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What climate change is costing the economy

In the worst-case scenario, climate change could cost Germany up to 900 billion euros by 2050. These are the findings of a study conducted by the Federal Ministry for the Environment, Economics and Climate Protection at the beginning of 2023. In the best-case scenario, the costs would be 280 billion euros. However, health impairments, deaths from flooding and heat, the loss of biodiversity, a poorer quality of life and the strain on ecosystems are not included ¹.

Researchers have calculated costs of at least 145 billion euros for the past 2000 to 2021, including 80 billion euros since 2018 alone. More than half of the recorded climate damage has occurred in the last five years alone. The flood disaster in the Ahr valley accounts for an important share of 40 billion euros ¹. Studies show that the number of extreme weather events such as storms, droughts, floods and fires has doubled since the early 1990s ². This also has an impact on the economy, which has to adapt to changing weather conditions.

The economic consequences of the climate crisis

On the one hand, there is the threat of direct damage as a direct consequence of extreme weather events, such as the destruction of infrastructure due to flooding. On the other hand, there is indirect climate damage with an impact on supply chains, such as the delayed production or delivery of a car part due to water damage. Companies can therefore be directly affected by the consequences of the climate crisis at their location or indirectly via their supply chain in distant regions. Added to this are factors such as the extinction of species or refugee movements in the global South, the effects of which on the economy cannot yet be calculated ³.

According to the analysis by the private, US-based organization "National Bureau of Economic Research", the average increase in global temperature of 0.04 degrees Celsius per year would reduce global GDP by 7.22 percent by 2100 - if no countermeasures are taken. If the countries adhere to the Paris Climate Agreement, the annual temperature increase would be reduced to 0.01 degrees Celsius, resulting in a GDP loss of 1.07 percent ⁴.

15 percent of companies already affected by climate change

A representative survey conducted by the state-owned promotional bank KfW shows the extent to which companies are feeling the consequences of the climate crisis. Currently, 15 percent of companies see themselves affected by climate change, and 44 percent of large companies. More than half of these large companies are already taking appropriate measures. Around a quarter of the companies surveyed expect to be affected by climate change in the future ⁵. 

Companies in the manufacturing, agricultural and construction sectors will be particularly affected. But also service companies, which will be confronted by loss of income in agriculture, increasing production costs in industry and thus price increases in preproduction costs. Craft, engineering and architectural services could in turn benefit from reconstruction measures or green adaptations to buildings ³.

Investments of around 120 billion euros per year required

The KfW Climate Barometer shows that companies spent around EUR 72.2 billion on climate protection in 2022 - around 18% more than in 2021 due to inflation. In addition to increased energy efficiency in buildings, the most common investments include climate-friendly mobility and electricity generation and storage from renewable energies. According to KfW estimates, however, private sector investment of around 120 billion euros per year is required ⁶.

How much does climate protection harm economic growth?

The extent to which climate protection and economic growth can go hand in hand involves several factors. There are fears that some jobs will be lost, at least in the short term, in individual sectors of the economy and that not enough new jobs will be created. However, a report by the Organization for Economic Cooperation and Development (OECD) shows that a distinction must be made between the different sectors. For example, job losses are to be expected in agriculture, fossil fuel-based energy production and the manufacturing industry. New jobs will be created in the construction industry, renewable energies and the service sector. It is important that a balance is struck between economic growth and the reduction of CO₂ emissions. The focus here is on switching to solar cells or wind turbines. A changeover with a cost to society, but no major economic costs ⁴ .

The Environmental Performance Index (EPI) is a measure of a country's environmental policy and shows that economic prosperity often correlates with better environmental performance. Countries such as Norway, the UK and Switzerland benefit from climate protection investments that benefit both the economy and the environment. Action on climate change drives economic growth through new technologies and creates jobs, indicating that countries do not have to choose between sustainability and economic security ⁴ .

Climate protection as an integral part of the business strategy

It is clear that sustainable action is required - whether at country or business level. Companies that play their part in climate protection and see this approach as corporate risk management are making their contribution to a more sustainable future and protecting themselves from potential climate damage.

With the Planted sustainability platform, we enable companies to implement their sustainability strategy holistically, from CO₂ management and ESG reporting to local environmental protection. Convince yourself of our efficient software solution and book a free demo now.

Sources:

¹ New study: Climate impacts cost up to 900 billion - ZDFheute

² Weather extremes: climate change & consequences - Welthungerhilfe

German Association of Small and Medium-Sized Enterprises (DMB) | Competence Center Energy Transition (mittelstandsbund.de)

Is climate protection harming economic growth? - DW - 02.07.2021

KfW survey: Only one in seven companies is preparing for climate change | tagesschau.de

KfW study: German companies spend 72.2 billion euros on climate protection | ZEIT ONLINE

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