By Matias Pollmann-Larsen and Dominic King
As European companies grapple with severe disruption on multiple fronts, climate risks might seem a distant threat. However, our analysis suggests extreme heat, flooding and other climate hazards could drive business losses of $600 billion annually by 2035. Business leaders must act now to mitigate economic loss, adapt to boost revenues and collaborate to strengthen ecosystems.
Companies in Europe are grappling with severe disruption on multiple fronts: trade tensions and territorial wars, macro and political instability, persistently high energy and living costs. Against this backdrop, the focus for many business leaders is shifting to short-term survival, as opposed to longer-term sustainability. But could deprioritizing climate risk today undermine competitiveness tomorrow?
The threat of inaction is certainly rising. Europe’s summer heatwave saw the hottest June recorded in both Spain and England, as well as wildfires hitting over a million hectares of land. And last year, we witnessed devastating floods across the region, perhaps most notably in Valencia. Almost three-in-five businesses in Europe say extreme heat affected their operations over the last 12 months[i]; total damages from natural disasters are estimated at €30 billion.[ii]
As the region warms at twice the global average rate,[iii] President Ursula von der Leyen noted recently that the “growing burden of climate change [is] impossible to ignore.”[iv] Responding to the Omnibus package, the European Central Bank noted that climate risks have “profound implications for both price and financial stability.”[v]
The question for business leaders then is not whether to build climate resilience—but how to gain a competitive edge in doing so.
Businesses facing a $1 trillion bill
Our recent report, Business on the Edge: Building Industry Resilience to Climate Hazards,[vi] offers a sobering assessment of the mounting threats to business. Produced in collaboration with the World Economic Forum, it explores the risk to fixed business assets in 20 industries from extreme heat, wildfires, drought, water stress, tropical cyclones, coastal flooding and fluvial flooding. When factories lose water supply, or data centres overheat or offices and fields are flooded, business costs rise; for example, through rising insurance premiums, expensive repairs, unfulfilled orders or less productive workers.
We expect these climate-driven losses to reach $600 billion annually by 2035—equivalent to removing Sweden’s economy from global GDP every year. By 2055, losses are projected to exceed US$1 trillion per annum, broadly equivalent to Switzerland’s entire economic output. In Europe, extreme heat, followed by fluvial flooding and water stress, are projected to be the most damaging hazards. The recently released EU ‘Competitiveness Compass’ calls for “improving critical infrastructure resilience [as] a changing climate and extreme weather events increasingly threaten European economic security.”[vii]
Telcos and utilities in the eye of the storm
Companies cannot afford to wait—especially those in capital-intensive industries. Our analysis finds the average European telecom company faces losses of up to US$573 million per annum due to the sensitivity of data centres and network infrastructure to extreme heat. Expected losses accruing to the average regional utilities (up to ~US$386 million) and energy (~$248 million) companies are also significant.
The scale of the impact should concern all business leaders. However, as they navigate rising costs driven by the energy transition, data center capacity constraints, trade tensions and other disruptions, just how severe is the risk? To answer this question, we compared fixed asset losses against company earnings. This showed that climate-driven costs equate to an average drop in earnings of 6.7–7.5% by 2035 for companies headquartered on the continent, accelerating to 9.4-11.6% by 2055. Once again, the hit in some industries will be much worse. The average telecommunications and utilities company faces losses equivalent to more than a fifth of earnings in 2035.
To put this into perspective, S&P 500 profit margins dropped 15.3% during the depths of the Covid-19 pandemic. However, that was a temporary shock, mitigated by vaccines and government stimulus. In contrast, climate-driven losses will compound every year.
A more resilient, more competitive Europe
Despite mounting risks, there is a tendency to view climate adaptation as a long-term concern, especially given Europe’s focus on economic competitiveness. However, the two are not mutually exclusive: every $1 invested in climate resilience returns an estimated $2 to $19.[viii] A robust grid failure contingency plan, for instance, can prevent catastrophic business disruptions; pivoting R&D can unlock fresh revenue streams in new, fast-growing sustainable markets.
The Clean Industrial Deal (CID)—the EU’s joint roadmap for competitiveness and decarbonization—provides impetus. By supporting energy-intensive industries and clean-tech manufacturing, redesigning permitting, procurement and taxation rules and reducing external dependencies, CID encourages companies to lower emissions. More importantly, by providing investors with greater certainty on Europe’s climate ambitions, it encourages adaptation, reducing the perceived trade-off between growth and resilience while accelerating demand for green products and services.
Scaling climate resilience with technology
How companies across the region respond to the challenge of climate change will depend on the nature and location of their fixed assets. But any strategy should be underpinned by three pillars: mitigating economic loss, adapting to boost revenues and collaborating to strengthen ecosystems.
Losses can be avoided by mapping climate risk exposure, contingency planning and diversifying supply chains. Revenues can be bolstered by understanding changing consumption patterns in a warmer world and tapping into new circular business models. Ecosystems can be strengthened by developing regenerative practices, early warning systems and nature-based solutions.
Emerging technologies such as AI are critical enablers of each pillar of climate resilience. Retrieving asset-level data from extreme weather simulations can inform more robust scenario plans. Imagine working closely with a ‘climate agent’ that autonomously layers climate risk into capital maintenance and investment decisions. AI can also enhance product and service adaptation to evolving consumer needs in a changing climate.
For example, energy companies across Europe are using technology to boost grid resilience as extreme weather events intensify. They are employing AI to predict outages and optimize maintenance schedules, helping ensure a more reliable energy supply. Moreover, energy grid digital twins enable simulations of different operational scenarios to minimize downtime and enhance efficiency.
The stakes are high. As climate hazards intensify, physical infrastructure will deteriorate, supply chains will fracture and markets will shift—jeopardizing both lives and livelihoods. The pressure to prioritize short-term financial performance is strong in Europe today, but companies that fail to embed climate resilience into their strategy will erode their competitive position. Business leaders must act now to mitigate risks, seize new opportunities, and ensure long-term success in a more hostile climate.
About the Authors
Matias Pollmann-Larsen, Global Sustainable Value Chain Lead – Accenture
Dominic King, Research Lead, EMEA – Accenture
