Physical climate risks could cost firms US$1.2tn a year by 2050

Climate change-related extreme weather events could cost the world’s largest companies US$1.2 trillion per year by 2050 – even if greenhouse gas emissions drop.

Data from S&P Global Sustainable1 forecasts that physical climate costs will amount to US$885 billion per year in the 2030s for firms in the S&P Global 1200 – and rise to US$1.2 trillion by 2050 and US$1.6 trillion by 2090.

These costs will be driven primarily by exposure to extreme heat, water stress and drought: together, these three factors will make up more than 90% of physical climate-related costs in the next 20 years. After 2050, S&P Global expects flood-related costs to rise and represent more than 10% of overall costs.

Extreme weather events are considered the second-largest risk to economic stability in 2025, and are expected to take the top spot in the next 10 years, with the World Economic Forum warning that 7% of annual earnings could be lost annually to climate catastrophes by 2035.

The S&P Global report highlights the importance of developing a climate adaptation strategy as well as working to mitigate climate change, since the cost estimation assumes a sharp reduction in greenhouse gas emissions in the coming years.

Read also: Climate resilience approaches (and budget considerations) for Chief Sustainability Officers

Utilities and financial firms most vulnerable to climate-related financial risks

Utility companies are the most vulnerable to these climate-related costs: the average utility in the S&P Global 1200 is projected to face US$4.6 billion in costs annually in the 2050s, absent adaptation – 4.6 times the costs faced by the average company across all industries.

The report, however, notes that the utility sector is more advanced than many others in terms of adaptation planning.

Financial firms are the second-most vulnerable to climate costs in the coming decades: the sector could face a US$184 billion bill by 2050. It is followed by the energy sector (US$167 billion) and communications (US$134 billion).

Moreover, the report warns that the financial impact of climate change could be even higher, since these estimates only consider impacts to company assets and operations – not changes to demand and revenues.

Too few companies identify potential financial impacts from physical climate risks

S&P Global research adds that companies need to get better at identifying the financial risks related to climate change. For example, while most electric utility companies include acute and chronic physical hazards in their climate risk assessments (94% and 90%, respectively), fewer (62%) are identifying their potential financial impacts.

In the real estate sector too, 92% of companies assess acute physical risks from climate change – but just 46% look at the financial impact of these risks. 

Asked about their practices on adaptation planning, only 35% of companies surveyed by S&P Global disclosed plans tailored to the locations of their operations. Yet several studies have shown that investing in climate adaptation pays off handsomely: recent research by S&P Global Sustainable1 and GIC, Singapore’s sovereign wealth fund, found that green and cool roofs, for example, can save a building owner US$7.45 for every US$1 spent.