Business on the Edge 2024

Note: As the analysis explores the accelerated depreciation of fixed assets due to physical climate hazards, EBITA (earnings before interest, taxes and amortization), as opposed to EBITDA (earnings before interest, taxes, depreciation and amortization), was selected as the most relevant profit metric for comparison. EBITA for every company is averaged from 2021 to 2023 and assumed to be constant across the forecast period. For companies in the travel industry, EBITA is averaged across 2022 and 2023 only to prevent the impact of the Covid-19 pandemic skewing the data and driving misleadingly high results. Financial services companies were excluded from this analysis as they do not typically report on this metric. 5 Fixed asset category loss estimations In each of the five socio-economic systems, a worked example of losses to a particular fixed asset category, in a specific location, is given. These include farmland in Brazil and data centres in the United Kingdom. The assumptions and sources underpinning each example are shown in Table 3 below. For data availability reasons, the calculations assume that the risk of physical climate hazards to fixed asset categories is uniform across geographies. Results should be considered directional only. Assumptions and source data underpinning asset category estimations TABLE 3 Socio-economic system Asset category Geography Scale Value Agriculture, food and beveragesAgriculture Brazil 239.4m²: hectares of agricultural land (Source)$4,183: cost per hectare (Source) Built environment Retail China 412.46m²: sales area of retail stores in China (Source)9,934 yuan ($1,366): cost per m² of commercial real estate (Source) Technology Data centre United Kingdom 1062.3 MW: Data centre inventory (Source) $10.19: Data-centre construction cost per watt (Source) Health and well-being Health and healthcare United States 356,946 square feet: average hospital size (Source)$430.85: cost per square foot (Source) Financial services Utilities Sub-Saharan Africa 42 GW: total hydropower installed capacity (Source) $2,608: hydropower installation costs per kW (Source) 6 Limitations to the approach Future research on this topic might seek to gain a deeper understanding of the costs to business of Earth system tipping points that are channelled through physical climate hazards by addressing several limitations to the approach: 1. The full impact of Earth system tipping point breaches: The analysis does not fully account for the frequency and severity of physical climate hazards that reverberate through Earth systems as tipping points cascade. These risks are challenging for financial analysts and natural systems scientists to model with accuracy. Moreover, as Earth system tipping points reinforce global warming beyond human-caused warming, they could propel global heating beyond the High Climate-Change Scenario (SSP5-8.5). Further research could study the impact fully including these tipping point breaches would have on fixed asset (and other business) losses.2. Losses beyond fixed assets: The analysis focuses on fixed asset losses for data availability reasons. However, as discussed in the socio- economic systems section, climate hazards pose risks to other areas of business activity such as the supply chain, employee well-being and consumer spending. If future studies included the full range of risks to business activity, expected losses would likely increase. 3. Limited scope of physical climate hazards: The analysis looks at seven climate hazards (see Figure 1). However, other climate hazards were not included in the analysis, such as: pluvial flooding (when the amount of rainfall exceeds the capacity of urban storm water drainage systems or the ground to absorb it) and extreme cold (which can occur, for instance from jet-stream disruptions, which pull Arctic air into lower latitudes). Were future studies to include more hazards, fixed asset loss estimations might well be higher than those presented. Business on the Edge: Building Industry Resilience to Climate Hazards 65