Top companies could lose $1 trillion annually to climate risks

As climate risks intensify, businesses across all sectors face imminent threats to their value chains, from raw material scarcity to infrastructure damage. A new study from Capgemini Invent and Cambridge Consultants suggests the global economy could shrink by almost a fifth by 2050, while the largest firms could forfeit more than $1 trillion every year.

The Paris Agreement was signed in 2016, and committed the international community to targeting a best-case scenario, where global temperature rises linked to the burning of fossil fuels hit a maximum of 1.5C. But despite economies making various commitments to net zero – and businesses also using the opportunity to make grand promises that might encourage consumers to view them more favourably – the road to net zero in reality has been a slow one. Too slow, in fact.

In 2024, the EU’s climate service reported that global temperatures had breached the 1.5C barrier for the whole previous year. The following 12 months blazed past that, becoming the hottest year on record – and while scientists maintain the point of no return has not quite been reached, recent research has suggested the Earth has only two years left of its ‘carbon budget’, and that the planet is currently on course for heating of 2.7C; even higher than the Paris Agreement’s upper-limit of 2C.

Amid this, it seems apparent that businesses still feel comfortable talking a good game, without actually delivering. With a noted gap between promises and actions found in various studies, corporate entities evidently remain confident that whatever happens, they can shrug off and adapt to the changing world.

A new study from Capgemini Invent, in collaboration with Cambridge Consultants – part of the Capgemini Group – has sought to challenge that hypothesis. The firms begin by noting that the climate crisis is “an ongoing reality disrupting business value chains across the globe”. From 2000 to 2024, climate-linked disasters have caused over $3.6 trillion in economic damage, with storms accounting for 60%, floods at 27%, and droughts at 7% – and while some might argue business as usual resumed after, the global economy remains significantly weaker now than in the first decade of the century.

That is set to get significantly worse, too. According to the researchers, by 2050, climate change will cause damages in agriculture, infrastructure, productivity, and health amounting to an estimated $38 trillion per year. Even with immediate decarbonisation efforts, the global economy will undergo a 19% income reduction by 2050 due to climate change – suggesting far deeper systemic change will be needed than the current mode of decarbonisation.

The researchers noted that “companies will bear the brunt of these physical climate risks warning “transitional climate risks will arise as businesses will need to align to a climate resilient economy”. Issue might be taken with the “brunt” of this being dives in shareholder value – rather than dying or being displaced by climate change, as is already happening to climate refugees around the world. Even so, from a business perspective, this is not the kind of challenge that can simply be absorbed anymore. The researchers found that the S&P Global 1200 companies could face “staggering losses of $1.2 trillion annually by 2050”, even under optimistic greenhouse gas emission reduction scenarios.

As part of this, Capgemini Invent’s paper urges companies to plan for “climate adaptation”. This will include a number of investments, which may be costly now, but will deliver crucial net benefits in the future. Early warning systems could help save lives, and avoid supply chain disruption – delivering a net benefit of $0.1 trillion. But even more demonstrably, it could enable a $4.7 trillion benefit, showing when and where it will be necessary to create more resilient infrastructure.

This is not only connected to dealing with climate change symptoms, either. There is still a substantial opportunity to prevent the worst impacts of the crisis. For example, the study cites protecting mangroves – flooded forests where dense mud soaks up large amounts of carbon – could produce economic benefits of $1 trillion globally.