For the world’s largest companies, climate physical risks have a $1.2 trillion annual price tag by the 2050s

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estructive weather events have continued to cause significant harm to communities and businesses around the world. Scientists found that 2024 was the warmest year on record — and the first calendar year in which the global average temperature exceeded 1.5 degrees C above preindustrial levels. In January, catastrophic wildfires destroyed heavily populated areas near Los Angeles. Preliminary estimates of the damage and economic losses of these fires total $250 billion to $275 billion, making them more costly than the entire 2020 wildfire season, according to weather forecasting company AccuWeather. At least 29 people have died as a result of the fires, and more than 18,000 structures were damaged or destroyed. Human-induced climate change is thought to have made fire weather conditions 35% more likely, according to an analysis by World Weather Attribution. 

Acute climate hazards like wildfires, floods and tropical cyclones have the ability to upend lives and disrupt economic activity, and the visceral imagery they produce tends to capture the public’s imagination. But looking out over the coming decades, the financial costs of climate change will mostly come from other hazards, especially extreme heat, water stress and drought. It is worth noting that worsening heat levels and droughts can create the conditions for more destructive acute hazards such as wildfires. 

In this report, we seek to quantify the financial costs that the world’s largest companies could face from a range of climate physical hazards in the absence of adaptation, and how those hazards affect corporate assets, using projections from the S&P Global Sustainable1 Physical Risk dataset.

These costs, already measured in the billions of dollars annually, are projected to rise over time, even under a climate change scenario in which strong global action is taken to lower emissions (SSP2-4.5). By the 2050s decade, the annual financial impact of climate physical risk is projected to total $1.2 trillion for major companies globally, absent adaptation, as represented by the constituents of the S&P Global 1200 index. Extreme heat and water stress are projected to cause the majority of the impact in this analysis. The utilities, financials and energy sectors face the largest costs over the medium term to the 2050s. On a per-company basis, an average electric utility in the S&P Global 1200 is projected to see 4.6x higher costs than the average company across all industries. Again, these projections are absent adaptation. These estimates only consider impacts to company assets and operations and do not currently incorporate changes to things like demand and revenues.

At the same time, climate risk management is becoming widespread among companies across the utilities and energy sectors, according to data collected in the S&P Global Corporate Sustainability Assessment. While the vast majority of electric utility companies include acute and chronic physical hazards in their climate risk assessments (94% and 90%, respectively), fewer of these companies (62%) are taking the additional step of identifying potential financial impact.

Projected climate physical risk costs rise over time

The total annual cost of climate physical risk for companies in the S&P Global 1200 is projected to reach $885 billion in the 2030s, $1.2 trillion in the 2050s, and $1.6 trillion in the 2090s. The estimates presented throughout this analysis use the climate change scenario known as SSP2-4.5, 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 (the “very likely” range of 2.1 degrees C-3.5 degrees C) by the end of the century. Under other SSP scenarios that contemplate different warming trajectories, the cumulative costs of physical risk for these companies are similar through midcentury due to inertia in the climate system and the lock-in effect of historical greenhouse gas emissions. No inflation assumptions are applied to our estimates and results are presented in nominal 2024 prices. For more information, see the Methodology appendix.

This analysis refers to nine climate physical hazards for which financial impact is calculated. The term "hazard" refers to exposure to physical conditions such as wildfire, drought or flood, and the term "risk" refers to the combination of hazard and the vulnerability of a corporate asset, which creates a financial impact.

The S&P Global 1200 index includes the world’s largest publicly traded companies and covers about 70% of global market capitalization. The majority of the market value captured in the index comes from US companies. 

Extreme heat, water stress and drought combine to represent 91% of total costs in the 2030s and 2050s and 86% by the 2090s under the SSP2-4.5 scenario. The contribution from extreme heat is particularly high because nearly all assets will have at least some exposure to temperatures exceeding local historical 95th percentile maximums, whereas exposure to other hazards is more variable. 

Extreme heat can affect companies across any sector through a mix of lower labor productivity, higher electricity costs as energy grids come under stress, and disruption to transportation, to name a few examples of potential negative implications. Water stress and drought can have direct effects on businesses that rely on freshwater supplies as inputs to production or for cooling. Supply chains across many industries begin with agriculture, which is particularly sensitive to water stress and drought.

While hazards like extreme heat are projected to have significant impact in aggregate across many companies, isolated acute hazards such as wildfires or tropical cyclones can cause significant costs to specific geographic areas and the companies that operate there. Some hazards are also projected to worsen more than others over time. By the 2090s, sea level rise is projected to make coastal flooding much more significant. The projected annual financial impact from coastal flooding for S&P Global 1200 companies under the SSP2-4.5 scenario increases almost 14x over the second half of this century, from $5 billion in the 2050s to $71 billion in the 2090s.

Hazards and risk across sectors and geographies

By the 2050s decade, the total annual costs due to climate hazards are projected to vary widely by sector. Our data projects: $31 billion in annual financial impact on the low end for the healthcare sector and $244 billion at the high end for utilities. These costs come from increased capital expenditure, higher operating costs and lost revenue due to business interruption. 

Different hazards may pose a more significant threat to some sectors than others if realized and/or absent adaptation to those risks. For example, for utilities, water stress is projected to have a larger financial impact (46% of utilities sector costs) than extreme heat (41% of utilities sector costs) in the 2050s. Reliable access to volumes of fresh water is essential for electric utilities that boil water for steam-driven turbines. Power generation from hydroelectric dams can be disrupted by low water levels.  

The interplay between hazards can compound their effects, like drought’s impact on freshwater availability for a variety of uses from industrial processes to household consumption. Prior research by S&P Global Sustainable1 found that the 20 largest economies by GDP are all projected to spend a larger percentage of the decade in severe or extreme drought conditions by the 2050s relative to earlier decades. These drought conditions are projected to expand in Europe in particular. In Spain, for example, 41% of the 2050s decade is projected to be spent under severe drought conditions under the SSP2-4.5 scenario.

The utilities sector faces the highest projected annual costs from climate physical risks on an aggregate basis, absent adaptation, and related industries also rank among the most exposed on a per-company basis. On average, a single company in the S&P Global 1200 is expected to see about $1 billion in physical risk-related financial impact per year by the 2050s. The average electric utility, however, is projected to face about $4.6 billion in physical risk costs annually, absent adaptation. The multi-utilities industry, which includes companies that provide more than one utility service, such as electricity and gas, is similarly high at about $3.9 billion annually per company. Water stress is projected to remain a significant hazard for these companies. 

The location of a company’s assets can also determine what physical hazards may pose the greatest risk, and the types of adaptation and resilience measures that may be needed to manage those risks. Across all utilities in the S&P Global 1200, extreme heat and water stress represent the largest costs, and that is true for these companies’ power plant assets located in most regions of the world. But there is some variation. Pluvial floods, or floods that occur from heavy rainfall, are more significant risks to power plants in South Asia and Sub-Saharan Africa, while drought poses a much larger risk in Latin America and the Caribbean and in the Middle East and North Africa.   

How are companies preparing for climate physical risk?

Companies across utility and energy industries appear to recognize the significance of risks that climate hazards pose to their operations. Data collected in the 2024 S&P Global Corporate Sustainability Assessment (CSA) shows that across sectors, climate risk management commonly includes assessing for acute and chronic physical risks. However, a lower percentage of companies have identified potential substantive financial impacts tied to physical risk. 

The CSA is an annual evaluation of corporate sustainability practices. The CSA data used in this analysis covers all companies that were active participants, a larger sample than the S&P Global 1200 used so far in this analysis. The CSA defines acute physical risks as those that are event driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods. It defines chronic physical risks as longer-term shifts in climate patterns (such as sustained higher temperatures) that may cause sea level rise or chronic heat waves. In the question “Financial Risks of Climate Change,” the CSA asks companies if they have identified any climate change-related physical risks where there is the potential for substantive changes in business operations, revenue or expenditure to arise. 

In the electric utilities industry, for example, 94% of companies seek to analyze acute physical risks in their climate assessments, and about two thirds (62%) also identified a potential financial impact. Recognizing the costs of physical risks is one of the first steps toward allocating resources toward adaptation and resilience measures. 

Spending on adaptation has the potential to drastically lower the costs associated with the potential impacts of worsening climate hazards, such as extreme heat. Research in September 2024 by S&P Global Sustainable1 and GIC, Singapore’s sovereign wealth fund, studied the potential benefits of several adaptation measures for non-residential real estate. The analysis found that green and cool roofs, which use vegetation or heat-reflective or -resistant materials to lower the amount of heat a building absorbs, can save a building owner $7.45 for every $1 spent, combined with strong policy support and timely deployment.

Corporate attention to building resilience to climate physical risk is uneven, however. The CSA also asks companies about their practices around adaptation planning, and in particular whether they have adaptation plans that describe how the company will adapt to risks based on the location, vulnerabilities and other attributes that are specific to its operations. Across a large sample of companies assessed in the 2024 CSA, only 35% disclosed they have such plans — though the findings varied by sector. The utilities sector was higher than the average, at 58%. 

The climate scenario used throughout this analysis, SSP2-4.5, contemplates strong mitigation of greenhouse gases throughout the rest of the century. Yet even in this scenario, the projected financial costs of climate physical risks are substantial due to the amount of warming that has already occurred. That reality makes adaptation and resilience central to addressing the physical risks of climate change now and over the years to come.

Acknowledgements

The authors thank Paul Munday in S&P Global Ratings for his contributions to this research.

Methodology

Physical Risk

The S&P Global Sustainable1 Physical Risk dataset defines for each company the financial impact due to changing hazard exposure, absent any adaptation and resilience measures. Financial impact at the company level reflects the weighted average financial impact for all assets linked to the company, weighted by the estimated value of the assets.

To assess the financial impact at the asset level, we use S&P Global Sustainable1 climate physical risk data, which assigns an exposure score for climate physical hazards to each of the more than 6.8 million corporate assets in the dataset. We assess nine climate physical hazards for financial impact: extreme heat, water stress, coastal flood, fluvial flood, pluvial flood, tropical cyclone, landslide, drought and wildfire. The hazard exposure score for an asset is combined with the asset type-specific sensitivity profile to quantify the future financial costs associated with each hazard. These costs can include a range of costs stemming from increased operational expenses to lost revenues due to business interruption through to physical damage and costs to repair assets. These costs are expressed as a percentage of the value of each asset type as an indicator of the financial impact at the asset level. In this analysis, reported Property, Plant and Equipment (PPE) value for each company in the S&P Global 1200 was apportioned to each asset as an estimate of asset value, and used to quantify the financial impact of climate hazard exposure in absolute terms ($US million, 2024 prices). The analysis holds all company-related characteristics constant (i.e., financials, asset holdings, business model) and seeks to quantify climate hazard impacts for each company under each scenario and time period. No inflation assumptions are applied and results are presented in nominal 2024 prices. 

The assets considered are real assets or physical assets. The asset values are constant and indicate the relative value of different asset types, such as an office compared with an electric power plant. The costs associated with the hazards can, but do not always, reduce the value of a real asset.

In this report, these projections are based on the climate scenario known as SSP2-4.5, which 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  (the “very likely” range of 2.1 degrees C-3.5 degrees C) by the end of the century. The “base case” climate transition scenario from S&P Global Commodity Insights known as Inflections is, broadly speaking, consistent with the SSP2-4.5 trajectory for global GHG emissions.

The S&P Global 1200 is an index that covers the largest companies across North America, Europe, Asia, Australia and Latin America, capturing approximately 70% of global market capitalization. All companies in the S&P Global 1200 are subject to enhanced asset data research processes in which a team of analysts reviews publicly available data, including websites, company filings and government databases, with the aim of identifying all material asset holdings. 

Corporate Sustainability Assessment

This analysis also uses data collected in the S&P Global Corporate Sustainability Assessment, an annual evaluation of sustainability practices at about 13,000 companies globally across 23 topics on average. Data analysis was performed on responses from companies that were active participants in the CSA.

^[1] IPCC AR6 WG1, Summary for Policymakers, Section B.1.1, Table SPM.1 https://www.ipcc.ch/report/ar6/wg1/chapter/summary-for-policymakers/

This piece was published by S&P Global Sustainable1 and not by S&P Global Ratings, which is a separately managed division of S&P Global.