Business on the Edge 2024

1.1 Climate hazards are forecast to increase fixed asset losses Climate hazards can damage fixed assets or prevent them from working efficiently. Consider factories losing their water supply, data centres which struggle to cool, offices under water or fields hit by floods and drought. Such events are likely to raise business costs through, for example, additional repairs, orders that cannot be fulfilled and less productive workers. Given the strong positive relationship between capital investment and productivity,19, 20 this is consequential not just for companies themselves but for wider economic and societal prosperity. Combining data on the fixed assets held by 5,736 large, listed companies with climate risk metrics from the S&P Physical Risk Financial Impact database provides insight into the exposure of businesses at a granular level (see Box 2). The analysis suggests that fixed asset losses driven by climate hazards could reach $560-610 billion per year by 2035, depending on the emissions scenario. This climbs to $680-850 billion by 2045 and $830 billion-$1.1 trillion by 2055 (see Figure 3). For context, global foreign direct investment totalled $1.3 trillion in 2023.21 Estimating fixed asset losses BOX 2 Using the Coupled Model Intercomparison Project 6 (CMIP6) climate models, the S&P Global Sustainable Climate Risk Model dataset provides climate hazard exposure scores across different IPCC future climate-change scenarios. It covers more than 3 million corporate assets, with asset type-specific sensitivity to quantify financial losses associated with each hazard. Costs include those stemming from increased direct operational expenses, revenues lost to business interruption, repairs to physical damage and lower employee productivity. Fixed asset loss risk is aggregated at the company level as a weighted average of all assets mapped to the company of interest. The analysis combines these individual, aggregated company scores across three emissions scenarios - High: SSP5-8.5, Medium-High: SSP3-7.0 (labelled as Medium in this analysis for simplicity) and Low: SSP1-2.6 - with estimations of the value of fixed assets held by each of 5,736 large, listed companies (from S&P Capital IQ). This figure is then extrapolated to 55,515 listed companies using revenue data to estimate the annualized global financial impact of physical climate hazards in US dollars. The estimated impact represents a conservative baseline for three major reasons: –Risk metrics do not include emerging tipping point science. –Non-listed companies are excluded due to data availability. –Climate hazards beyond the seven considered increase risks (see Figure 1). For the full methodology, including approach limitations and sources, see Annex 2: Quantifying the impact of the nature and climate crisis on business.“5.” Fixed asset losses driven by climate hazards could reach $560- 610 billion per year by 2035. Business on the Edge: Building Industry Resilience to Climate Hazards 10