Executive summary Rising climate risks are already impacting the global economy and the business case for collective action is clear. Intensifying climate events will cause significant economic costs in the next two decades. However, climate inaction could cost far more than global action, as climate adaptation and mitigation investments could be “repaid” five to six times in avoided losses and damage in the long run.1 Physical risks of climate change are becoming material for businesses, putting significant value at risk and increasing potential opportunity costs in the medium term. Under the current climate trajectory, companies are becoming increasingly exposed to both systemic risks arising from lower global economic growth and individual physical risks threatening supply chains and operations. For unprepared businesses, individual physical risks alone could put 5% to 25% of their 2050 EBITDA at risk, depending on sector and geography, with infrastructure-heavy sectors being most exposed. The cascading effects of such losses would ultimately disrupt communities, with impacts on jobs, lives, livelihoods and the cost of goods and services. Transition risks for businesses are also significant. After a decade of very significant (albeit insufficient) progress, ambitious climate action has recently seen more public resistance, triggering doubts about the pace of decarbonization and the future course of climate policies. But as climate change affects the life and wealth of people and businesses more seriously, relying on the status quo is a risky bet to make and businesses need to prepare for a broader range of developments. In a scenario of accelerating climate action, unprepared companies risk significantly higher cost pressure from carbon pricing or comparable regulation, write-downs on their fossil asset base and a much faster-than-expected demand decline for fossil fuels and technologies. Under a “well below 2°C path”, the impact of carbon pricing alone could create additional costs equivalent to 50% of EBITDA in certain emission-intensive sectors. As capital markets respond to long-term threats to future performance, early signals of heightened transition risks could affect company valuations well before those risks fully materialize.Corporate inaction also comes at a cost: there is a clear business case for adaptation and a better case for mitigation than most might think. Companies report that their current adaptation and resilience investments could yield between $2 and $19 for every dollar invested. On mitigation, while full decarbonization across sectors comes at a cost, sustainability leaders can still find cost-efficient ways to reduce emissions in the short term. Addressing these risks also informs companies how to navigate the transition and adaptation opportunities and develop innovative offerings fit for a warmer and greener world. Companies need to change the way they manage climate risks and opportunities, as outlined in the CEO Guidebook presented at the end of this report. Climate-related incidents and market shifts are hard to predict and discontinuous, but have potentially high-impact consequences. While many companies are aware of these risks, most are insufficiently prepared: –Climate risks and opportunities should be a critical component of company strategy, guiding risk management, financial, strategic and operational decisions at all levels. Understanding climate risks is key for maintaining business resilience, unlocking opportunities and ensuring a competitive edge. –Businesses need to ramp up scenario thinking to be prepared well ahead for both a 3°C world and a future with accelerated decarbonization. –Climate transition and resilience plans to manage these risks should be informed by a quantified assessment of underlying climate risks across a range of scenarios. –Capital allocation should match climate risk strategy, balancing short-term profits with long- term strategic resilience and optionality. –Climate risk management should become part of business-as-usual for all employees, as these impacts are far reaching and likely to influence many aspects of business operations.All companies will face a cost of climate inaction: how their leadership prepares for a warmer or greener world will determine whether they thrive or fall behind. The Cost of Inaction: A CEO Guide to Navigating Climate Risk 4

The Cost of Inaction 2024