CEOs need to bridge the corporate cost of climate inaction

Dec 11, 2024

Little plant in dried cracked mud against a background of city skyline in a blog about CEO action on climate

Climate action should be seen as an immediate business priority that can unlock growth opportunities. Image: Getty Images/iStockphoto

Pim Valdre

Head, Climate Ambition Initiative, World Economic Forum

Nicolas Salomon

Project Fellow, Alliance of CEO Climate Leaders, World Economic Forum

This article is part of:

Climate risks are often perceived as far-ahead challenges rather than immediate business priorities that can unlock growth opportunities.
With CEO attention, businesses can mitigate disruptions while driving long-term success by building adaptation and resilience into operations.
A new report from the Alliance of CEO Climate Leaders, in partnership with BCG, equips CEOs with a strategic playbook on navigating climate risks.

Despite the rising materiality of climate risks, many CEOs still consider them as secondary challenges, often delegating their management to sustainability or compliance teams, rather than considering them as immediate business priorities.

Climate risks are also often perceived as tomorrow's, or far-ahead, challenges rather than immediate business priorities. However, addressing these risks strategically can unlock significant opportunities for growth and resilience.

Understanding the scale and complexity of physical and transition risks is also essential to adopt the appropriate risk management measures, and not assessing how climate impacts change economies and societies also means missing out on growing transition and adaptation market opportunities.

With adequate CEO attention and company-wide preparation, businesses can reduce the impacts from increasing disruptions while driving long-term success by building adaptation and resilience into operations and unlocking growth in the $14 trillion green economy transition by 2030.

The Alliance of CEO Climate Leaders is a CEO-led community committed to raising bold climate ambition and accelerating the net zero transition by setting science-based targets, disclosing emissions and catalyzing decarbonization and partnerships across global value chains.

The new Cost of Inaction: A CEO Guide to Navigating Climate Risk report from the Alliance of CEO Climate Leaders, in partnership with BCG, highlights the magnitude of corporate climate risks and urge CEOs to address these risks, equipping them with a strategic playbook.

Here are the key three points of the report:

1. Greater CEO-level attention is needed

Climate risks – both physical and transition – are diverse, material, and escalating with increased speed and scale.

Physical risks: Extreme weather events are causing increasing damage to infrastructure, disrupting supply chains, and reducing productivity. Heat stress is also a growing concern, particularly for labour-intensive industries, as rising temperatures reduce worker productivity and operational efficiency. In sectors like utilities and communication, up to 25% of EBITDA could be at risk by 2050. These impacts may be underestimated, as they don’t account for the consequences of triggering Earth system tipping points and non-corporate socio-economic losses, as outlined in the World Economic Forum’s Business on the Edge: Building Industry Resilience to Climate Hazards report.
Transition risks: Stricter regulations – i.e. carbon pricing, emissions caps, technological shifts, and changing consumer and investor expectations are reshaping market dynamics. For example, carbon pricing alone could add costs equivalent to 50% of EBITDA for unprepared emission-intensive companies by 2030. Additionally, sectors such as fossil fuels-based industries face significant write-down risks, with up to 30% of grey portfolios at risk of devaluation by 2030, under net-zero climate policies.

There are already early warnings from the insurance sector on the corporate cost of climate inaction. As climate risks increase, insurers are adjusting coverage terms, leading to volatile premium hikes in high-risk areas.

According to The Bigger Picture joint report by global insurance intermediary group Howden and BCG, insurance premiums for physical risks and natural catastrophe protection are expected to rise by up to 50% by 2030, reaching $200–250 billion globally.

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Investors are also increasingly pricing climate-related risks into valuations. Companies slow to decarbonize or adapt risk significant devaluation before these impacts even materialize on their bottom line, as seen in the 2010s when some European utilities lost up to 80% of their market value due to their lack of proactivity in the transition to renewable energy.

2. The rising cost of inaction

The financial consequences of inaction are rising, but the opportunities for those who act are equally significant. Key benefits include:

Adaptation investments yield high returns: Businesses investing in adaptation report returns of $2 to $19 for every $1 invested, safeguarding assets, stabilizing supply chains, and enhancing resilience against extreme weather impacts.
Mitigation is cost-economical: Transitioning to low-carbon operations can economically abate over 50% of emissions across most sectors in a fast-transition scenario, reducing exposure to carbon pricing and regulatory risks.
The green economy is growing rapidly: The green economy is projected to grow from $5 trillion in 2024 to over $14 trillion by 2030, offering opportunities in renewable energy, energy efficiency, sustainable transport, and green consumer products. Early movers stand to gain significant competitive and regulatory advantages.
Adaptation opportunities are expanding: The demand for climate-resilient infrastructure, supply chains and solutions is creating new markets for businesses to innovate and grow. Companies like Schneider Electric building climate-resilient grids and Saint-Gobain producing hurricane- and fire-resistant glass are positioning on resilience-focused solutions to meet this rising demand.

3. The CEO playbook

We urge CEOs to take ownership of climate risk, embedding it into core strategy to safeguard resilience and unlock opportunities.

Climate risk is cross-cutting, impacting all aspects of a company’s operations, and demands direct engagement from the whole C-suite. Accordingly, the report’s recommendations are:

Make climate risks central to strategy: Integrate climate considerations into risk management, financial planning and operational decisions to ensure resilience and a competitive edge. Communicate internally and raise visibility of climate risk as a priority.
Adopt scenario-based planning: Prepare for both a 3°C world and an accelerated decarbonization future with robust scenario thinking. Stand ready to update/reassess scenario planning models at a regular rate to stay aligned with emerging science.
Quantify and assess risks: Develop transition and resilience plans based on a thorough assessment of climate risks across multiple scenarios.
Align capital allocation: Balance short-term returns with long-term resilience by directing investments toward climate goals.
Embed climate risk into operations: Make climate risk management a standard practice across the organization, ensuring it influences decisions at all levels.

The corporate cost of inaction is too high

Climate risks are no longer distant – they are reshaping industries today – but while the stakes are high, so are the rewards. The companies that act boldly today will define tomorrow’s success.

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How is the World Economic Forum fighting the climate crisis?

The Global Risks Report 2023 ranked failure to mitigate climate change as one of the most severe threats in the next two years, while climate- and nature- related risks lead the rankings by severity over the long term.

The World Economic Forum’s Centre for Nature and Climate is a multistakeholder platform that seeks to safeguard our global commons and drive systems transformation. It is accelerating action on climate change towards a net-zero, nature-positive future.

Learn more about our impact:

Scaling up green technologies: Through a partnership with the US Special Presidential Envoy for Climate, John Kerry, and over 65 global businesses, the First Movers Coalition has committed $12 billion in purchase commitments for green technologies to decarbonize the cement and concrete industry.
1 trillion trees: Over 90 global companies have committed to conserve, restore and grow more than 8 billion trees in 65 countries through the 1t.org initiative – which aims to achieve 1 trillion trees by 2030.
Sustainable food production: Our Food Action Alliance is engaging 40 partners who are working on 29 flagship initiatives to provide healthy, nutritious, and safe foods in ways that safeguard our planet. In Vietnam, it supported the upskilling of 2.2 million farmers and aims to provide 20 million farmers with the skills to learn and adapt to new agricultural standards.
Eliminating plastic pollution: Our Global Plastic Action Partnership is bringing together governments, businesses and civil society to shape a more sustainable world through the eradication of plastic pollution. In Ghana, more than 2,000 waste pickers are making an impact cleaning up beaches, drains and other sites.
Protecting the ocean: Our 2030 Water Resources Group has facilitated almost $1 billion to finance water-related programmes, growing into a network of more than 1,000 partners and operating in 14 countries/states.
Circular economy: Our SCALE 360 initiative is reducing the environmental impacts of value chains within the fashion, food, plastics and electronics industries, positively impacting over 100,000 people in 60 circular economy interventions globally.

Want to know more about our centre’s impact or get involved? Contact us.

As highlighted in the Alliance of CEO Climate Leaders and BCG's new report, CEOs currently have a unique opportunity to lead the charge on climate action.

By embedding climate resilience into their strategies to safeguard businesses, they can unlock opportunities and contribute to a sustainable, resilient global economy.

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