The Cost of Inaction 2024

Appendix Annex 1: EBITDA at risk from physical risks (Figure 10) This analysis provides an estimate of the financial impact of physical climate risks on companies across different sectors and geographies, expressed as a percentage of EBITDA under >3°C and <2°C warming scenarios. Data sources: –Value at risk per sector (in % of asset value) from S&P Global Sustainable1’s Quantifying the financial costs of climate change physical risks for companies, 2023. –Sectoral benchmarks for asset turnover ratio and EBITDA margins from BCG internal databases and Capital IQ. –Regional climate risk distribution of impact from Swiss Re’s The economics of climate change: no action not an option, 2021. Estimation methodology: –Sectoral impact: –Sector-specific financial impact in % of EBITDA is calculated by dividing the percentage of asset value damage by the asset turnover ratio and EBITDA margin for each sector. –Distribution by region and scenario: –Regional impact variations are based on a weighting factor derived from Swiss Re data. –Scenario weighting is applied using Swiss Re data to adjust impact under various warming scenarios. –To account for current impact, impacts are discounted by an assumed +1.1°C temperature rise, as of today.Annex 2: EBITDA at risk due to carbon pricing (Figure 16) This analysis estimates the financial impact of carbon pricing on companies across various sectors and geographies, expressed as a percentage of EBITDA under both a slow transition (current policies) and a fast transition (net zero by 2050) scenario. Data sources: –Carbon intensities by sector and region are sourced from BCG benchmarks. –Carbon price: –For slow transition: 2030 carbon price levels are sourced from the IEA Stated Policies Scenario where available and the current value (from World Bank) when no target 2030 price is available. –For rapid transition: carbon prices are based on IEA projections under Net Zero Emissions by 2050 scenario. –Share of emissions taxed, by region: –For slow transition: regional estimates are derived from World Bank’s State and Trends of Carbon Pricing, 2024. For the European Union, a bespoke analysis assesses the coverage of EU ETS and CBAM using European Environment Agency data and BCG internal databases (for iron and steel, cement, aluminium, fertilizers, electricity and hydrogen). –For rapid transition: regional estimates are based on BCG assumptions, building on an IEA Net Zero by 2050 scenario. Estimation methodology: –Sector- and region-specific carbon intensity is multiplied by the estimated share of emissions taxed and the regional average price on carbon to determine the initial impact on each sector. –The financial impact is converted into EBITDA at  isk, using sectoral EBITDA margins from BCG benchmarks and Capital IQ. The Cost of Inaction: A CEO Guide to Navigating Climate Risk 51