"If the Federal Council is now considering abolishing the program — or at least withdrawing the federal contribution — it is mainly because of the windfall effects it generates," explains Philippe Thalmann, professor of environmental economics at EPFL.
"Today, 70% of our results come from abroad, while 70% of our investments are made in our historic service territory in Switzerland," says Cédric Christmann, Chief Executive Officer of Primeo Energie.
Why inaction on climate could end up costing companies dearly
Published at the end of last year, the WEF report assesses the consequences of maintaining the status quo in the face of climate challenges. The essence of this research work entitled "The Cost of Inaction: A Guide for Business Leaders to Address Climate Risks".
As the vast majority of scientists now agree on an intensification of these extreme climate phenomena, we should expect increasingly severe repercussions on the global economy.
In recent months, several major disasters have reminded us how much climate change can be the cause of human tragedies, but also economic ones. And since the vast majority of scientists now agree on an intensification of these extreme climate phenomena, one should expect increasingly severe repercussions on the global economy.
In its latest study, the World Economic Forum (WEF) looked into what it calls the "cost of inaction." Concretely, what risks do companies face if they do not prepare for climate developments? "Climate inaction has a cost. Companies that do not take measures could face significant operational, financial and reputational risks, while pioneers are already benefiting from tangible advantages by adapting and decarbonizing their activities," writes Pim Valdre, Head of Climate Action at the WEF.
Published at the end of last year, the WEF report assesses the consequences of a status quo in the face of climate challenges. "For unprepared companies, individual physical risks could, on their own, threaten between 5% and 25% of their EBITDA as early as 2050, depending on the sector and region. Infrastructure‑intensive industries are the most exposed."
Initial consequences: The first finding by WEF experts recalls that climate change is already causing significant economic costs. Since the start of the 21st century, they have more than doubled. According to the international disaster database EM‑DAT, damages caused by climate disasters have exceeded $3.6 trillion.
WEF experts further note that this amount "very likely underestimates the real costs, because it primarily reflects direct damages such as infrastructure destruction, insured losses and immediate economic impacts, while excluding indirect effects such as longer‑term health consequences, lost productivity and depletion of natural resources."
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Risks to companies: Storms, floods, fires, heatwaves and droughts have been increasing and intensifying for several years. These climate disruptions have direct consequences for companies. In addition to representing a serious source of physical damage to assets and infrastructure, they increase supply chain vulnerability and contribute to reduced worker productivity.
Among concrete examples, WEF experts cite the Sichuan drought in 2022. "It reduced hydroelectric power generation in that region of China by about 20% of its usual capacity. This situation forced Toyota and Foxconn to halt production at their factories, while supply chain disruptions extended to Tesla and SAIC Motor."
Naturally not all sectors or regions of the world will be impacted in the same way. "Companies operating in emerging markets will be more affected," the report indicates.
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Effect on global GDP: In recent years, several studies have sought to quantify the impact of climate change. They have concluded that it could begin to weigh heavily on global GDP over the coming decades. "By 2100, the current 3°C trajectory could reduce cumulative global GDP by 16 to 22%, which is 10 to 15% more than with a trajectory of less than 2°C. 21," the report states.
Some recent estimates, such as those in the fifth vintage of the NGFS climate scenarios (Network for Greening the Financial System), indicate that the effects of current emissions on GDP could be even larger and felt sooner.
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Low cost of action: According to the WEF, companies tend to underestimate their financial losses and overestimate the cost of actions to be taken. The thousand responses received in 2023 to a questionnaire show that 86% anticipate significant risks for their company. "However, those who quantified the impact of these risks do not seem to anticipate dramatic changes since they expect a limited financial impact."
This wait‑and‑see attitude is all the more damaging because acting does not seem to require considerable efforts. "Most industries could reduce between 10% and 60% of their carbon emissions without additional costs," the study indicates. Better still, they could end up deriving some benefits. "Those that reduce their carbon emissions benefit from lower fossil fuel expenditures, a lower risk profile for long‑lived assets and sometimes a stronger market position."
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Opportunities to seize: The advantages of acting are numerous according to the WEF and are not limited to growth alone. "Companies that delay action risk not only being overtaken by more proactive competitors, but also missing certain economic opportunities linked to climate leadership."
They include reduced regulatory risk; a lower cost of capital; operational efficiency gains; and faster revenue growth. As a cherry on top, proactive companies could access top talent. "A quarter of job candidates say they would reject offers from companies they perceive as unsustainable," according to the WEF.
The report, however, qualifies the scale of the opportunities to be seized, aware that realities differ by sector and by legacy assets or infrastructure. "Companies moving from grey assets to greener technologies must carefully find a balance, ensuring that investments in green technologies and assets are suited to future risks as well as policy changes across different climate scenarios."
Companies must therefore change the way they manage climate‑related risks and opportunities. "Climate inaction has a cost, even for companies. Those that do not act could face considerable operational, financial and reputational risks in the short term, while pioneers are already reaping tangible benefits from adaptation and decarbonization. For those who take bold action, there is a pathway to sustainable success," the WEF experts say.
At the end of the report, they also offer a whole set of roadmaps for business leaders wishing to act and avoid being confronted, in the near future, with what will henceforth be called "the costs of inaction."
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"If the Federal Council is now considering abolishing the program — or at least withdrawing the federal contribution — it is mainly because of the windfall effects it generates," explains Philippe Thalmann, professor of environmental economics at EPFL.
"Today, 70% of our results come from abroad, while 70% of our investments are made in our historic service territory in Switzerland," says Cédric Christmann, Chief Executive Officer of Primeo Energie.
