The world is not on track to limit global warming and is instead moving steadily toward 3°C. This is not a problem that can be solved by a group of motivated governments or corporates alone. The core imperative is to jointly accelerate climate action on a global scale.

We believe a powerful way to do this is to make the economic case for climate action more compelling. This means integrating mitigation, adaptation, and economic impacts into a single economic case to be considered holistically. This also means quantifying the cost of climate inaction.

The Cost of Inaction in Global GDP

By calculating the cost of inaction, the positive economic case for climate action becomes evident.

If the world remains on the current trajectory, the economic impacts could result in the loss of about 20% of cumulative global GDP by 2100, as compared to a hypothetical trajectory of no further climate change.

If climate action stays flat, the economic impacts will accelerate over time and be felt across multiple sectors, including:

Business Operations. The increase in frequency of disasters and extreme weather will affect business operations and disrupt supply chains, resulting in revenue loss.

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Agricultural Production. The agricultural sector will suffer more droughts, changes in precipitation and weather patterns. Experts estimate a 25 times higher risk of crop yield failure by 2050 on our current trajectory, and 4.5 times increased risk by 2030, with significant impacts on global food security.

Infrastructure. Climate-related disasters will also affect infrastructure assets. Researchers estimate that almost 30% of global rail and road infrastructure is already exposed to heavy flooding and cyclone events alone. Additionally, infrastructure failure in transport, energy, waste management, and telecommunications will affect supply chains and business operations. This, in turn, will hinder access to basic services such as emergency response, health, education, and water and sanitation—directly impacting lives and livelihoods.

If we take immediate action in line with the Paris Agreement, we believe that more than 10% of total global GDP could be saved between now and 2100 in comparison to our current trajectory.

Mitigation action is hereby crucial. It allows to reverse our global warming trajectory and limit the severity of economic impacts, thus also reducing the needs for future adaptation. However, climate impacts are already occurring and bound to worsen. Adaptation needs to therefore happen at the same time to reduce some of those impacts.

But governments aren’t acting quickly enough, and we don’t see the required shift in policies globally. While climate action needs to happen now, measurable economic losses may not yet be fully visible, which means leaders are slower to take any major political action. With increasingly visible and impactful climate change, however, the political perception could evolve to foster increased action and collaboration across governments to ensure maximal impact.

Global Climate Action Reduce Costs and Create Opportunities

In this current context of large uncertainties in regulations, corporates need to minimize economic impact—and harness opportunities to build competitive advantage—and therefore should strive to:

Adapt physical infrastructure, assets, and supply chain to minimize exposure. Physical impacts will lead to significant value destruction. These include:

• Lower revenue as a result of increased downtime and supply chain disruptions
• Higher operating expenses, for example, in light of higher insurance premiums, increased input costs, and the like
• Higher capital expenses, given the increased need to restore structural damage to facilities

Adapt to transition risks associated with major shifts in regulations, markets, and technology. Transition risks include higher operating expenses as a result of:

• New regulations, such as carbon pricing
• Losses on investments that are terminated before originally expected
• Higher cost of capital as investor perceptions shift
• Lower revenue due to shift in demand

Build optionality to seize opportunities that will also arise from climate action. These opportunities include:

• Internal cost savings gained through increased resource efficiency
• Increased demand for technology and solutions to accelerate mitigation
• Higher revenue flowing from the commercialization of new offers
• Increased competitive advantage by meeting shifting consumer demands

There is a staggering gap in financing climate action, despite rising needs. The Climate Bonds Initiative (CBI) has played a critical role in mobilizing the debt capital markets for mitigation investments and is now turning its focus toward adaptation by developing standards, engaging with policymakers, and providing market insights.

The sustainable debt capital markets have now passed $5 trillion in green, social, and sustainability-labeled cumulative bond issuance, with about $1 trillion issued annually over the last three years. Of that amount, only 19% has been explicitly directed toward adaptation and resilience activities. One of the major reasons for this is that many private sector companies still have fundamental questions around adaptation initiatives, such as: What are the accepted criteria for climate-resilient infrastructure?

In response, CBI, working with BCG and other partners around the world, is currently developing a Climate Resilience Taxonomy to help stakeholders identify and understand the key investments needed to deliver climate resilience.

Collaboration Across Ecosystems

Many corporates are already acting internally, but they have a responsibility and an opportunity to accelerate climate initiatives—not only to build the resilience of their own business, but also to strengthen the ecosystems they participate in. Five levers can spur collaborative climate action:

• Foster and accelerate supplier decarbonization
• Enable customers to make greener choices
• Drive change by forming or joining industry alliances
• Engage in cross-industry partnerships to maximize scale, share risks, and reduce green premiums
• Advocate for and support bolder policies

When the staggering costs of inaction are taken into account, the economic case for climate action is clear. Mitigation limits economic impacts and the need for costly adaptation, while adaptation further reduces current and future impacts. Individual corporates have started to act and are increasingly forced to look beyond their immediate sphere of control. Collaboration can amplify the impact of ongoing mitigation and adaptation efforts around the world to create more resilient systems that benefit the environment, businesses, and society.