Climate-related financial risk to more than triple by 2050: report – ESG Dive

Report on Escalating Climate-Related Financial Risks and Implications for Sustainable Development Goals

Projected Economic and Human Impact: A Threat to SDG 1 and SDG 8

A report by the London Stock Exchange Group (LSEG) projects a severe escalation in financial risk from climate-related natural disasters, posing a direct threat to the achievement of the Sustainable Development Goals, particularly SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth). The findings indicate a failure to advance on SDG 13 (Climate Action) will have cascading negative effects on global economic stability and human well-being.

• Financial risk to global Gross Domestic Product (GDP) is forecasted to more than triple, rising from a current estimate of $7.8 trillion to $28.3 trillion by 2050.
• The number of people exposed to these risks is projected to increase from 155 million in 2024 to approximately 839 million by mid-century, heightening global vulnerability and inequality.

Analysis of Key Climate Hazards and Regional Vulnerabilities

The report models a scenario where limited mitigation efforts result in a global temperature increase of 2.4 degrees Celsius by 2050. This scenario details the intensification of specific climate hazards, undermining progress on multiple SDGs.

1. Hurricanes and Flooding: Increased frequency and intensity of storms and floods threaten urban centers and infrastructure, directly impacting SDG 9 (Industry, Innovation, and Infrastructure) and SDG 11 (Sustainable Cities and Communities).
   • In the United States, an additional 25 million people and $2.7 trillion in GDP are projected to be exposed to major hurricanes.
   • U.S. flood risk is expected to increase by nearly 300% to $2.4 trillion in GDP, with significant risk concentration in areas like the New York metropolitan area.
2. Extreme Heat and Water Stress: Rising temperatures will exacerbate public health crises and resource scarcity, challenging SDG 3 (Good Health and Well-being) and SDG 6 (Clean Water and Sanitation).
   • By 2050, 145 regions are predicted to experience extreme heat, defined as 30 days or more over 104 degrees Fahrenheit.
   • Water stress is expected to expand to 670 regions, affecting nearly 244 million people and $6.9 trillion in GDP, including the Southwestern U.S.
3. Wildfires: Increased wildfire risk threatens ecosystems and communities, impacting SDG 15 (Life on Land) and SDG 11.
   • An additional 16.4 million people, primarily in the U.S., are projected to be exposed to wildfire risk by 2050.
   • Risk is set to intensify in already vulnerable California counties and expand to new high-risk areas in Montana, Wyoming, Florida, Nevada, and Idaho.

The Imperative for Climate Action and Adaptation (SDG 13)

The report underscores a significant gap in climate adaptation and resilience measures. The findings reveal insufficient action from the corporate and financial sectors to align with the goals of SDG 13 (Climate Action).

• Corporate disclosures indicate that only 34% of large and mid-cap companies are taking substantive climate adaptation measures.
• The global insurance market is already strained, with a 60% protection gap between economic losses and insured coverage in 2024. Insurers are increasingly withdrawing from high-risk regions, suggesting that financial safety nets for climate disasters are weakening.
• These trends indicate that climate-related disasters pose systemic risks by destroying infrastructure, downgrading municipal bonds, and disrupting global supply chains, further compromising SDG 8 and SDG 9.

Conclusion: A Call for Enhanced Global Partnerships (SDG 17)

The LSEG analysis serves as a critical warning that inaction on climate change will reverse development gains and make the Sustainable Development Goals unattainable. Mitigating the forecasted $28.3 trillion in economic risk requires a globally coordinated response. Achieving this necessitates strengthening SDG 17 (Partnerships for the Goals), fostering collaboration between governments, financial institutions, and corporations to accelerate climate mitigation and adaptation efforts, build resilient infrastructure, and protect the world’s most vulnerable communities.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 1: No Poverty
   • The article highlights that the number of people impacted by climate-related disasters will increase from 155 million to 839 million. Such large-scale impacts on populations, especially through the destruction of homes and livelihoods, are directly linked to increasing poverty and vulnerability.
2. SDG 6: Clean Water and Sanitation
   • The article explicitly mentions that “water stress” is predicted to expand to 670 regions, affecting nearly 244 million people. This directly relates to the availability and sustainable management of water resources.
3. SDG 8: Decent Work and Economic Growth
   • The core theme of the article is the massive economic threat posed by climate change. It projects that financial risk will rise from “$7.8 trillion in gross domestic product to $28.3 trillion in 2050,” directly threatening sustainable economic growth.
4. SDG 9: Industry, Innovation and Infrastructure
   • The article states that climate-related disasters pose a financial risk by “destroying real estate and infrastructure.” This points to the need for resilient infrastructure that can withstand climate impacts.
5. SDG 11: Sustainable Cities and Communities
   • The analysis focuses heavily on the impact on human settlements, including the New York, Philadelphia, and Los Angeles metropolitan areas. It quantifies the increased risk to cities and counties from hurricanes, floods, and wildfires, making them less safe and resilient.
6. SDG 13: Climate Action
   • This is the central SDG addressed. The entire article discusses the consequences of inadequate climate action, modeling a scenario where “the Paris Agreement’s goals not being met” leads to increased natural disasters and a 2.4-degree Celsius temperature rise.
7. SDG 15: Life on Land
   • The article discusses the projected increase in wildfires, which degrade ecosystems and threaten terrestrial life. It notes that risk will intensify in vulnerable regions and expand to new areas like Montana and Wyoming, impacting forests and land.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 1.5: Build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters.
   • The article’s projection that the number of people exposed to climate risks will rise to 839 million directly relates to this target, highlighting a failure to reduce exposure and vulnerability.
2. Target 6.4: By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity.
   • The report’s prediction that “water stress” will expand to affect 244 million people and $6.9 trillion in GDP demonstrates the challenge of achieving this target.
3. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.
   • The article’s mention of climate disasters “destroying real estate and infrastructure” underscores the lack of resilient infrastructure, which is the focus of this target.
4. Target 11.5: By 2030, significantly reduce the number of deaths and the number of people affected and substantially decrease the direct economic losses relative to global gross domestic product caused by disasters, including water-related disasters, with a focus on protecting the poor and people in vulnerable situations.
   • The article provides direct data on the projected failure to meet this target, with economic losses (as a share of GDP) set to triple and the number of affected people set to increase more than fivefold.
5. Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.
   • The article’s findings—including increased risk from hurricanes, floods, and wildfires, and the fact that insurance markets are “already strained”—show a weakening, rather than a strengthening, of resilience and adaptive capacity. The mention that only 34% of companies report taking adaptation measures further supports this.
6. Target 13.2: Integrate climate change measures into national policies, strategies and planning.
   • The scenario modeled in the report is based on “limited mitigation efforts” and the failure to meet the Paris Agreement’s goals, which is the direct opposite of integrating climate measures into policies and planning.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Direct economic loss attributed to disasters: The article provides a clear indicator by projecting an increase in financial risk from “$7.8 trillion in gross domestic product to $28.3 trillion in 2050.” This directly measures the economic impact of disasters (relevant to Target 11.5).
2. Number of people affected by disasters: The projection that the number of impacted people will rise “from 155 million this year” to “approximately 839 million people by midcentury” serves as a direct indicator for measuring human vulnerability (relevant to Targets 1.5 and 11.5).
3. Level of water stress: The article indicates that water stress will “expand to a total of 670 regions,” affecting “nearly 244 million people” and “$6.9 trillion in GDP.” These figures can be used as indicators to track progress on water scarcity (relevant to Target 6.4).
4. Proportion of businesses adopting climate adaptation strategies: The statistic that “34% [of companies] mentioned taking some form of climate adaptation measures” is an indicator of private sector resilience and planning (relevant to Target 13.1).
5. Global average temperature increase: The scenario’s assumption of a “global average temperatures rising by 2.4 degrees Celsius by 2050” is a primary indicator for tracking progress (or lack thereof) on global climate action (relevant to Target 13.2).
6. Geographic exposure to specific hazards: The article provides several specific indicators, such as the number of counties north of Delaware exposed to hurricanes doubling “from 24 to 62,” and “145 regions” predicted to experience extreme heat. These metrics can measure the expanding reach of climate hazards (relevant to Target 13.1).
7. Insurance protection gap: The mention that “the global protection gap… was 60% in 2024” is an indicator of financial resilience, showing the difference between total economic losses and insured losses (relevant to Target 13.1).

4. Summary Table of SDGs, Targets, and Indicators

Source: esgdive.com