There is a strong case for investing in climate mitigation and adaptation based on the severe economic consequences of failure alone. Allowing global warming to reach 3°C by 2100 could reduce cumulative economic output by 15% to 34%.
Alternatively, investing 1% to 2% in mitigation and adaptation would limit warming to 2°C, reducing economic damages to 2% to 4%. This net cost of inaction is equivalent to 11% to 27% of cumulative GDP—equivalent to three times global health care spending, or eight times the amount needed to lift the world above the global poverty line by 2100.
These are among the findings of the Boston Consulting Group (BCG), Cambridge Judge Business School, and the University of Cambridge’s climaTraces Lab report, Too Hot to Think Straight, Too Cold to Panic: Landing the Economic Case for Climate Action with Decision Makers, published this month.
The report comes at a time when the importance of economic strength is top-of-mind for many leaders. The report makes clear that climate change slows growth and weakens resilience and, therefore, hinders our collective ability to achieve many of our common priorities from health to security.
The report shows that Africa will face economic losses due to climate change. And according to the Network for Greening the Financial System (NGFS), Africa’s GDP could take a 16% hit by 2050.
However, while the relative economic burden of climate change is higher in the Global South, including Africa, the Global North faces greater absolute GDP losses due to its larger economies.
Despite having contributed minimally to global greenhouse gas emissions historically, Africa is expected to suffer significant economic damages, as noted in the report: “G20 countries have contributed about 75% of global Greenhouse gas (GHG) emissions, while Africa as a continent is responsible for just 4%,” says Hamid Maher Managing Director & Senior Partner; Head of BCG Casablanca office, and co-author of the report.
It also highlights that heat waves are forecast to account for nearly 1.6 million deaths globally by 2050, with southern and western Africa being among the most affected regions.
Furthermore, Niger is likely to lead West Africa in internal climate migration, primarily driven by drought, with as many as 19.1 million people potentially displaced by 2050.
“The continent faces substantial economic risks and social costs from climate change, despite its relatively small historical contribution to the problem,” Hamid says.
“Research on climate change impacts across all regions and sectors is expanding rapidly,” said Kamiar Mohaddes, an Associate Professor in Economics and Policy at Cambridge Judge Business School and Director of the University of Cambridge climaTRACES Lab.
“What stands out is that productivity loss—not merely capital destruction—is the primary driver of economic damage. It is also clear that climate change will reduce income in all countries and across all sectors, affecting industries ranging from transport to manufacturing and retail, not only agriculture and other sectors commonly associated with nature.”
Mitigation is the most cost-effective means of reducing the economic damages of climate change; it can return as much as 5 to 14 times the original investment. At the same time, adaptation is critical to minimizing damages, particularly in the next couple of decades. To limit global warming to 2°C by 2100, mitigation investments must increase nine-fold and adaptation thirteenfold by 2050. The challenge lies in the timing of climate investments—60% must be committed before 2050, while 95% of the economic damage from inaction would occur after that point.
“The economic case for climate action is clear, yet not broadly known and understood,” said Annika Zawadzki, BCG managing director and partner, and a co-author of the report. “Investment in both mitigation and adaptation could bring a return of around tenfold by 2100.”