BCG-WEF Project: Tech for Climate Adaptation

Climate Adaptation: Unlocking Value Chains with the Power of Technology

Business is waking up to the need to invest in climate resilience as extreme weather events, such as heat waves, droughts, wildfires, hurricanes, floods, and cold fronts, wreak havoc on assets, employees, and bottom lines. The number and intensity of these events seem likely to increase as the planet continues on its path of exceeding pre-industrial temperatures by 2.6 to 3° C, or more, by 2100.

The economic consequences are becoming evident. Because of climate change, the global economy may incur losses of 16% to 22% in cumulative GDP by 2100, according to a recent BCG estimate, and there could be incalculable damage to natural ecosystems and human life. In a 3.0° C-plus global warming scenario, companies in several industries—especially telecommunications, utilities, food, and construction—will see profits plunge by 5% to 25% a year.

Despite the rising risks, businesses have failed to invest adequately in tackling climate change. Studies show that investing an additional 2% of the world’s cumulative GDP in mitigation—efforts that will shift the world to a lower temperature trajectory—could keep the temperature increase below 2.0° C, which would avoid losses of 11% to 13% of cumulative GDP. By investing another 1% in adaptation, which strengthens the world’s resilience to climate change, it may be possible to reduce those losses by an additional 4%. That would greatly lower the unavoidable economic impact of climate change to 4% to 6% of GDP by 2100.

Research by the World Economic Forum and BCG suggests that companies’ approach to climate adaptation has to change in order to optimize the impact of their efforts. Every business operates under the assumption that it will be affected by climate change, but all companies along a value chain, from upstream suppliers to after-sales service firms downstream, are collectively vulnerable. The failure of any link in the value chain will have system-wide repercussions. Companies must therefore learn to collaborate to tackle climate change.

Collaborative adaptation yields several synergies. One, when all the companies along a value chain adapt, the benefits multiply and costs fall for each of them. Two, working together will accelerate innovation because of the combined efforts of all players and technology providers. And three, companies that team up will become compliant with global regulations because they will need to use common standards and metrics.

Companies must stop using fragmented approaches, embrace technology as a key driver, and work together to tackle climate risks by developing collaboration platforms. These technology-driven ecosystems will allow stakeholders to work together to scale adaptation use cases, drive innovation, and build climate resilience. The participants in each ecosystem can use the platform to share data, technologies, and capabilities, so they develop novel adaptation solutions. The research by the World Economic Forum and BCG focuses on value chains in three industries—food, energy, and manufacturing—to illustrate how companies can deploy adaptation technologies at scale.

To set up collaboration platforms that will build resilience in value chains, CEOs can take six steps. (See the exhibit.)

It's time the world’s leaders realized that adaptation isn’t just an operational necessity but has become a driver of survival in today’s climate-challenged world.

Innovation and Adaptation in the Climate Crisis

The impacts of climate change are increasing in intensity and frequency, as the rising incidence of extreme weather events vividly demonstrates. Weather events such as wildfires, hurricanes, and extreme heat could, alarmingly, rise to as many as 1.5 a day by 2030. In addition to human suffering, the costs are huge; in 2022, natural disasters cost governments and business more than $200 billion—40% more than the annual average for the past 20 years.

With nearly half the world’s population and virtually every sector of the global economy vulnerable to climate change, adaptation has become a central imperative of climate action. It is incumbent upon leaders in both the public and private sectors to take bold action in order to protect their communities, businesses, and natural systems from the impacts of climate change.

A new generation of data-driven and digital technologies has emerged to help in this effort. As the first movers in this space are learning, the use of data-driven technologies and AI not only guards against climate risks but also generates competitive advantage.

Research by BCG and the World Economic Forum shows that digital technologies will increasingly play a key role in adaptation, as they’re uniquely suited to tackle the complex problems climate change poses. They can deal with the interconnectedness of natural, economic, and societal systems; cope with multiple variables and degrees of uncertainty; and help align actions across time horizons.

The technologies on which the BCG-WEF study focuses are artificial intelligence (AI), drones, the Internet of Things (IoT), earth observation systems, augmented reality and virtual reality systems (AR/VR), and advanced computing. Together, they make up a first-of-its-kind toolkit for climate adaptation.

Digital technologies can play a role across the three strategic imperatives of adaptation, which together constitute the “adaptation cycle”:

• Understand Risks—and Opportunities. AI, satellites, IoT, and drones are transforming how climate-related data is gathered, processed, and analyzed. The technologies monitor how the world is changing and the changes that companies and people must tackle.
• Build Resilience. AI helps build resilience into critical infrastructure, such as flood management systems, through optimization and preventive maintenance. Earth observation technologies and IoT are bringing greater precision to much-needed systems such as early warning systems.
• Respond Dynamically. Earth observation systems, along with drones, provide data on hard-to-reach areas in the aftermath of extreme events. Drones can also be used to make emergency deliveries and support rescue operations while AI’s prediction and optimization capabilities improve decision makers’ situational awareness at times of turmoil.

It’s important to understand that technology-based climate adaptation requires policy development, community engagement, and international cooperation. Adopting a multistakeholder approach is critical if adaptation efforts are to succeed. Business leaders must focus on developing open source technologies, aligning adaptation and innovation to attract more financing, and catalyzing policy and regulatory environments that support adaptation.

Recent years have seen some progress in the development of national adaptation plans (NAP), with five out of six parties to the United Nations Framework Convention on Climate Change having submitted at least one NAP instrument, according to United Nations Environment Programme’s Adaptation Gap Report 2023. Climate adaptation is also gaining momentum worldwide, with governments using regulations, policies, and standards to accelerate private sector adaptation while capital markets and investors are rewarding companies that use these strategies. The future is likely to belong to leaders who see climate adaptation not as an obligation but as a catalyst for transformation.