The Cost of Inaction 2024

2.3 Companies recognize physical risks but likely underestimate their impact Companies increasingly recognize physical risks, but likely underestimate the financial impact of these risks In response to CDP’s annual climate change questionnaire in 2023,32 72% of the largest thousand or so respondents across eight sectors indicated that they identified physical climate risks which could substantially impact their business (see Figure 12). Yet many companies struggle to translate broad climate scenarios and general physical impacts into measurable business risks. Climate risk data is often fragmented and inconsistent, making it difficult to assess the full impact across a company’s value chain and integrate climate risks into traditional planning processes. The relatively few that do attempt to quantify climate-related business risk (and report their financial exposure) report lower figures on average than analysis conducted for this report would indicate (see Figure 13). One reason for this could be that many businesses currently identify only their most immediate risks and treat them in isolation. However, as global inaction increases the threat and diversity of exposure, this approach is increasingly inadequate for most businesses.Seemingly small changes in risk can create disproportionately more damage FIGURE 11 Example: EU highway operator Impact of climate-related physical risks, % EBITDA Heavy precipitation damage to bridges Total impact across physical risks1.2% +10% +40%>2% 8-12% ~5%Today 2050 in a 2.7°C scenario +10% more frequent precipitation +10% larger average area of rainfall More intense in shorter time more damageat risk as more bridges affected & suffering heavier damage (+70% overall) at risk from precipitation, flooding and hail across bridges, tunnels & highwaysto cover repairs from all physical hazards (e.g. floods, hail, frost) on all assets (e.g. bridges, tunnels, highway segments)to cover precipitation damages to bridgesEBITDA EBITDA EBITDA EBITDA Illustration Note: Total EBITDA lost compared to today’s financial baselines. Source: BCG analysis. The Cost of Inaction: A CEO Guide to Navigating Climate Risk 18