In January 2024, we witnessed the first year-long breach of the 1.5°C warming limit with the average near-surface global temperature surging to more than 1.5°C above pre-industrial levels for a consecutive 365-day period.
In 2015, world leaders signed the Paris Agreement intending to limit the long-term global average temperature rise to 1.5°C, which is seen as crucial to help avoid the most damaging impacts. Crossing this threshold could lead to severe consequences, including but not limited to extremely hot days, higher sea levels increasing the risk of floods, significant loss of coral reefs and biodiversity loss, increased climate-related risks and poverty, and the potential of triggering irreversible tipping points such as the collapse of the Greenland Ice Sheet. Given that these impacts are far-reaching, business leaders today are increasingly recognising the urgency of mitigating these perils.
More than half of CEOs polled for PwC’s 26th Annual Global CEO Survey say their companies will be exposed to some degree of climate risk in the next five years. This finding underscores the clear need for organisations to adapt to climate change while at the same time, pointing to opportunities for businesses to deliver solutions that promote climate resilience.
Climate change refers to the long-term shift in the Earth’s average temperature and weather patterns, with human activities primarily driving this shift. While decarbonisation is about preventing greenhouse gas (GHG) emissions to curb the impact of climate change, climate adaptation involves adjusting to the physical effects already brought on by climate change, such as extreme weather events, through enhancing preparedness, reducing vulnerabilities and making investments in business continuity and resilience.
To date, most companies have rightly focused on reducing their own carbon emissions, helping to slow climate change. However, with global GHG emissions still on the rise, and significant effects from climate change already locked in, organisations must work on climate adaptation too. For businesses, this means identifying vulnerabilities and developing a systematic plan of action that enlists support to mitigate risks and capitalise on opportunities. The practice of adaptation is grounded in efforts to reduce or remove the impact of the physical risks that climate change creates. Within this space, companies can go further and look for opportunities to innovate and grow.
Integrating your company’s climate adaptation efforts with your net-zero programme can yield significant advantages. A straightforward example is the co-benefits that can be realised by improving the energy efficiency of buildings, which generally make up a significant portion of urban emissions. Not only does energy-saving retrofitting support decarbonisation and lower running costs, but it also increases resilience in the event of extreme heat (due to better insulation) and droughts (due to improved water efficiency).
In an adaptation strategy, one should start by taking stock of climate-related vulnerabilities — including infrastructure, operations, and supply chain exposure—and their associated risks. Then, in drawing up plans to protect assets and processes, one can identify solutions that help reduce emissions as well.
Adapting to climate change is critical for several critical reasons. In terms of financial considerations, the European Environment Agency already estimates that around €145 billion in climate-change-related economic losses occurred in the European Union over the last decade.
Beyond mitigating further losses, adapting to climate change presents opportunities for companies to innovate and develop resilient solutions to meet the increasing demand for alternative construction materials and designs, climate-resilient infrastructure, risk modelling tools, climate risk insurance, flood management structures, and other products and services. Furthermore aligning climate adaptation efforts with decarbonisation strategies can yield co-benefits such as reduced emissions, lower operating costs, and enhanced environmental sustainability, ensuring long-term resilience against future climate impacts.
Moreover, climate adaptation is necessary to comply with the regulatory requirements and to meet stakeholder expectations for business practices. To achieve the goals of the Paris Agreement, net zero CO2 emissions should be reached by 2050. Additionally, the European Union’s new Corporate Sustainability Reporting Directive (CSRD) requires European and non-European companies with operations inside the bloc to assess the potential effects of climate change and other environmental issues and report on any material risks and opportunities. By aligning with the regulations and demonstrating corporate responsibility in addressing the global climate crisis, organisations can maintain credibility and trust among investors, customers and communities.
Even if we could reach net-zero carbon tomorrow, we would continue to experience the effects of climate change for decades to come. As we saw at the beginning of the year, the annual average global temperature has already risen to more than 1.5°C above pre-industrial levels and is likely to continue to do so. By focusing on adaptation now and embedding climate threats into business continuity plans, companies can avoid current and future related losses and identify areas for growth within their business.
No one target indicates climate adaptation success; no net-zero equivalent that all organisations can aim for. Adaptation is a process, a way of responding to constant changes in physical conditions. This means no single approach will work for all companies. By applying the principles shared here, organisations can devise an approach that suits them, based on their unique risk exposure, and seize the opportunities that lie ahead.
