World Economy at Risk: BCG Predicts One-Third Loss of Global GDP Due to Climate Inaction This Century

World Economy at Risk: BCG Predicts One-Third Loss of Global GDP Due to Climate Inaction This Century

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Hey there! Let's dive into some hot topics, shall we?

First off, here's a mind-blowing piece of news: If the Earth warms by 3 degrees Celsius this century, billions could lose their livelihoods, and economic output may drop by up to 34%. But guess what? Investing less than 2% of GDP now could slash most of those losses, according to a groundbreaking report from the Boston Consulting Group (BCG) and the University of Cambridge.

You might be wondering what the fuss is about. Well, the report dives deep into economic and climate science data, and the authors found that most of the economic damage this century will come not from direct impacts like floods and fires, but from losses in productivity. This includes reduced labor output, supply chain disruptions, and the collapse of industries like fishing and tourism. In fact, from 2000-2023, direct U.S. losses from climate change-induced disasters totaled $700 billion, but harms to productivity were almost six times greater, amounting to a staggering $4 trillion in losses.

Kamiar Mohaddes, an associate professor at Cambridge Judge Business School and co-author of the report, explained, "What stands out is that productivity loss, not mere capital destruction, is the primary driver of economic damage. It's also clear that climate change will reduce income in all countries and sectors, affecting industries from transport to manufacturing and retail, not just agriculture."

But here's the good news: By investing 1% to 2% of GDP in efforts to cut greenhouse gas emissions and adapt to future impacts, we can limit warming to 2 degrees Celsius and slash economic harms by up to 90%. This means damages would amount to only 2-4% of GDP. To achieve this return, the report calculates that investments in cutting emissions (mitigation) would need to rise nine-fold, while investments in strengthening systems against damage (adaptation) would need to rise 13-fold. But as the report authors say, the return on investment is compelling: "The economic case for climate action is clear, yet not broadly known and understood."

Annika Zawadzki, a BCG managing director and report co-author, put it this way: "Investment in both mitigation and adaptation could bring a return of around tenfold by 2100."

The authors argue that these returns represent a "massive opportunity for humanity." In fact, they found that:

• Just one-eightieth of the resulting savings, or $324 billion, could eradicate global extreme poverty.
• One-seventh of the savings could cover all global infrastructure investment needs this century, across sectors like energy, telecommunications, transport, and water.
• Spending on healthcare could be tripled globally.
• An eighth of the savings could cover all global military expenditures until 2100.

The report outlines five steps to help educate the public and political leaders about the risks and opportunities of climate inaction and investment:

1. Reframe the debate on the costs of climate change, such as putting the economic cost for climate action on the agenda of United Nations and other multilateral meetings.
2. Create transparency on the net cost of inaction, including robust climate risk reports by companies and routine macroeconomic assessments by central banks.
3. Strengthen national climate policies to accelerate mitigation and adaptation, such as prioritizing funding and policies to help communities cope with climate risks.
4. Reinvigorate international cooperation on climate change, including the submission of ambitious national climate plans ahead of the COP30 climate summit in Belém, Brazil in November 2025.
5. Advance understanding of the net cost of inaction, including an understanding of the compounding impacts of climate change on the global economy this century.

The BCG-Cambridge report comes in the wake of another report by financial analysts indicating that countries' current climate targets may be risking "catastrophic societal and economic impacts" by overlooking significant risks to both nature and society. In January, the Institute and Faculty of Actuaries (IFoA), who are finance professionals that calculate risk and uncertainty, warned that "unmitigated climate change and nature-driven risks have been hugely underestimated," and could lead to a 50% loss in global GDP between 2070 and 2090.

Sandy Trust, lead author and IFoA Council Member, told media: "You can't have an economy without a society, and a society needs somewhere to live. Nature is our foundation, providing food, water, and air, as well as the raw materials and energy that power our economy. Threats to the stability of this foundation are risks to future human prosperity which we must take action to avoid."

So there you have it—a rapid rundown of the Earth's future heating up and why it's essential to take action now. Now excuse me while I grab a cold drink and cool off! 😎

1. The Boston Consulting Group and University of Cambridge warn that if greenhouse gas emissions are not reduced and adaptation to climate change is not improved, economic damages could reach up to 34% of global GDP this century.
2. The same report suggests that investing 1% to 2% of global GDP in mitigation and adaptation could limit warming to 2 degrees Celsius, thereby slashing economic damages by up to 90%, reducing them to only 2-4% of global GDP.
3. Failing to invest in climate mitigation and adaptation could lead to severe financial risks, such as a 50% loss in global GDP between 2070 and 2090, as forecasted by the Institute and Faculty of Actuaries. This underlines the need for urgent climate action, as our society and economy rely on the stability of the natural environment.

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