hengel1_Prabhat Kumar VermaPacific PressLightRocket via Getty Images_indiadroughtclimatechange Prabhat Kumar Verma/Pacific Press/LightRocket via Getty Images

Taking Climate Risk Seriously

The current pandemic has demonstrated how quickly global risks can multiply and spread, and why resilience and risk management are vital to protecting the world from other threats – and climate change in particular. As we have learned firsthand in recent months, the social and economic costs of failing to prepare for such risks are too high to ignore.

FRANKFURT – COVID-19 has shown how a long-recognized but underappreciated global risk can suddenly materialize and wreak social and economic devastation in a matter of weeks. The implication is clear: While the world is rightly focused on battling the current pandemic, firms and governments must also recognize and plan for other risks, particularly climate change, which, like a pandemic, could upend the global economy if not managed properly.

That is not a conclusion we arrive at lightly. At the McKinsey Global Institute, we spent a year assessing the possible socioeconomic impacts of climate change over the coming three decades. What we found is that these effects already exist and are increasing, often in non-linear ways.

As part of our analysis, we conducted nine case studies across regions to gauge potential effects, linking climate models with economic projections in each case. We estimated inherent physical risk, absent climate adaptation and mitigation, to assess the size of the challenge and highlight the case for action.

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