If the world stays on its current trajectory, the global temperature is expected to rise by about 3°C by 2100, with escalating damage to the economy, natural ecosystems, and human life. To keep the increase well below 2°C as required by the Paris Agreement, governments and business leaders need to step up and take bold climate action.

The world is already experiencing a rise in the frequency and intensity of climate-related impacts. For example, since 2015, according to the Emergency Events Database, the number of natural disasters has risen by 15%, which has—together with their increasing severity—caused a 205% surge in economic costs and a 280% increase in human casualties. These numbers are expected to continue to rise as global temperatures increase, causing even more loss, damage, and human suffering.

Despite the rising costs, global leaders are failing to take the steps necessary to limit global warming to less than 2°C. The hesitation to incur the upfront costs of abating emissions and adapting to the effects of climate change has slowed the collective response to the climate crisis. But what are the economic implications of inaction?

To answer this question, BCG, Cambridge Judge Business School, and the University of Cambridge climaTRACES Lab reviewed the latest economic literature, engaged experts, and conducted analyses to better understand the long-term economic consequences of inaction on climate change. Our findings clearly demonstrate that the economic cost of inaction far outweighs the investment required to mitigate and adapt to climate change.

The Net Cost of Inaction

It is important to recognize that mitigation efforts, adaptation measures, and economic impacts are intertwined. To make this clear, we compared two scenarios: First, the current investment levels in mitigation efforts continue as they are, leading to a temperature trajectory of more than 3°C. Second, sufficient mitigation investments are made to limit warming to less than 2°C. In addition, we compared current investments in adaptation in the first scenario with the estimated adaptation needs in the second scenario, where global temperatures rise by less than 2°C.

On the basis of this analysis, we calculated the net cost of inaction: the economic impact avoided by limiting warming to less than 2°C and adapting adequately minus the investments required in mitigation and adaptation. By weighing the costs and benefits of mitigation and adaptation, the net cost of inaction creates a powerful economic case for immediate and ambitious climate action.

Our analysis, based on the most recent literature, indicates that at the current level of investment in climate action, the world would stay on the current temperature trajectory (more than 3°C) and incur losses of up to 16% to 22% in cumulative GDP. Such losses correspond to a reduction in the annual global growth rate of approximately 0.4 percentage points.

Investing less than 2% of cumulative GDP in additional mitigation efforts until 2100 will limit the temperature increase to less than 2°C, avoiding economic impacts of an estimated 11% to 13% of cumulative GDP by 2100. Investments in mitigation efforts would be higher in the short term (up to 8% of GDP until 2030) and taper over time.

Even under a less-than-2°C scenario, greater investments in adaptation will be necessary as the temperature continues to rise from 1.1°C today and some economic impacts are locked in owing to past emissions. By investing a relatively small portion of GDP—less than 1%—into climate adaptation measures, it is possible to avoid much larger economic losses of up to 4% of GDP. Then, the remaining economic impact in a less-than-2°C scenario ranges from 4% to 6% of GDP. Unfortunately, this residual economic impact is unavoidable.

Overall, the net cost of inaction amounts to approximately 10% to 15% of lost global GDP by 2100. However, this share of GDP can be freed up if leaders take sufficient climate action now. (See Exhibit 1.)

These percentages are conservative and most likely underestimated, given that the Intergovernmental Panel on Climate Change continuously corrects its climate risk estimates upwards, methodological uncertainties, and the fact that the calculations do not take into account tipping points or unquantifiable impacts, such as biodiversity, nature loss, and broader social costs. (See “Our Methodology.”)

An Urgent Need for Mitigation

The net cost of inaction underscores the urgent need for climate action. Mitigation efforts can directly prevent further global warming and, therefore, limit economic impacts. The degree and timing of mitigation determines not only the overall economic and societal impact but also the amount of adaptation needed. Investing less than 2% of GDP in mitigation efforts to ensure a Paris-aligned trajectory by 2100 is clearly the right choice when you consider the 11% to 13% of cumulative GDP in avoided economic impacts. The less-than-2°C trajectory delivers a sixfold to tenfold societal return, without even factoring in the additional adaptation costs. (See Exhibit 2.)

While the costs of adapting to a rising temperature of more than 3°C are challenging to predict, the economic impacts are expected to increase across regions and sectors.¹ 1 Kamiar Mohaddes and Mehdi Raissi, “Rising Temperatures, Melting Incomes: Country-Specific Macroeconomic Effects of Climate Scenarios,” June 2024; Kamiar Mohaddes, et al., “Climate Change and Economic Activity: Evidence from US States,” Oxford Open Economics, November 2022. Notes: 1 Kamiar Mohaddes and Mehdi Raissi, “Rising Temperatures, Melting Incomes: Country-Specific Macroeconomic Effects of Climate Scenarios,” June 2024; Kamiar Mohaddes, et al., “Climate Change and Economic Activity: Evidence from US States,” Oxford Open Economics, November 2022. Adaptation measures will need to keep pace. Since 2015, adaptation costs have grown at an annual rate of 18%. Unfortunately, only 6.3% of climate finance flows are directed toward adaptation today.

Time is of the essence. As emissions and temperatures continue to rise, more and more economic impacts are locked in and irreversible, contributing to rising adaptation costs. Mitigation is therefore an economic imperative.

The Barriers to Action

While climate action is economically rational at a global level, three main barriers have led to a significant gap between ambition and action.

• The cost of inaction is not yet fully understood since there is no scientific consensus on the economic impacts of climate change and current estimates come with high uncertainty.
• Because the impact of climate change is unevenly distributed across the globe, and budgets are tight, decisions by governments and business leaders about how and when to act on climate change vary widely.
• Innate human biases toward focusing on the short term delay action on long-term challenges.

The reality is that the economic impacts and need to adapt are already tangible in the here and now. It is crucial to implement levers that bridge the action gap, create the necessary shift in policies, and fill the regulatory void. These levers should include supporting further research and promoting the economic case for climate change, establishing effective policy and regulatory mechanisms, and coordinating global efforts.

This article was developed in collaboration with Cambridge Judge Business School and the University of Cambridge climaTRACES Lab. The authors thank Annalena Hagenauer, Sahradha Kämmerer, Beatriz Osorio Garabosky, Moritz Piepel, and Rishi Sinha at BCG for their contributions.