Aligning Climate and Development: What Businesses and Investors Can Learn from the World Bank’s Agenda

Figure 1: Global GDP losses estimated by  IFoA (10% by 2050 and 50% between 2070 and 2090)  

In an era marked by escalating climate risks, businesses and investors face unprecedented challenges. Climate change is no longer just an environmental issue—climate change is near and present economic threat undermining both current well-being and the potential for future growth. While middle- and low-income countries face the largest climate risks, actuaries are raising the alarm showing that global GDP may collapse in our lifetimes. Still, we also see present opportunities to leapfrog to green, resilient growth. 

Why This Matters: 

• The economic cost of inaction are huge—the World Bank estimates losses in 2050 to exceed 10 percent of GDP in some countries and scenarios. 

• According to a new report by the Institute and Faculty of Actuaries (IFoA) in collaboration with the University of Exeter, global GDP could contract by 50 percent between 2070 and 2090  if climate change remains unchecked. This is not an abstract environmental warning; it is a projection based on rigorous financial risk assessments. 

Effective Modeling: From Climate to Economy 

Climate change presents a host of risks to businesses, governments, investors, and citizens around the globe. As explored in previous blogs, physical risk and transitional risk present material financial consequences. While appreciating the presence of such risks is becoming commonplace, modeling and quantification require time and precision less prevalent among many investors and institutions. 

Previous literature has focused on empirical estimates, which aggregate historical data to project global consequences of climate attributes such as temperature and precipitation. Comparatively, more recent modeling by the World Bank’s provides a complementary approach. Captured in The Macroeconomic Implications of Climate Change Impacts and Adaptation Options: A Modeling Approach, the foundation of the model rest on economic development and climate scenarios used to define climate change through shifts in temperature, precipitation, sea level, etc. These broad climate factors are then translated into biophysical impacts, categorized as either human capital, agriculture and natural resources, or infrastructure and services. Chosen based upon a regional characteristic, they may include labor heat stress, erosion, tourism, crop yield, etc. Finally, these impacts are aggregated using geospatial data and consequences are assessed on a 30–40 year, country-wide scale using the World Bank’s macro-fiscal model (MFMod).  

Figure 2: Modeling Approach (World Bank)  

While it is impossible to generate a perfect model of climate risk, this strategy proves an excellent complement to more traditional empirical assessments. First and foremost, biophysical modeling provides a check by verifying that the sum of effects is consistent with empirical results. Agreement helps build confidence in results, while divergence highlights knowledge gaps and potential errors. Additionally, by examining individual climate variables, assessors can go beyond the simple aggregate and generate an accurate understanding of localized effects. Finally, given the unprecedented and unpredictable nature of climate change, this model can capture “new to the world” impacts, like sea level rise, that are not apparent in historical data. This allows for a more complete and accurate understanding of climate risks, particularly as empirical models underestimate local impacts and overlook those occurring at shorter timescales (World Bank). 

Essential Takeaways: Inaction Costs More Than Adaptation 

This method of modeling provides a plethora of data, ripe for informing global climate investment and adaptation. However, the World Bank’s report also demonstrates two large-scale trends:  

First is the unquestionable negative impact of climate change, which is projected to cause universal negative impacts on GDP across all considered channels and countries. While the intensity of effects varied significantly based on a country's location, geography, economic structure, population density, and other characteristics, modeled patterns indicated the most substantial impact channels include heat stress affecting labor productivity, cyclone induced damages to capital stock, and damage roads and bridges. Reduced livestock and rainfed crop yields were also often significant, though they demonstrated extreme variance.  

Figure 3: Impact of climate change on GDP by 2050, for various impact channels, scenarios, and countries. (World Bank CCDR)  

Secondly, in each scenario, climate adaptation also proved costly, through both capital expenditures and operational expenses. Yet despite these costs, modeling demonstrated adaptation consistently leads to better GDP outcomes than a business-as-usual scenario with unchecked climate damage. Moreover, though financing adaptation through debt can significantly raise debt-to-GDP ratios, inflation from climate damage without adaptation tends to be higher, which paradoxically helps reduce debt-to-GDP ratios. Ultimately, this trend demonstrates the importance of timely climate investment and the need for smart, sustainable investment and financing options to avoid deepening debt distress while still achieving resilience.   

Figure 4: Benefits from adaptation interventions recommended in the CCDRs (World Bank) 

Action Items:  

The World Bank’s climate and development agenda offers a clear message: the costs of inaction are far greater than the price of preparation. For businesses and investors, this insight is not just informative, but a call to action. Climate change is already reshaping the global economic landscape, and those who fail to adapt risk being left behind. Fortunately, the tools, frameworks, and knowledge exist to drive informed, forward-looking decisions and create sustainable returns. 

Moving forward, investors and industries should: 

1. Integrate Climate Considerations into Financial Planning: Incorporate climate risk assessments into investment analyses and portfolio management. 

2. Engage in Policy Advocacy: Collaborate with policymakers to support regulations that promote sustainable development and provide incentives for green investments. 

3. Invest in Climate-Resilient Projects: Prioritize funding for initiatives that enhance resilience, such as renewable energy projects, sustainable agriculture, and infrastructure upgrades.