Climate costs are rising, but few companies have an adaptation plan

The objective of the transition to a low-carbon economy is to shift the course of climate change from a higher-emissions scenario to one with lower emissions, thereby lessening future physical climate impacts.

Our analysis found that, under a medium climate Shared Socioeconomic Pathway called SSP2-4.5, the total cumulative cost of climate hazard exposure for S&P Global 1200 index constituents is projected to reach $25 trillion by 2050, including $4.5 trillion in foregone revenue due to business interruption, $3.8 trillion in excess operating costs, and $16.5 trillion in property damages and excess capital expenditure. SSP2-4.5, developed by the UN Intergovernmental Panel on Climate Change, is used for exemplary purposes, not because it is considered more likely than other potential scenarios. In this pathway, mitigation is strong, with total greenhouse gas emissions stabilizing at current levels until 2050 and then declining up to 2100. SSP2-4.5 is expected to result in the global temperature rising by 2.7 degrees C (a range of 2.1 degrees C-3.5 degrees C) by the end of the century.

This analysis uses the Physical Risk dataset from S&P Global Sustainable1 to measure the projected financial costs to companies in the S&P Global 1200, an index that covers about 1,200 of the largest companies across North America, Europe, Asia, Australia and Latin America. Our analysis includes nearly 3.5 million total assets owned by these companies. 

The projected cumulative costs of climate hazard exposure for S&P Global 1200 companies to 2050 are equivalent to 74% of total revenue, or 31% of the index companies' total market capitalization in 2024. In the 2050s, 58% of these costs are projected to be driven by extreme heat, 21% by water stress, 11% by drought, and 4% by pluvial or rainfall-driven flooding (see Methodologies Behind our Databases: Climate and Environmental Data for definitions of each weather event).

In the S&P Global 1200, the sectors facing the greatest annual cost due to climate hazard exposure in the 2050s are utilities, energy, financials and communication services. Notably, extreme heat, water stress and drought are the biggest risk drivers for these sectors because of the sector mix in the S&P Global 1200 and the potential financial impacts to each sector.

The location of companies' assets drives exposure to physical climate risks, leading to variability in how sensitive sectors are to climate hazards. For example, water-intensive operations are likely to be more sensitive to constrained water supply and/or increased water costs. Likewise, extreme heat events reduce labor productivity more when work is conducted outdoors, such as in agriculture — owing to heat stress and its impact on human health — than when activity is indoors, such as in the services sectors.

In addition, there is little difference in the cumulative costs of climate hazard exposure among climate change scenarios up to the 2050s. This is due to inertia in the climate system and the lock-in effect of historical greenhouse gas emissions. From about 2050, however, costs are projected to rise to a greater extent under more severe warming scenarios — such as SSP3-7.0, under which the global average temperature increases 3.6 degrees C, with a range of 2.8 degrees C-4.6 degrees C — by the end of the century. Rising temperatures could also contribute to worsening chronic events, including changes to precipitation, temperature patterns and sea levels, particularly from about midcentury.

Investments in adaptation will need to increase to cope with the rising costs of worsening climate hazards. However, S&P Global Sustainable1 data indicates that companies’ progress on adaptation is uneven.

Data collected in the 2024 S&P Global Corporate Sustainability Assessment shows that about 1 in 3 companies (35%) across sectors have disclosed that they have a plan to adapt to the physical impacts of climate change. The Corporate Sustainability Assessment asks companies whether they have a context-specific adaptation plan, which describes how the company will adapt to risks based on the location, vulnerabilities and other attributes that are specific to its operations. A context-specific plan integrates physical and nonphysical measures aimed at reducing — to the extent possible and on a best-efforts basis — all material risks that have been identified.

The utilities and real estate sectors disclosed the highest rates of physical risk adaptation planning at 58% and 50%, respectively, based on assessments of 7,934 companies in the 2024 Corporate Sustainability Assessment. Both sectors are heavily reliant on physical infrastructure, which will increasingly be at risk of damage and disruption from storms, flooding and other climate hazards, absent adaptation.

Five sectors have made slower progress on adaptation planning than the cross-sector average of 35%, including the information technology and financial sectors, in which 30% of companies reported having an adaptation plan. Banks, insurers, asset managers and asset owners are exposed to the wider economy through lending, investing or underwriting across industries, which can expose them to the economic and physical impacts of climate change. Financial institutions also play a key role in financing the transition and facilitating the flow of trillions of dollars needed to mitigate and adapt to climate change.

In the consumer discretionary and communication services sectors, 29% and 28% of companies, respectively, disclosed having an adaptation plan. Only 25% of healthcare companies reported having an adaptation plan. Some of these sectors have historically been less directly exposed to physical climate risks, but this could change over the coming decades, absent adaptation. Hospitals in major coastal cities may need to adapt to rising sea levels and more severe storms. Internet and cloud computing firms that rely on infrastructure such as server facilities must contend with heat waves that can interrupt operations and raise cooling costs.

This gap between more frequent and severe physical climate risks and many companies’ slow progress on adaptation planning presents a growing risk to the global economy. The World Economic Forum’s “Global Risks Report 2025" ranked extreme weather events as the most significant global risk over the next decade, followed by other environmental risks such as biodiversity loss and ecosystem collapse, critical change to earth systems, and natural resource shortages.

Investments in adaptation will need to increase to cope with the rising costs from physical climate risks such as extreme heat, flooding and drought. Adaptation planning is becoming a key tool to help companies prepare for the effects of extreme weather events on their business and the broader economy.