The cost of inaction is much higher than the cost of adapting to changing conditions

Climate change is one of the biggest challenges of today, and its consequences are already affecting the global economy. While some governments and companies are taking active measures to reduce emissions and adapt to climate conditions, many are still hesitant. However, the costs of inaction, i.e. of the absence of adaptation measures, may be much higher in the future than the current costs of adaptation. This knowledge is of fundamental importance for economic decision-making, since not only money is at stake, but also stability, security and quality of life around the world.

Economic consequences of climate change and their measurement

Climate change brings various challenges to the economy, which are manifested mainly in the increased frequency of extreme weather events, disruptions in supply chains and the gradual obsolescence of infrastructure. These events can cause extensive damage, with costs increasing dramatically over time. For example, when buildings are no longer adapted to the new temperature standards, their maintenance and repairs become more expensive.

Measuring the economic costs associated with climate change is difficult, because these costs manifest themselves inconspicuously at first and then suddenly. A key economic indicator, GDP (gross domestic product), does not reflect the true costs associated with climate change. GDP only shows production flows and therefore does not take into account the destruction of infrastructure or ecological resources. When natural disasters occur, after a short-term loss of production, investment is made in recovery, which can even artificially increase GDP, although the long-term economic damage is significant. An important step is therefore the efforts of institutions such as the French INSEE, which are trying to create new indicators to better express climate costs.

Long-term costs of inactivity

The costs of inaction can lead to huge economic losses that far exceed investments in adaptation measures. Climate change often has non-linear consequences – that is, once certain threshold points are crossed, drastic changes occur that can cause the collapse of entire industries. One example is ocean acidification and warming, which can threaten the fishing industry. Similarly, climate change could make office work in some cities unbearable within decades due to extreme heat.

Rising insurance rates that insurance companies would have to introduce due to the increase in natural disasters are also a risk. Higher insurance premiums would reduce the purchasing power of households and at the same time increase the cost of public spending financed through taxes or debt. All these factors can cause a slowdown in economic growth.

Adapting to climate change: the path to long-term stability

Economic actors must be aware of the need to adapt to climate change. Education and informing companies about the risks that climate change brings are key. Companies and regions should plan for the long term and develop new models that will be resilient to the changing environment. For example, the automotive industry could focus on innovation and the development of more energy-efficient technologies. The agricultural sector, on the other hand, needs new procedures that will ensure sustainable food production even in more extreme climatic conditions.

However, adaptation is not free – adaptation requires significant investment in infrastructure and technology. For example, France has just launched its third national adaptation plan, which includes consultations with businesses on measures to safeguard their activities in a +4°C warming scenario by the end of the century. This process is costly, but the costs of adaptation measures are still lower than the potential losses in case of inaction.

The role of financial institutions in the fight against climate change

The financial sector plays a vital role in financing sustainable solutions. Banks and investment companies can support green projects while discouraging investments that increase the carbon footprint. However, sustainable finance is complex because not all sectors can adapt easily. Sometimes it is also necessary to support industries that are not yet completely "green", but are working on transforming their activities.

Financial institutions alone cannot reverse climate change. Regulations and stimulating policies by governments are needed to ensure that adaptation processes are supported.

Conclusion

Climate change poses enormous challenges to the economy, which will be reflected in the costs of inaction. In the future, these costs could significantly exceed the funds spent on adaptation measures and sustainable solutions. Companies, governments and individuals alike must take action to minimize the negative consequences of the climate crisis and ensure long-term stability and development. Adaptation is costly, but ignoring the need for change would be much more costly. Spring