It is essential to adapt our businesses to the consequences of climate change. According to the Institute for Climate Economics (I4CE), this requires a budget of at least 2.3 billion euros per year for unavoidable measures to be launched immediately. However, doing nothing would further burden the bill.
Current Financial Consequences
Climate change already has significant financial consequences in France. Climate-related losses amounted to 10 billion euros in 2022, compared to an annual average of 3.6 billion euros between 2011 and 2021. Additionally, the health effects of climate change have a considerable monetary impact, with cumulative costs estimated between 22 and 37 billion euros for the period 2015-2020 in metropolitan France.
Pessimistic Financial Forecasts
These financial consequences will worsen with future climate developments. According to Swiss Re, France could lose 1% to 10% of its gross domestic product over the next fifty years at +2°C of global warming. On the insurance side, the amount of claims due to natural events could increase by 93% over the next 30 years, reaching 143 billion euros cumulatively for the period 2020-2050.
Affected Sectors
In agriculture, crop losses of 7.4% for wheat and 9.5% for barley are expected by 2050. On the road network, renovations necessitated by damage caused by climate change would result in an additional cost of 5%, amounting to 22 billion euros by 2050 for a scenario at +2°C.
Potential Costs of Inaction
In addition to these financial consequences, inaction in sustainable transition leads to additional costs in all areas.
Energy-related costs:
Over the past decade, the costs of raw materials and carbon energy have experienced significant fluctuations, but generally, they have increased more rapidly than other costs. Companies that engage in sustainable transition will benefit from very significant advantages, undoubtedly causing those that have not invested in time to disappear. Indeed, waste reduction through recycling and reuse can have a significant financial impact. For example, aluminum recycling can save up to 95% of extraction and production costs compared to virgin metal production. Another example, according to the International Energy Agency (IEA), adopting eco-energy technologies could lead to global savings of $3 trillion by 2030. There is a double penalty for companies that do not reduce their carbon footprint. They will face costs related to environmental regulations and carbon emission taxes.
Carbon tax
The European Parliament adopted an ambitious carbon market reform in April 2023. This reform aims to accelerate the reduction of greenhouse gas emissions. By 2030, the reform envisages a 62% reduction in emission allowances compared to 2005 (compared to a previous target of 43%). Globally, carbon pricing and emission trading system revenues reached an unprecedented amount of around $95 billion in 2023. Despite economic difficulties, more and more states are favouring direct carbon pricing policies to reduce emissions.
Costs related to reputation and brand image:
Companies that do not take into account the growing societal expectations regarding sustainability will suffer from loss of customers, decreased sales, and recruitment difficulties. The global market for sustainable products is expected to reach $12 trillion by 2025. This growth is fueled by increasing consumer demand for environmentally friendly and socially responsible products. According to a Nielsen study, 73% of consumers are willing to pay more for sustainable products. Companies that adopt sustainable practices can benefit from better profitability through loyal customer base and positive brand image.
Regulatory risks and investor and stakeholder pressure:
Many countries are implementing regulations to encourage sustainable practices. A distributor that does not comply may face fines and penalties. Investors and stakeholders (such as NGOs and consumer associations) closely monitor companies’ sustainable practices. Investments in sustainable companies are on the rise. In 2020, assets managed according to ESG (environmental, social, and governance) criteria reached $35.3 trillion worldwide. A distributor that does not engage in sustainability may face pressure from these actors.
the imperative for businesses to embrace sustainable transition is underscored by the escalating costs of inaction. From the mounting financial burdens of climate-related disasters to the erosion of brand value and regulatory risks, the consequences of delaying action are profound and far-reaching. The evidence presented highlights not only the financial imperative but also the moral obligation for businesses to adapt and mitigate their environmental impact. Embracing sustainable practices isn’t just a matter of corporate responsibility; it’s a strategic imperative for long-term viability and competitiveness in an increasingly conscientious market landscape. As the world moves towards a greener and more sustainable future, businesses must recognise that investing in sustainability isn’t merely an expense but a pathway to resilience, profitability, and positive societal impact. The time for action is now, and those who seize the opportunity to lead the charge towards sustainability will not only safeguard their own future but also contribute to a more prosperous and sustainable world for generations to come.
