The Threat Of Climate Inaction On Corporate Profits

The findings of the report, published in December 2024, reveal that climate inaction is exposing businesses to escalating risks that threaten profits, operations, and long-term viability. For unprepared businesses, individual physical risks of climate change alone could put 5% to 25% of their 2050 EBITDA at risk, depending on sector and geography. This is in addition to other risks, such as the impact of slowing GDP on consumption and growth.

Conversely, in a scenario of accelerated climate action and a “net zero 1.5°C path”, the impact of carbon pricing alone could lead to up to 50% of EBITDA in additional costs in the most emissions-intensive sectors by 2030, in addition to significant write-downs of fossil assets. In a net zero scenario, 10% to 35% of the book value of grey assets could face write-downs by 2030.

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

Harder impact on Africa, emerging economies

From a global perspective, Africa will be impacted twice as hard as Europe or the United State across sectors. The report shows that low- and middle-income countries, who have contributed the least to global warming, will be hardest hit by its effects. This is because these countries, the majority of them in Africa (and the Global South), have an elevated risk of extreme weather, economies dependent on vulnerable activities like outdoor labour and agriculture, weaker infrastructure, and fewer resources for adapting to climate change.

“Although contributing the least to global warming, low- and middle-income countries will generally be hit hardest,” said Dean Muruven, associate director at BCG in Johannesburg, adding that in Sub-Saharan Africa, 160 million people already face water scarcity, which is expected to worsen with increasing temperatures.

At least 160 million people in Sub-Saharan Africa already live with water scarcity today; this is expected to worsen as global warming intensifies. Rainfed agriculture makes up 95% of the cultivated land and contributes 10% to 70% of the GDP of most Sub-Saharan African economies, making them extremely vulnerable to the effects of climate change.

Emerging economies in Africa, the Middle East, and Latin America have higher than average exposure risks to climate impacts while also struggling to finance resilience projects to protect their people and economies.

"Companies operating in emerging markets will be more impacted. The Asia-Pacific region, along with many emerging economies in Africa, the Middle East and Latin America carry higher-than-average exposure risk to climate impacts, while at the same time struggling to finance the resilience projects needed to protect their societies and economies," Dean said.

Critically, companies in Africa and the Middle East in the oil and gas, industrial, and healthcare sectors will see an average financial impact of physical risks of 5-10% of their yearly EBITDA by 2050.

“The costs of climate-related damage have more than doubled in the last two decades, to more than $1tn between 2020 and 2024,” said Patrick Herhold, BCG senior partner and managing director, and co-author of the report. “While most companies are aware of the risk, they struggle to translate it into measurable business impact.

"However, there is significant upside to investing in climate action: there is a clear business case for adaptation and a better case for mitigation than most might think. Faced with this challenge, the urgency for CEOs to take ownership of climate risks and opportunities cannot be overstated.”

Climate investment has a significant upside

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

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

Burgeoning green tech market

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

"Climate risks are escalating, and the window to act is closing fast,” said Pedro Gomez, head of Climate and member of the executive committee at the World Economic Forum. “This report shows that addressing these challenges is not just about protecting businesses from disruption, it’s about seizing transformative opportunities. By working together, governments and businesses can turn climate risk into a catalyst for innovation, resilience, and shared prosperity.”

Read more about the The cost of inaction: a CEO guide to navigating climate risk report.