Failing to take action to mitigate and adapt to climate risks poses major economic risks, a survey of the world’s top experts shows. The findings affirm the importance of climate risk management and planning for businesses.

The World Economic Forum’s Global Risks Report 2023 examines the key threats to the global economy over the short term and the next decade. It’s informed by a poll of more than 1,200 experts and policymakers worldwide, including big names in business, academia, and government.

Climate risks on the rise

The report shows that climate change dominates the global risk landscape. Failing to stop climate change is the top long-term risk, which is closely followed by failing to adapt to climate risk impacts. Natural disasters and extreme weather events, as well as biodiversity loss and ecosystem collapse, round out the top four long-term threats. Both are exacerbated by climate change.

Climate risks are also top of mind in the short term. Extreme weather events are the second-most severe global risk over the next two years, while failure to mitigate climate change is the fourth-most severe.

In addition, the report stresses how escalating climate risks may compound with other global threats to trigger “polycrises” that could have huge economic, societal, and ecological repercussions. For example, climate change has the potential to exacerbate natural resource crises as countries race to secure the critical minerals needed to scale up renewable energy and low-carbon infrastructure.

How businesses should respond

Businesses have to prepare for climate risks if they are to withstand the economic disruption and geopolitical volatility that the report forecasts. Rigorous, long-term planning is necessary to build climate resilience at the company level and economy-wide. Meaningful climate action also needs to happen now to prevent the risk outlook from deteriorating further.

The Global Risks Report outlines four principles for building preparedness: strengthening risk identification and foresight, recalibrating the present value of “future” risks, investing in multi-domain risk preparedness, and strengthening preparedness and response cooperation. To operationalize these principles, businesses will have to transform their risk management practices.

This means embracing Climate Risk Planning (CRP) — a structured approach to understanding, managing, and communicating climate-related financial risks and opportunities. Done properly, CRP should prepare companies to thrive in a climate-adjusted future, one in which the economic, geopolitical, and ecological landscape looks different than it does today.

CRP is an all-encompassing process that should be instigated by senior leaders and adopted across business lines. At its core, its purpose is to help companies develop climate action plans that they can use to mitigate climate risks, identify climate opportunities, and prepare for voluntary and mandatory climate reporting. In addition, CRP should enable companies to execute these action plans and track how they affect their businesses. For completeness, CRP should help companies benchmark their climate actions against industry peers and produce high-quality climate disclosures that provide decision-useful information to stakeholders.

An all-out effort from businesses, governments, and wider society is needed to take on the threats outlined in the Global Risks Report. It will not be easy to navigate the climate-related risks it describes over the next decade. However, a rigorous approach to Climate Risk Planning could go a long way to making businesses and the wider economy more resilient.

How Manifest Climate can help

Manifest Climate is the leading Climate Risk Planning solution. Our proprietary software and in-house climate experts help businesses identify climate risks and opportunities, build internal climate competence, better align their disclosures with global reporting frameworks, and stay on top of market developments and peer actions. Request a demo to learn more.