As we enter 2025, there are reasons for optimism and for caution when it comes to climate change and the energy transition. On the one hand, the transition to a sustainable net-zero future presents significant market opportunities. On the other, the physical impacts of climate change pose complex and growing financial risks. At S&P Global, we seek to quantify these risks and opportunities because, as the saying goes, what gets measured gets managed. 

The objective of investing in low-carbon energy is to shift the course of climate change from a higher-emissions scenario to one with lower emissions, thereby lessening future climate physical impacts. S&P Global Commodity Insights estimates there will be up to $53 trillion in energy investment opportunities by 2050 across clean energy technologies, power and transmission globally under a net-zero scenario.

Over this same period, S&P Global Sustainable1 identifies almost $25 trillion in cumulative financial impacts for the world’s largest companies due to changing climate hazard exposures under this net-zero scenario. These estimates are even higher when accounting for inflation and extended to the global economy.¹ 

What’s behind the numbers?

The S&P Global Commodity Insights analysis indicates that to 2050, cumulative investment of up to $53 trillion will be required in clean energy supply as well as power transmission and distribution infrastructure in order to deliver an energy sector consistent with net-zero greenhouse gas (GHG) emissions at the global level (broadly consistent with the SSP1-2.6 trajectory for global GHG emissions). This compares to cumulative investment in the same sectors of $37 trillion for the “base case” scenario from S&P Global Commodity Insights, which is broadly consistent with the SSP2-4.5 trajectory for global GHG emissions. See the section below, “Scenarios explained,” for further detail.

The scale of this investment opportunity into the low-carbon transition is in reality likely to be an underestimate: The analysis covers only the energy supply sectors and does not include investment spending on the demand side of the energy system, such as on transport vehicles and charging networks, the buildings sector or non-energy industries. 

The same analysis shows that the investment opportunity offered by the legacy energy sector (oil & gas production and coal mining, refining, and thermal power generation) is significantly reduced under all scenarios, falling from around $800 billion in 2024 to less than $600 billion in 2050 under the base case (consistent with the SSP2-4.5 trajectory) and to less than $200 billion under a net-zero GHG emissions scenario. 

Regionally, the locus of the low-carbon investment opportunity will be in non-OECD Asia –Pacific (which excludes Australia, Japan, New Zealand and South Korea), cumulatively reaching almost $25 trillion by 2050 under the net-zero case or $17 trillion under the base case. North America and Europe are also key investment regions.

These are estimates of the financial opportunity presented by the transition to a low-carbon economy. On the flip side, we also seek to understand the potential financial costs to companies from exposure to the physical hazards of climate change. 

Our analysis finds that 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. This is under a climate scenario known as SSP2-4.5. See the section below, “Scenarios explained,” for further detail. 

This analysis uses the Physical Risk dataset from S&P Global Sustainable1. It’s important to note that the financial impact projections are not an exact apples-to-apples comparison with the investment opportunity numbers outlined above — for one thing, the physical risk analysis measures the projected financial costs to companies in the S&P Global 1200, an index that covers approximately 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 changing climate hazard exposure for the S&P Global 1200 companies to 2050 is equivalent to 74% of total revenue or 31% of the total market capitalization for the index companies in 2024.

What is behind these figures? In the 2050s, extreme heat drives 58% of these costs; water stress drives 21%; drought drives 11%; and pluvial or rainfall-driven flooding drives 4%.²

In the S&P Global 1200 universe, the sectors facing the greatest annual cost due to climate hazard exposures in the 2050s are utilities, energy, financials and communication services. Extreme heat, water stress and drought are the biggest risk drivers for these sectors. It’s important to note that this result is driven by both the sector mix in the S&P Global 1200 and the relative financial impacts to each sector.

Again, there is some reason for optimism. Investment in low-carbon energy systems will reduce global GHG emissions and help to avoid the worst physical impacts of climate change. The difference between the costs of climate physical hazards in a high-emissions scenario vs. a low-emissions scenario represent the benefits (or avoided costs) achieved through investment in renewable and low-carbon energy, along with other policy measures targeting non-energy related emissions sources.

Achieving a net-zero scenario by 2050 would have a relatively small impact on the costs of climate physical hazards to the S&P Global 1200 constituents to 2050, but by 2099 would reduce cumulative costs to these companies by an estimated $15 trillion relative to the base case. The ‘benefits’ of achieving net-zero would be much larger when expanded beyond the S&P Global 1200 companies to the global economy and would continue to increase into the next century. 

Scenarios explained

This piece references several climate change scenarios known as Shared Socioeconomic Pathways (SSPs), which were developed by the UN’s Intergovernmental Panel on Climate Change (IPCC). The IPCC established the SSPs as a set of scenarios for projects greenhouse gas emissions and temperature changes. The SSPs incorporate broad changes in socioeconomic systems, including global population growth, economic growth, resource availability and technological developments. 

SSP2-4.5: The scenario predominantly used in this analysis, SSP2-4.5, is a medium climate change scenario that contemplates strong mitigation, in which total greenhouse gas emissions stabilize at current levels until 2050 and then decline to 2100. This scenario is expected to result in global average temperatures rising by 2.7 degrees C (2.1 degrees C-3.5 degrees C) by the end of the century.

SSP1-2.6: This is a low emissions scenario in which the world shifts gradually but consistently toward a more sustainable path. This SSP projects a global temperature increase of 1.8 degrees C (1.3 degrees C-2.4 degrees C) by the end of the century.

SSP3-7.0: This is a moderate-to-high emissions scenario, akin to a slow transition, in which countries increasingly focus on domestic or regional issues at the expense of environmental concerns. This SSP projects a global temperature increase of 3.6 degrees C (2.8 degrees C-4.6 degrees C) by the end of the century.

SSP5-8.5: This is a high emissions (limited mitigation) scenario in which the world places increasing faith in competitive markets, innovation and participatory societies to produce rapid technological progress and development of human capital as a path to sustainable development. This SSP projects a global temperature increase of 4.4 degrees C (3.3 degrees C-5.7 degrees C) by the end of the century.

Beyond the SSPs, we also refer in this piece to various energy and climate scenarios developed by S&P Global Commodity Insights. Specifically:

S&P Global Commodity Insights Inflections base case scenario: The S&P Global Commodity Insights base case scenario, known as Inflections, is the integrated cross-commodity view of the evolution of energy supply, demand and trade across the world to 2050. The Inflections outlook is based on close analysis of climate policy, industrial policy, energy costs, geopolitical trends, demographics, and other factors, and is updated annually. The Inflections scenario brings together the energy research from across the energy work done at S&P Global Commodity Insights and as such is the most probable view of the energy future that S&P Global Commodity Insights projects. 

Inflections describes a world where the energy transition accelerates from the late 2020s, delivering a net reduction in global greenhouse gas emissions of approximately 25% by 2050, compared to 2023 levels. Fossil fuels remain a significant component of the energy system by 2050 but renewables and other cleantech energy sources are in the ascendancy. Extrapolating emissions levels out to 2100, the Inflections world is expected to result in warming of approximately 2.4 degrees C above pre-industrial levels by 2100.

S&P Global Commodity Insights Net-Zero scenario: The S&P Global Commodity Insights Net-Zero scenario referred to in this analysis is a speculative outlook that asks ‘what would it take’ to deliver global net-zero GHG emissions by 2050. It is a back-cast case (beginning from the fixed position of global net-zero emissions in 2050 and worked backwards to the energy system of today) and demands an almost complete elimination of fossil fuel consumption and a global build-out of clean energy technology. Warming by 2100 under this outlook would be no more than 1.5 degrees C above pre-industrial levels.