vulnerable as the global economy shifts Ultimately, each company should ask itself “What
towards decarbonization. This transition is not just a is the best portfolio of products and services that
regulatory obligation; it is both an opportunity and a we will offer in a decarbonized world?” With this as
threat, with the risk of disruption should competitors a guiding question, strategic and product portfolio
adapt more effectively than incumbents. implications and actions can be determined.

In addition to decarbonizing their existing operations

and value chains, leading players are therefore
investing to secure future optionality. For example, For example, we have invested
Dow is enhancing its feedstock flexibility, allowing $500 million in a near-zero global
greater uptake of bio-based and circular materials. warming potential propellant for
Although the amount of time before it pays off may respiratory medicines, which has
be longer than usual, these types of investments taken four to five years of development.
can help the company stay ahead of future Our first target launch with the Next
sustainability requirements and mitigate the risk Generation Propellant is 2025.
of stranded assets.
Pascal Soriot, Chief Executive Officer,
AstraZeneca

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 43

 Step 3

Pivot your business to unlock opportunities

Reshaping your
business portfolio
Reshape the business portfolio and embracing decarbonization. By identifying areas
where innovation and sustainable practices can fuel
is not just about growth, businesses can build strategic resilience.
decarbonization As the transition to a net-zero economy accelerates, Sectors such as renewable energy and sustainable
— it is about companies have a significant opportunity to unlock agriculture, along with circular economy solutions,
unlocking growth, new market potential by reshaping their portfolios present substantial long-term opportunities.
boosting resilience
and ensuring
long-term value
for shareholders. CASE STUDY 6
OCP Group’s diversification through green investments

The Moroccan fertilizer company is making positioning itself to lead in the emerging markets
significant investments in green hydrogen and for sustainable agriculture and new value chains in
green ammonia to transform its operations and the energy space.
align with global decarbonization goals. By
integrating these sustainable technologies, OCP
is not only reducing its carbon footprint, but also Source: OCP, BCG analysis.

Capitalize on physical resilience Align capital allocation

with climate strategy
Similarly, companies with strong adaptation
strategies can outpace competitors and seize new Reshaping the business portfolio will only get as far
business opportunities. Those resilient to extreme as capital allocation allows. Balancing short-term
climate events recover faster, leverage broader profitability with long-term sustainability requires
capabilities to manage disruptions and attract more repurposing assets, managing the risk/reward
clients, fostering loyalty. profiles of sustainable investments and ensuring
competitiveness in green sectors. Transparent
communication with investors is key to maintaining
confidence and securing necessary financing.

CASE STUDY 7
Repsol’s strategy to transition while protecting
shareholder returns

Repsol has committed to progressively shift 45% emissions goal while protecting current business
of its CapEx over the next five years64 towards in the short term and maintaining investor
renewable energy and biofuels while protecting confidence. Market capitalization rose by over
shareholder returns. It achieves this by redirecting $1 billion the morning the strategy was publicly
cash flows from conventional businesses into announced.
its climate-transition businesses. This strategy
enables Repsol to work towards its net-zero Sources: Repsol, BCG analysis.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 44

 Step 4

Monitor risks and report on progress

Set up climate risk monitoring Disclose material exposure

and adaptation activities
While many companies view monitoring and reporting
on progress as a burden, it can become a driver for Transparent reporting – on both adaptation
performance. Instead of treating it as a compliance and mitigation efforts – is essential for building
checklist for external audiences, companies should stakeholder confidence. Reporting does not just
integrate climate risk monitoring and external ensure compliance with mandatory and emerging
reporting into their operations and planning. requirements (e.g. from the EU’s Corporate
Sustainability Reporting Directive and the
International Sustainability Standards Board); it is
also an opportunity to build a differentiated narrative
When reporting is integrated as a for investors and partners seeking sustainable and
key driver of performance, it enables resilient investments and green products.
organizations to better tackle risks and
seize opportunities. But if it is seen as Adopting practices to monitor risks and report
a compliance checklist, reporting can on progress enables continuous improvement.
become a burden. Companies need to learn from past experiences
and adapt strategies to better manage future
Simon Henzell-Thomas, climate challenges. Given the ever-evolving nature
Global Director of Climate & Nature, of climate conditions and risks, this iterative
Ingka Group (IKEA) process is essential.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 45

 Enabler 1

Upgrade climate risk governance

Establish or adapt risk, financial

Sustainability decisions should be and strategic governance
treated with the same importance
as financial decisions. Climate risk is a strategic imperative that requires
ownership at all levels, including the Executive
Adam Pradela, Chief Financial Officer,
Committee and Board. To truly embed climate
Corporate Sustainability, risk governance, companies should integrate
DHL Group it fully into their risk management, strategy and
financial planning. This is key to ensuring business
development plans are adequately informed by
climate considerations.

CASE STUDY 8
AIA investment governance

AIA has revised its investment criteria, ensuring portfolio reviews to maintain alignment with climate
that new investments align with the company’s goals and allow for adjustments as needed.
net-zero commitments and overall resilience.
Its governance structure also includes regular Source: BCG.

At the operational level, it is essential to cascade investment approvals, supplier selection, maintenance
climate risk management objectives and KPIs planning and more – businesses can better anticipate
into business objectives to create ownership and future challenges, avoid unforeseen costs and align
accountability across an organization. This should strategies with stakeholder expectations.
be supported by clear policies and guidelines from
the top, ensuring that relevant functions within a
company are actively driving and owning climate
risk management. We have built a robust climate
governance, which includes a NetZero
oversight committee and an executive
Embed climate risk into body committee dedicated to oversee
all ESG-related matters, including climate-
decision processes
related matters, monitor performance
against ESG goals and ensure that
Companies should integrate climate risks into their we continue to integrate ESG into our
decision-making processes. By systematically strategy, operations and culture.
embedding climate risk considerations into decisions
of all kinds – strategy formulation, CapEx plans, Amita Chaudhury, Group Head
of Sustainability, AIA Group

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 46

 Enabler 2

Integrate climate risk into business-as-usual

Embedding Create a culture of climate risk example. From there, it is essential to implement
climate risk into operational-level training, workshops and climate
awareness and innovation risk management into KPIs at the same level
business-as-usual
makes it a core as financial objectives.
Establishing a culture of climate risk awareness
driver of strategy,
throughout an organization is crucial because, for At real estate services firm JLL, for instance,
decision-making many companies, the risks influence every aspect climate risk management is embedded into
and accountability of their business. Climate risk should no longer be investment decisions and operational strategies,
across all confined to a sustainability team. For example, in with the creation of a net-zero council that assigns
functions. real estate businesses, it involves not only evaluating accountability for carbon footprint and climate risks
location risks, but also using sustainable materials to senior business leaders.
or planning for energy-efficient cooling systems.

Cascade climate risk ownership At ASPI, we’ve embedded climate risk

into our core operations, supported
throughout business units
by our 40+ ESG ambassadors, who
and functions promote broader sustainability initiatives,
including climate preparedness, across
Climate risk should become a core business topic,
all functions.
with ownership taken throughout an organization.
This shift starts at the top, with management Concetta Testa, Head of Sustainability,
aligning on the messaging and leading by Autostrade per l’Italia (ASPI)

Enabler 3

Develop effective climate risk systems

Build and adapt tools to measure Build capacity and know-how

climate risks and opportunities to understand new types of risks
and opportunities
Companies should build and adapt measurement
tools to assess both physical and transition risks. Developing the expertise to understand new
This involves designing new metrics, data collection risks and opportunities is essential. Companies
methods and analytical models, while updating should ensure that their teams have the skills and
existing risk-management tools to incorporate knowledge to assess and respond effectively to
climate-related factors. climate risks. Setting up training programmes for
employees, adding knowledge resources and
Depending on the type of company, this may include hiring experts in risk management can help to
leveraging data-driven and digital technologies such meet this goal.
as drones, internet of things (IoT), earth observation,
augmented and virtual reality, advanced computing For example, a major utility company, realizing they
and AI to assess risks, build resilience and respond were not well-equipped to assess the opportunities
dynamically to climate events. associated with their transition to a lower-carbon
economy, developed new valuation methods and
For further information on the role of technology, capabilities to calculate the return on investment
see the World Economic Forum and BCG’s 2024 on unfamiliar asset types (e.g. microgrids, demand
report, Innovation and Adaptation in the Climate response, EV infrastructure).
Crisis: Technology for the New Normal.65

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 47

6 How corporates and
governments can rise
to the challenge
Companies and governments must act urgently
on climate risks, as inaction would cost far more
than the investment needed and threaten global
economic stability and long-term prosperity.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 48

 Climate change is becoming concrete and scientific community and to many in government
testing government and business leaders in and business. But as risks, predictions and impacts
unprecedented ways start materializing, the direction of the world’s
climate and its related risks are expected to return
The threat climate change poses to livelihoods and to the top of the corporate agenda.
economic prosperity has long been evident to the

FIGURE 22 How companies and governments can prepare for the uncertainty ahead

Companies

Measure the full impact Develop robust transition

1 Adopt a scenario mindset 2 of climate risks 3 and resilience plans

Governments

Transition Adaptation

1 Adoptthe
Close a 600+
scenario mindset
Gt ambition gap 1 Adopt aNational
Develop scenario mindsetPlans
Adaptation

2 Expand the use of carbon pricing 2 Concentrate capital on high-impact projects

3 Double financing and incentives 3 Increase public-private collaboration

4 Remove transition obstacles

5 Prepare for more drastic transition measures

Source: BCG analysis

Business-as- Business leaders need to prepare climate leaders should know how to model the
usual scenarios for a changing world conceivable effects of shifts on their companies
will likely not and how to develop resilient strategies against
persist. The new Business-as-usual scenarios will likely not persist. potential developments.
normal is driven The new normal is driven by extreme weather –
affecting overall economic growth and threatening 2. Measure the full impact of climate-related
by extreme
individual supply chains, assets and operations – as risks to help make better-informed business
weather and a well as by a difficult-to-predict transition to a low- decisions. Both physical and transition risks
difficult-to-predict carbon economy that puts existing products, asset can have major impacts on companies’ bottom
transition to a low- values and business models at risks. lines. Quantifying them enables prioritization and
carbon economy. the most efficient use of resources.
The following three actions can help business
leaders prepare for the uncertainty ahead: 3. Develop robust transition and resilience
plans that offer adequate resilience across
1. Adopt a scenario mindset to understand the full spectrum of relevant scenarios. By
how a company’s context would change in building strategic optionality and flexibility,
different versions of the future. The speed of businesses will be able to adapt more quickly
the green transition and the exact impacts to unforeseen challenges and capitalize on
of global warming are hard to predict. But emerging opportunities.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 49

 Governments Governments need to accelerate the transition At the same time, governments need to prepare
must act urgently to prevent the most extreme consequences of for a changing climate
to accelerate the unchecked warming
transition, scaling- As it stands, humanity will likely overshoot its
The World Economic Forum and BCG’s January emission budget for keeping warming under 1.5°C
up financing,
2024 report Bold Measures to Close the Climate – and probably even 2°C.67 This means all countries
expanding
Action Gap: A Call for Systemic Change by need to prepare for a future with a lot more
carbon pricing Governments and Corporations outlined five key extremes, including the following:
and preparing for actions that governments should take to drive
a future shaped bolder, systemic change.66 These still hold today: – Develop National Adaptation Plans (NAPs)
by more extreme to protect citizens, economies, nature and
climate impacts. 1. Close the 600+ gigaton ambition gap biodiversity. NAPs serve as an essential tool to
by strengthening Nationally Determined guide adaptation and resilience efforts, enabling
Contributions (NDCs) in the upcoming both public and private sectors to assess and
submission round, multiplying climate finance invest in adaptation and resilience solutions.
for low- and middle-income countries and
refocusing global negotiations. – Concentrate capital on high-impact
adaptation projects. Since a rapid closure
2. Expand the use of carbon pricing by tracking of the adaptation finance gap looks unlikely,
emissions more fully, broadening the global current available funding needs to be redirected
scope of pricing and rolling out mechanisms towards adaptation and resilience initiatives that
to level the playing field for low-carbon maximize the return on investment.
solutions. In parallel, governments need to
establish a credible, transparent and high- – Increase public-private collaboration to
integrity framework for carbon credit markets scale up adaptation and resilience efforts. In
to ensure credible emission reductions and public-private partnerships, the private sector
prevent misuse. can participate in multiple facets of a project,
offering financial support through grants and
3. Double financing and incentives for outsized- loans, capability support by providing in-house
impact solutions. More subsidies and green expertise and execution support by co-owning
public procurement are the push needed for delivery of the project.
clean hydrogen, battery storage, carbon capture
and storage and other early-stage technologies The urgency for both corporates and
to grow into cost-competitive solutions. governments to act, in their own interest,
cannot be overstated
4. Remove transition obstacles to deliver on
COP28 pledges to accelerate electrification This report has focused on the corporate cost of
at least threefold by fast-tracking green climate inaction and offered a CEO Guidebook to
projects, de-risking key supply chains, updating Managing Climate Risks and pursuing opportunities
government procurement practices, upskilling the in a highly uncertain world. The decisions made
workforce and getting civil societies on board. today will shape the economic and environmental
landscape for generations to come.
5. Prepare for more drastic transition
measures, which may become necessary and
economically justified in an ever-warming world.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 50

Appendix
Annex 1: EBITDA at risk from Annex 2: EBITDA at risk due to
physical risks (Figure 10) carbon pricing (Figure 16)

This analysis provides an estimate of the financial This analysis estimates the financial impact of carbon
impact of physical climate risks on companies pricing on companies across various sectors and
across different sectors and geographies, geographies, expressed as a percentage of EBITDA
expressed as a percentage of EBITDA under >3°C under both a slow transition (current policies) and
and <2°C warming scenarios. a fast transition (net zero by 2050) scenario.

Data sources: Data sources:

– Value at risk per sector (in % of asset value) – Carbon intensities by sector and region are
from S&P Global Sustainable1’s Quantifying the sourced from BCG benchmarks.
financial costs of climate change physical risks
for companies, 2023. – Carbon price:

– Sectoral benchmarks for asset turnover ratio – For slow transition: 2030 carbon price levels
and EBITDA margins from BCG internal are sourced from the IEA Stated Policies
databases and Capital IQ. Scenario where available and the current
value (from World Bank) when no target
– Regional climate risk distribution of impact from 2030 price is available.
Swiss Re’s The economics of climate change:
no action not an option, 2021. – For rapid transition: carbon prices are based
on IEA projections under Net Zero Emissions
Estimation methodology: by 2050 scenario.

– Sectoral impact: – Share of emissions taxed, by region:

– Sector-specific financial impact in % – For slow transition: regional estimates are

of EBITDA is calculated by dividing the derived from World Bank’s State and Trends
percentage of asset value damage by the of Carbon Pricing, 2024. For the European
asset turnover ratio and EBITDA margin for Union, a bespoke analysis assesses the
each sector. coverage of EU ETS and CBAM using
European Environment Agency data and BCG
– Distribution by region and scenario: internal databases (for iron and steel, cement,
aluminium, fertilizers, electricity and hydrogen).
– Regional impact variations are based on a
weighting factor derived from Swiss Re data. – For rapid transition: regional estimates are
based on BCG assumptions, building on an
– Scenario weighting is applied using Swiss IEA Net Zero by 2050 scenario.
Re data to adjust impact under various
warming scenarios. Estimation methodology:

– To account for current impact, impacts – Sector- and region-specific carbon intensity is
are discounted by an assumed +1.1°C multiplied by the estimated share of emissions
temperature rise, as of today. taxed and the regional average price on carbon
to determine the initial impact on each sector.

– The financial impact is converted into EBITDA

at isk, using sectoral EBITDA margins from
BCG benchmarks and Capital IQ.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 51

 pipeline additions and projected retirements
Annex 3: Stock value at risk from
– highlighting a potential overcapacity vs.
asset write-downs (Table 2) future demand under each scenario.

This analysis estimates the potential asset write- – Total asset write-down value is calculated
downs on key asset categories (upstream oil fields, per asset class based on the residual book
coal plants, blast furnaces, heavy fuel vessels and value of assets to decommission to meet
steam crackers) expressed as a share of total demand under each scenario, assuming
2030 stock value under slow, medium and rapid older assets are retired first and CapEx is
transition scenarios. depreciated linearly.

Data sources: – This value is then divided by the residual

book value of total 2030 stock.
– Asset unitary CapEx and lifespan are derived
from benchmarks of public and industry sources. – For heavy fuel vessels and steam crackers:

– Lists of grey assets (including commissioning – A theoretical “required decommissioning

year and capacity, for current and announced year” is estimated for grey assets, based on
assets) are sourced from industry databases the date by which capacity for these assets
(e.g. WFR for shipping, UCube for oil). is projected to fall below 10% of current
capacity, under different IEA scenarios.
Estimation methodology:
– For each asset, lost useful value is estimated
– For upstream oil fields, coal plants and by calculating the difference between
blast furnaces: “required decommissioning year” and
regular decommissioning year based on
– 2030 demand for grey commodities is usual lifespan, assuming linear CapEx
derived from IEA scenarios (Stated Policies, depreciation.
Announced Pledges, Net Zero Emissions
by 2050). – Total sector write-down is calculated by
summing all asset-level lost useful values
– Global 2030 capacity is estimated per grey and dividing by total stock residual book
asset class, accounting for current capacity, value as of 2030.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 52

Contributors
World Economic Forum Boston Consulting Group

Pedro Gomez Olivia Bendixen

Head, Climate; Consultant
Member of the Executive Committee
Jens Burchardt
Pim Valdre Managing Director & Partner
Head, Climate Ambition Initiatives
Giovanni Covazzi
Partner

Lorenzo Fantini
Managing Director & Partner

Patrick Herhold
Managing Director & Senior Partner

Rich Lesser
Global Chair

Marion Merenda
Consultant

Cornelius Pieper
Managing Director & Senior Partner

Nicolas Salomon
Project Leader, World Economic Forum Fellow

Rishi Sinha
Consultant

Acknowledgements

The World Economic Forum and BCG would like to Greg Brouwer
extend their gratitude to the following individuals for Senior Vice President, Operations Excellence, Teck
their valuable contributions to this report. The paper
does not necessarily reflect the views of these Amita Chaudhury
individuals and/or their companies. Expert advice Group Head of Sustainability, AIA Group
is purely consultative in nature and does not imply
any association with the takeaways or conclusions Vincent Clerc
presented within this paper. Chief Executive Officer, A. P. Moller-Maersk

Ester Baiget Dan Futter

President and Chief Executive Officer, Novonesis Chief Commercial Officer,
Dow Inc
Sarah Barker
Managing Director, Pollination Law Pierre-Alain Graf
Chief Executive Officer,
Olivier Blum GETEC
Chief Executive Officer, Schneider Electric
Guy Grainger
Jesper Brodin Global Head of Sustainability
Chief Executive Officer, Ingka Group (IKEA) & ESG Services, JLL

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 53

Bronwyn Grieve Concetta Testa
Director of Global Sustainability and External Affairs, Head of Sustainability, Autostrade per l’Italia
Fortescue
Bill Winters
Simon Henzell-Thomas Group Chief Executive, Standard Chartered Bank
Global Director of Climate & Nature,
Ingka Group (IKEA) Thomas Wozniewski
Global Manufacturing and Supply Officer,
Shiro Kambe Takeda Pharmaceutical Company
Senior Executive VP, Corporate Executive Officer,
Sony Group Corporation
Boston Consulting Group
Stefan Klebert
Chief Executive Officer, GEA Group
Joud Almaiman
Mark Konyn Consultant, Boston Consulting Group
Chief Investment Officer, AIA Group
Avital Amrany
Adam Pradela Consultant, Boston Consulting Group
Chief Financial Officer, Corporate Sustainability,
DHL Group Sylvain Santamarta
Managing Director & Senior Partner,
Ingrid Reumert Boston Consulting Group
Senior Vice President, Global Stakeholder
Relations, Ørsted Annika Zawadzki
Managing Director & Partner,
Feike Sijbesma, Boston Consulting Group
Chairman, Royal Philips

Sumant Sinha Production

Chairman and Chief Executive Officer, ReNew

Javier Rodríguez Soler Laurence Denmark

Global Head of Sustainability and Corporate & Creative Director, Studio Miko
Investment Banking, BBVA
Charlotte Ivany
Pascal Soriot Designer, Studio Miko
Chief Executive Officer, AstraZeneca
Cat Slaymaker
Bernhard Stormyr Designer, Studio Miko
Vice President, Sustainability Governance,
Yara International Jonathan Walter
Editor

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 54

 Endnotes
1. Benayad, A. et al. (2024). Why Investing in Climate Action Makes Good Economic Sense, BCG. https://www.bcg.com/
publications/2024/investing-in-climate-action.
Notes:
– Benayad et al’s analysis is based on a review of recent literature and expert engagement. The authors relied on the
macroeconomic modelling of Network for Greening the Financial System (NGFS), Phase IV, as of November 2023.
Some recent estimates suggest climate change will have even higher impacts on global GDP, such as the fifth vintage
of NGFS released in November 2024, which builds on the damage function proposed by: Kotz, M. et al. (2024). The
economic commitment of climate change. Nature, no. 628, 2024, pp. 551-557. https://www.nature.com/articles/
s41586-024-07219-0.
– Kotz et al’s research, published in April 2024, estimates an impact on global GDP – expressed as income (per capita)
reduction – of 11-29% (with a midpoint of 19%) by 2050, based on current emissions levels (RCP2.6).
2. Anderson, K. (2024). What was the Industrial Revolution’s Environmental Impact? Greenly. https://greenly.earth/en-us/
blog/ecology-news/what-was-the-industrial-revolutions-environmental-impact.
3. Climate Watch. (2024). Historical GHG Emissions. https://www.climatewatchdata.org/ghg-emissions?end_year=2021&ga
ses=co2&sectors=total-including-lucf&source=Climate%20Watch&start_year=1990.
4. Sources:
– Statista. (2024). Average monthly carbon dioxide (CO2) levels in the atmosphere worldwide from 1990 to 2024.
– Arctic News. (2024). Temperature rise threatens to accelerate even more. https://arctic-news.blogspot.com/2024/07/
temperature-rise-threatens-to-accelerate-even-more.html.
5. The last time the CO2 concentration was this high, global surface temperature was 2.5-4°C warmer than during the pre-
industrial era and sea level was 5-25 metres higher than it was in 1900.
6. Referring to the 10-year average global temperature, above the 1850-1900 average.
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(19070%2D2019).&text=50%25%20of%20all%20disasters%20recorded,%2C%20climate%2C%20and%20water%20
hazards.
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points.org/.
14. Intergovernmental Panel on Climate Change (IPCC). (2021). Climate Change 2021: The Physical Science Basis. https://
www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_FullReport_small.pdf. A tipping point is defined as a
critical threshold beyond which a system reorganizes, often abruptly and/or irreversibly.
15. EM-DAT. (2024). The International Disaster Database. (2024). https://www.emdat.be/.
Note: EM-DAT’s database classifies disasters into two groups of hazards: natural and technological. The natural group is
further classified into hydrological, meteorological, geophysical, biological and climatological hazards.
This report uses the term “climate-related disasters” to refer to those events referenced by EM-DAT’s datapoint of
disasters causing $3.6 trillion in economic damage since 2000, as well as to those events captured in Figure 8. This
terminology makes clear that these disasters are not “natural” but related to extreme weather events, which may or may
not be individually attributable to climate change, but whose frequency and intensity is amplified by climate change.
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destruction. https://www.accuweather.com/en/hurricane/helene-aftermath-more-than-130-dead-historic-flooding-
millions-without-power-amid-catastrophic-destruction/1697545 (accessed 30 September 2024).
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18. After four of the five costliest wildfires in the past decade struck California, State Farm (one of the largest local insurance
firms) stopped selling homeowners insurance state-wide, not just in wildfire zones. The vast majority of flood damage
from Hurricane Helene will likely be uninsured. Examples such as these are going to become more prevalent.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 55

19. International Labour Organization (ILO). (2018). The employment impact of climate change adaptation: Input Document for
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https://www.carbonbrief.org/droughts-and-heatwaves-cause-10-drop-in-annual-crop-harvests/. While production
currently still usually recovers, this would become harder as events grow more frequent and severe. These disruptions
also lead to increased price volatility for crops globally, reduce the stable supply of quality inputs and negatively impact
livelihoods, causing further instability in vulnerable regions.
21. Benayad, A. et al. (2024). Why Investing in Climate Action Makes Good Economic Sense, BCG. https://www.bcg.com/
publications/2024/investing-in-climate-action.
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publications/2024/investing-in-climate-action.
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flooding-causes-15b-in-damages-to-german-railway.
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view.php?ud=20111211000139.
28. World Economic Forum. (2025). Business on the Edge: Building Industry Resilience to Climate Hazards.
29. Samios, Z. (2020). ‘Tens of millions’: Telstra, Optus start counting bushfire cost. Sydney Morning Herald. https://www.smh.
com.au/business/companies/tens-of-millions-telstra-optus-start-counting-bushfire-cost-20200108-p53psv.html.
30. Nestlé. (2019). Nestlé - Climate Change 2019 [answers to CDP climate questionnaire 2019]. https://www.nestle.com/
sites/default/files/2020-01/nestle-answers-cdp-climate-2019.pdf.
31. United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). (2023). Asia and the Pacific
unprepared to face climate-induced catastrophes, warns new UN study. https://www.unescap.org/news/asia-and-pacific-
unprepared-face-climate-induced-catastrophes-warns-new-un-study.
32. CDP. (2023). CDP Climate Change 2023 Questionnaire. https://guidance.cdp.net/en/guidance?cid=46&ctype=theme&idty
pe=ThemeID&incchild=1&microsite=0&otype=Questionnaire&tags=TAG-13071%2CTAG-605%2CTAG-599.
33. World Economic Forum. (2024). From Disruption to Opportunity: Strategies for Rewiring Global Value Chains.
https://www3.weforum.org/docs/WEF_From_Disruption_to_Opportunity_2024.pdf.
34. Chau, V. et al. (2023). From Risk to Reward: The Business Imperative to Finance Climate Adaptation and Resilience. BCG,
Global Resilience Partnership and USAID. https://www.globalresiliencepartnership.org/wp-content/uploads/2023/12/
from-risk-to-reward-report.pdf.
35. United Nations. (2024). Climate Action. https://www.un.org/en/climatechange/net-zero-coalition.
36. Task Force on Climate-Related Financial Disclosures (TCFD), TCFD Hub. (2017). B. Climate-Related Risks, Opportunities,
and Financial Impacts [extract from the Final Recommendations Report]. https://www.tcfdhub.org/Downloads/pdfs/
E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf
37. Note that while physical risk exposure can be predicted relatively well, any individual risk event is nonetheless very
unpredictable. In this chapter, we consider three transition scenarios:
– Slow: Little change to current policy and technology landscape; continuation of business as usual, with significant
temperature increase.
– Medium-paced: Uncoordinated change to policy and technology landscape across regions leading to slower (and
more costly) transition.
– Rapid: Faster and more successful changes to policy and technology landscape, with limited temperature increase
beyond 1.5°C.
38. Sources:
– Taylor, L. (2014). Australia kills off carbon tax. The Guardian. https://www.theguardian.com/environment/2014/jul/17/
australia-kills-off-carbon-tax.
– Carbon Market Institute. (2023). Safeguard Mechanism Reform. https://carbonmarketinstitute.org/safeguard-
mechanism-reform/.
39. United Nations Environment Programme Finance Initiative (UNEPFI) and MinterEllison. (2021). Liability risk and adaptation
finance. https://www.unepfi.org/wordpress/wp-content/uploads/2021/04/UNEPFI-Climate-Change-Litigation-Report-Lowres.pdf.
40. Black, S. et al. (2023). IMF Fossil Fuel Subsidies Data: 2023 Update. International Monetary Fund. https://www.imf.org/en/
Publications/WP/Issues/2023/08/22/IMF-Fossil-Fuel-Subsidies-Data-2023-Update-537281.
41. World Bank Group. (2024). State and Trends of Carbon Pricing Dashboard. https://carbonpricingdashboard.worldbank.
org/compliance/coverage.
42. With the European Union’s carbon border adjustment mechanism (CBAM) coming into effect, free allowances for EU
companies will largely be withdrawn.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 56

43. Figures, T. et al. (2021). The EU’s Carbon Border Tax Will Redefine Global Value Chains. BCG. https://www.bcg.com/
publications/2021/eu-carbon-border-tax.
44. International Energy Agency (IEA). (2024). A steep decline in coal emissions is essential to reach our climate goals. https://
www.iea.org/reports/coal-in-net-zero-transitions/executive-summary.
45. Examples of premature asset write-offs already exist today. Uniper, a German utility, brought its last new coal power
plant – a 45-year asset – online in 2020, just after Germany announced its 2038 exit from coal. Under the most ambitious
current coal exit roadmap, it may have to shut down after only ten years. The Nord Stream 2 gas pipeline – a 40-year
asset – would have gone online just as European gas consumption passed its peak and less than 30 years before Europe
aims to consume no more natural gas whatsoever.
46. Grey assets refer to mainly fossil-fuel based assets.
47. Between 2008 and 2018, several conventional German utilities lost 75% to 80% of their market capitalization.
48. The fact that a green investment is economic relative to the fossil alternative does not automatically translate into an
investment incentive; but it does indicate that companies in most sectors can still find cost-efficient mitigation investment
opportunities – even those that are far advanced in their transition – and increasingly so as carbon prices increase.
49. BCG and CO2 AI Carbon Emissions Survey 2024. (2024). Boosting Your Bottom Line Through Decarbonization: Carbon
Emissions Survey Report 2024. https://web-assets.bcg.com/09/68/8b0f9c5c4dea8c37f757b87705f3/why-climate-
leaders-are-seeing-bottom-line-results-sep-2024-edit-04.pdf.
50. A just transition could help the 1.7 million US fossil fuel workers and millions globally who will need new jobs due to
decarbonization (as per Alkin et al., Brookings). The ILO estimates 24 million new energy sector jobs could be created
by 2030, offering opportunities for sustainable growth
51. BCG Center for Sensing & Mining the Future; BCG analysis.
52. World Economic Forum. (2022). Winning the Race to Net Zero: The CEO Guide to Climate Advantage.
https://www3.weforum.org/docs/WEF_Winning_the_Race_to_Net_Zero_2022.pdf.
53. 2023 BCG/The Network/The Stepstone Group proprietary web survey and analysis.
54. Kronthal-Sacco, R. and Whelan, T. (2024). Sustainable Market Share Index™. New York University (NYU) Stern Center
for Sustainable Business. https://www.stern.nyu.edu/sites/default/files/2024-05/2024%20CSB%20Report%20for%20
website.pdf.
55. BCG analysis.
56. BCG analysis.
57. Jennifer Meszaros, J. (2024). Airbus Forges Ahead With Sustainability Goals. AIN. https://www.ainonline.com/aviation-
news/air-transport/2024-02-21/airbus-forges-ahead-sustainability-goals.
58. Airbus. (2024). Airbus and partners invest in Sustainable Aviation Fuel financing fund. https://www.airbus.com/en/
newsroom/press-releases/2024-07-airbus-and-partners-invest-in-sustainable-aviation-fuel-financing.
59. World Economic Forum (2023). Accelerating Business Action on Climate Change. https://www3.weforum.org/docs/WEF_
Climate_Change_Adaptation_2023.pdf.
60. World Economic Forum. (2010-2024). Global Risks Report. https://www.weforum.org/publications/series/global-risks-report/.
61. Network for Greening the Financial System (NGFS). (2024). Scenarios Portal: The future is uncertain. https://www.ngfs.net/
ngfs-scenarios-portal/.
62. World Economic Forum. (2023). How scaling up collaboration and engagement can help tackle scope 3 upstream
emissions. https://www.weforum.org/agenda/2023/11/scaling-up-collaboration-engagement-scope-3-emissions/.
63. World Economic Forum. (2024). Net-Zero Value Chain – Support Hub. https://initiatives.weforum.org/net-zero-supply-
chain-support-hub/home.
64. Repsol. (2023). Investor Update March 2023: Stepping up the Transition, Driving growth and value. https://www.repsol.
com/content/dam/repsol-corporate/en_gb/accionistas-e-inversores/pdfs/investor-update-march-2023.pdf.
65. World Economic Forum. (2024). Innovation and Adaptation in the Climate Crisis: Technology for the New Normal.
https://www3.weforum.org/docs/WEF_Innovation_and_Adaptation_in_the_Climate_Crisis_2024.pdf.
66. World Economic Forum. (2024). Bold Measures to Close the Climate Action Gap: A Call for Systemic Change by
Governments and Corporations. https://www3.weforum.org/docs/WEF_Bold_Measures_to_Close_the_Climate_Action_
Gap_2024.pdf.
67. Based on CMIP6 modelling results (Coupled Model Intercomparison Project), Carbon Brief estimates that the world
will likely exceed 1.5°C between 2026 and 2042 in scenarios where emissions are not rapidly reduced, with a central
estimate of between 2030 and 2032. The 2°C threshold will likely be exceeded between 2034 and 2052 in the highest
emissions scenario, with a median year of 2043. Source: Hausfather, Z. (2020). Analysis: When might the world exceed
1.5C and 2C of global warming? Carbon Brief. https://www.carbonbrief.org/analysis-when-might-the-world-exceed-1-5c-
and-2c-of-global-warming/.

The Cost of Inaction: A CEO Guide to Navigating Climate Risk 57

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