Climate risks and geopolitics were both in the limelight, and often clashing, in 2024 as a myriad of questions were raised concerning the future of sustainability efforts.
In 2025, there is likely to be much scrutiny around US President Donald Trump's anti-green agenda in particular. As widely expected, on his first day back in the White House, he signed an order to withdraw the US from the Paris Agreement and moved to scrap oil and gas exploration restrictions.
But irrespective of the political impulse in Washington DC, we expect resilience to be a critical focus, transcending divides and spanning climate, social and environmental issues.
Navigating climate-related financial risks
Climate change's financial impact is becoming increasingly clear amid more extreme weather events-temperature rises, more frequent storms as well as increased droughts in some regions and rising precipitation in others. These dangers increase financial risk, causing damage to facilities and infrastructure, threatening supply chains and raising insurance costs. All of these endanger corporates' bottom lines and translate into systemic risks for financial institutions. They risk people's wealth, health and lives, and endanger political stability.
In economic terms, climate change has caused over US$3.6 trillion in damage since 2000, and without urgent action, it is thought that global GDP could drop by up to 22% cumulatively by 2100. By 2050, unprepared businesses could see physical risks alone costing them between 5% to 25% of earnings.
What's more, higher cost pressures from carbon pricing or comparable regulation could create additional costs equivalent to 50% of earnings in certain emission-intensive sectors.
Unfortunately, the current global political environment appears more prone to delay than acceleration when it comes to regulatory action. While a simplification of regulation, in regions which are already quite advanced on these matters, could be in some cases warranted to avoid 'sustainability fatigue', a general backlash on climate action would be problematic.
Many companies might choose to focus more on short-term risks than on medium-term ones such as carbon pricing. Yet, growing climate-related operational and financial risks are already material, meaning that firms will increasingly be called upon to integrate this reality into their risk assessments and financial planning.
Read full article
