The Climate Of Business #144: The financial perks of climate action in 2025 or how to prepare to benefit financially from taking the lead

Climate Change Reality

• 2024 will be the hottest year on record, EU scientists say (Reuters)
• Kenya’s devastating drought is the worst in 40 years (Al Jazeera)
• Renewable electricity to overtake fossil fuels in UK this year (Financial Times)
• High heat is preferentially killing the young, not the old, new research finds (Science Daily) 

• ‘Several hundred’ could be dead after Cyclone Chido hits France’s Mayotte (Al Jazeera)
• 'Don't mess with the sun's rays,' EU scientists warn (Euronews)
• Canada sets new 45–50% emissions reduction goal for 2035 (Reuters)
• Rapidly Increasing Soil Salinity Threatens Global Food Supply: UN Report (Eco Watch)
• High sea surface temperatures fuel record warm year (Financial Times)
• More than 1 in 3 tree species worldwide at risk of extinction (Euronews)

Business Climate Reality

• Australia moves to end international finance for fossil fuel projects (Business Green)
• EU assessing role of UN’s carbon offsets program in border levy (Bloomberg)
• EU regrets inconclusive global plastics treaty negotiations (EU Commission)
• Only 42% of companies disclosing on CSRD this year fully confident in meeting sustainability reporting requirements: PwC survey (ESG Today)
• EBRD to transfer risk tied to $1 Billion of private-sector loans (Bloomberg)

• Insurance losses from natural catastrophes set to top $135bn (Financial Times)
• Insurers climate losses almost match premiums from fossil fuels (Bloomberg)
• A new initiative to reduce the environmental impact of the fashion and construction industries (UNEP)
• Body heat could be the next big renewable after scientists invent ultra-thin tech to power wearables (Euronews)

Reality Check

The cost of climate inaction is no longer a distant projection - it is a present reality for businesses worldwide. As global warming continues on its current trajectory companies face unprecedented physical and financial risks. Climate-related disruptions such as floods, wildfires, droughts, and extreme heat are intensifying, posing severe threats to operations, infrastructure, and supply chains. 

According to the latest World Economic Forum report, physical risks alone could result in 5% to 25% of earnings before interest, taxes, depreciation, and amortisation (EBITDA) losses annually by 2050, while businesses in carbon-intensive sectors face up to 50% EBITDA loss by 2030 due to carbon pricing and regulatory pressures.

This week's newsletter highlights two critical challenges:

1. The escalating physical risks from supply chain disruptions and higher operational and capital expenses due to structural damages
2. The mounting transition risks as decarbonisation accelerates globally  influenced by factors such as evolving regulations, asset devaluations, and changing customer and investor perceptions.

Understanding these risks - and the urgent need for action - will be pivotal for businesses looking to protect their bottom line and secure long-term resilience.

Physical risks are increasing

Under a >3°C scenario, which reflects the current trajectory, physical risks are expected to reach unprecedented levels. Businesses across all sectors are already feeling the early warning signs, including supply chain disruptions, infrastructure damage, and escalating costs. Industries heavily reliant on infrastructure, such as utilities, construction, and communication services, are particularly vulnerable. In regions like the Asia-Pacific and Africa, the utilities sector alone could face EBITDA losses exceeding 25%. The food and beverage sector also highlights the acute sensitivity of certain industries to climate disruptions. For instance, Brazil's coffee drought caused production declines and price surges of over 50%, demonstrating the significant impact of rising temperatures and water scarcity on crop yields and costs.

Even in developed regions, the risks remain substantial. Europe and North America are not immune, with infrastructure damage, reduced labour productivity, and extreme weather events driving up operational expenses. Germany offers a stark example of these challenges: in 2021, heavy flooding caused $1.4 billion in damage to Deutsche Bahn’s infrastructure, including tracks, bridges, stations, and other assets. Such incidents underscore the growing need for businesses and governments to address the physical risks associated with climate change. Accordingly, the impacts will cascade through economies, raising repair costs, disrupting operations, and increasing insurance premiums—factors that businesses cannot afford to underestimate.

Transition risks: Carbon pressures and regulatory change

While physical risks develop gradually, transition risks - driven by climate policy, carbon pricing, and market shifts - are advancing at a much faster pace. For businesses, failing to decarbonise translates into higher costs, reduced market relevance, and growing pressure from investors and regulators. In carbon-intensive sectors such as materials, metals, chemicals, and oil and gas, delays in emissions reductions could lead to EBITDA losses of up to 50% by 2030. Stricter regulations, such as the EU’s enhanced Emissions Trading System (ETS) and the ban on internal combustion engine vehicles by 2035, are expected to significantly increase operational costs for non-compliant businesses.

Meanwhile, low-emission alternatives are already disrupting markets. Innovations like hydrogen-based steel production and electric vehicle fleets are rapidly gaining market share, leaving companies slow to adapt to declining demand and the risk of stranded assets. To mitigate these risks, businesses must act now to decarbonise their operations. Those that fail to adapt will not only face financial losses but also reputational damage, as sustainability becomes increasingly important to investors and consumers alike.

Why must businesses take action?

Despite the alarming risks, the case for proactive investment is clear: companies investing in climate adaptation and decarbonisation are seeing substantial financial returns. For every dollar invested in resilience measures, businesses are reporting returns of up to $19, driven by avoided damages, operational efficiencies, and enhanced market positioning (CDP data).

Adaptation strategies include:

• Fortifying infrastructure to withstand floods, storms, and heatwaves.
• Improving resource efficiency, such as water conservation systems and renewable energy adoption.
• Strengthening supply chain resilience through diversification and scenario planning.

Companies that take bold action via impactful decarbonisation actions will not only mitigate financial losses but also unlock new growth opportunities, such as sustainable product innovation and market leadership in a decarbonised economy.

Read more on the financial and non-financial benefits of decarbonisation here.  

A call to action for corporate leaders

The World Economic Forum and BCG report provides a clear roadmap for addressing climate risks. CEOs and other decision makers must take decisive steps:

1. Assess and manage climate risks: Conduct comprehensive climate risk assessments, measure physical and transition risks, and decarbonise assets, operations, and business portfolios.
2. Unlock opportunities: Reshape business portfolios, capitalise on physical resilience, and align capital allocation with climate strategies.
3. Monitor and report progress: Set up climate risk monitoring, disclose material exposures, and report on adaptation activities.
4. Enable governance and systems: Upgrade climate-risk governance, integrate climate risk into business processes, and develop tools, capacity, and know-how to measure and manage risks effectively.

The takeaway from the report reiterates that inaction is no longer an option. The costs of climate change are already materialising, and businesses that act now will be the ones to thrive in a transformed, resilient future.

Schedule a call with Plan A’s experts here to learn how your company can transform sustainability to mitigate the vast business risks of climate inaction.

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