The Cost of Inaction 2024

Many companies see a positive business case for adaptation FIGURE 14 Company self-perceived benefit-to-cost ratio of adaptation and resilience measures Benefit-to-cost ratio Food & beveragesOil & gas Materials Industrials Communication servicesConstruction & infrastructureUtilities1 Healthcare n = 22 n = 13 n = 47 n = 123 n = 14 n = 16 n = 24 n = 17 Company self-perceived benefit-to-cost ratio as reported to CDP (median)19x 5x14x 5x7x 6x 6x 2x8-35x 1-26x10-25x 2-23x 2-21x 3-20x 2-18x 0.5-4x Company self-perceived benefit-to-cost ratio as reported to CDP (quartiles 1 to 3)2 1. Utilities include power grids. 2. CDP questionnaire sample size: n = 276 . Notes: Based on companies’ reported potential maximum financial impact from identified physical climate risks at a medium- and long-term time horizon and the associated cost of responding to the risk. Considerable complexity underlies these numbers: first, the companies use a variety of methodologies in their calculations; second, the nature of the returns on adaptation investments is a challenge. The investments require capital expenditures today, whereas the returns are often a mix of avoided losses (such as prevention of costly damages and business interruptions) and potential opportunities (such as enhanced operational efficiency, access to new markets, or improved reputation) that are realized in an uncertain timeframe and are not as bankable as traditional cashflows. Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire.Companies that do make such investments report a very positive business case Few companies comprehensively assess their risk exposure and make adequate adaptation investments. Those that do and disclose the returns to CDP report a very positive anticipated payback, ranging from $2 to $19 for every dollar invested (see Figure 14 ). Climate adaptation investments pay off across a range of different measures: an analysis by the US Agency for International Development (USAID), in collaboration with BCG and the Global Resilience Partnership, highlights a benefit-to-cost ratio of 2x to 7x from flood protection measures and 2x to 6x for water efficiency collection technologies such as drip irrigation and other low-flow technologies, with even greater returns in emerging markets.34 The message from these figures seems clear: companies should develop a more scientific understanding of the risks that they face and invest in adapting to them, both for their own benefit and to help mitigate rising global costs from inaction. The Cost of Inaction: A CEO Guide to Navigating Climate Risk 21