CLIMATE CHANGE: IMPACT ON THE ECONOMY

Climate change refers to long-term shifts in global temperature and weather patterns caused by both natural and human-made (anthropogenic) factors. While Earth’s climate has fluctuated naturally throughout history, today’s warming trend is unprecedented and primarily driven by greenhouse gas emissions. CO₂, methane, and nitrous oxide intensify the greenhouse effect, trapping more heat in the atmosphere. This leads to rising average temperatures, more frequent extreme weather events, and disruptions in ecosystems. Scientific studies confirm that the current climate change is mainly caused by human activities.

WHY CLIMATE CHANGE OCCURS

The main drivers of climate change include the use of fossil fuels, deforestation, and industrial processes. Burning coal, oil, and gas releases large amounts of CO₂, which remains in the atmosphere for decades and contributes to global warming. The destruction of forests, which act as natural CO₂ sinks, further accelerates climate change.

Agricultural practices, especially large-scale livestock farming and rice cultivation, release methane, which significantly contributes to global warming. Industrial processes emit not only CO₂ but also nitrous oxide, which has an even stronger greenhouse effect. Without effective climate action, this trend will continue to worsen.

IMPACTS ON THE ENVIRONMENT AND SOCIETY

Climate change has far-reaching consequences for the environment, society, and the economy. Rising temperatures lead to more frequent heat waves, droughts, and heavy rainfall events, which threaten infrastructure and agriculture. Melting glaciers contribute to rising sea levels, endangering coastal regions worldwide.

Ecosystems become imbalanced as many plant and animal species struggle to adapt to rapidly changing conditions. Social inequalities also intensify, as poorer regions are disproportionately affected by climate-related changes. Businesses must proactively address these risks to ensure long-term resilience.

Climate change presents growing challenges for businesses: extreme weather events, new regulations, and changing market demands require proactive adaptation. Production disruptions, supply chain interruptions, and rising energy costs can have significant financial consequences. At the same time, investors, customers, and regulatory bodies increasingly expect transparent and effective climate strategies. Companies that take action now and invest in sustainable solutions secure long-term competitiveness and economic stability.

CLIMATE RISKS FOR BUSINESSES

Climate change brings numerous risks that directly and indirectly impact businesses. Physical risks such as extreme weather events, droughts, and rising sea levels can severely disrupt production processes and supply chains. At the same time, regulatory and market changes lead to financial risks, such as carbon pricing or stricter ESG (Environmental, Social, Governance) requirements.

Key Climate Risks at a Glance:

• Physical risks: Damage from natural disasters, extreme weather, droughts, floods
• Regulatory risks: Stricter climate laws, carbon pricing, ESG regulations
• Market risks: Shifts in demand, rising costs for emissions-intensive products
• Reputational risks: Loss of stakeholder trust, negative public perception
• Financial risks: Higher insurance premiums, declining credit ratings, reduced investments

Reputational risks arise when businesses fail to transition toward sustainability, leading to a loss of trust among investors, customers, and partners. To remain resilient, companies must identify climate risks early and integrate targeted measures into their strategies.

REGULATORY CHANGES AND ESG REQUIREMENTS

Governments worldwide are implementing stricter climate regulations, requiring businesses to reduce their CO₂ emissions. The EU Taxonomy and the Corporate Sustainability Due Diligence Directive (CSDDD) mandate detailed sustainability reporting and concrete climate strategies. ESG criteria are becoming essential for investors and financial institutions. Companies that invest in climate action early gain long-term competitive advantages.

DIRECT AND INDIRECT ECONOMIC IMPACTS CAUSED BY CLIMATE CHANGE

Climate change has extensive economic consequences for businesses, both direct and indirect. While physical damages from extreme weather events cause immediate financial burdens, indirect effects can lead to long-term competitive disadvantages. Companies must integrate climate risks into their business strategies to remain resilient and minimize future costs.