The Cost of Inaction 2024

3.3 Companies seem to underestimate these financial losses and overestimate the cost of action Companies are aware of transition risks but seem to underestimate their impact Of around 1,000 respondents to CDP’s 2023 climate change questionnaire, 86% anticipated significant transition risks for their business (see Figure 18), compared with 72% for physical risks (see Figure 12). However, those that quantified the impact of these risks did not seem to anticipate dramatic changes. Even in sectors highly dependent on fossil fuels – such as oil and gas, energy- intensive industrials and partly-fossil utilities – the median-reported EBITDA impact from transition risks did not exceed 4% (apart from the materials sector, with a median of 27% impact on EBITDA). This disconnect – high awareness of transition risks but an estimate of their scale that is modest or perhaps a work in progress – is linked to the challenge of predicting how risks might unfold in a fast-changing environment of disruptive technologies, policy shifts and litigation. Nonetheless, it could well happen – and it will need to happen if the world is to keep temperature rise at or below 2°C. Companies recognize transition risks but estimate limited financial impact FIGURE 18 Oil & gas n=61 Construction & infrastructure n=50 Communication services n=35 Materials n=207 Industrials n=412 Utilities1 n=88 Food & beverages n=84 Healthcare n=74Companies identifying transition risks with potential impact on business (% of CDP respondents)Company self-perceived financial impacts of transition risks (% yearly EBITDA at risk, quartiles 1 to 3)Company self-perceived benefit-to-cost ratio for mitigation investments (benefit-to-cost ratio, quartiles 1 to 3) 98% 94% 91% 88% 88% 84% 82% 65% Avg. 86%3% 1-25% 2% 0-5% 1% 0-3% 27% 4-42% 4% 1-12% 2% 1-12% 2% 1-7% 0-1% 0%1-14x 4x 3-22x 10x 2-17x 7x 2-19x 5x 0-16x 6x 0-11x 2x 1-4x 1x 0-5x3x Median Median 1. Utilities, including power grid. Note: Based on companies’ reported potential maximum financial impact from identified climate transition risks at a medium- and long-term time horizon. Source: BCG analysis, based on data from the CDP Climate Change 2023 Questionnaire. The Cost of Inaction: A CEO Guide to Navigating Climate Risk 29