Europe Warming Fastest: €45 Billion in Damages Annually

Source: Olivier Hoslet/EPA/Shutterstock

Europe is warming faster than any other continent. Between 2020 and 2023, climate-related damages averaged €44.5 billion per year, two and a half times higher than in the previous decade. Extreme weather and ecosystem loss are affecting Europe’s financial stability. With the European Union still debating its 2040 climate target, the cost of delay actions is growing, and so are the risks for companies, banks, and investors across the region.

Why This Matters

• Europe’s economic stability will weaken if climate risk continues to rise.

• Companies need to address physical and transition risks to adopt to the changing climate and protect investors from growing exposures

• Climate resilience and ecosystem restoration are needed to safeguard productivity, infrastructure, and financial stability across the region

What is Happening

Europe has long been seen as a leader in climate action. Yet, EU member states remain divided over how to cut emissions, and no binding climate deal has been reached ahead of the upcoming UN climate summit in Brazil.

Meanwhile, the continent is warming up faster than the global average, leading more frequent and intense heatwaves, floods, and wildfires. According to the European Environment Agency, these climate impacts now cause an average of €44.5 billion in damages each year, compared with €17.8 billion in the 2010s and €8.5 billion in the 1980s.

Economy-wide Risks Climate and nature risks have become systemic. The European Central Bank estimates that nearly 75% of bank loans in the euro area go to companies that are highly dependent on at least one ecosystem service. When these ecosystems degrade, business operations and supply chains come under stress, and banks’ credit portfolios become riskier.

Nature-related risks reach the economy through both physical and transition channels. Physical risks include acute events such as floods and wildfires, and chronic pressures like land degradation and biodiversity loss. Transition risks arise as regulations, technologies, and markets shift toward low-carbon models. Together, these dynamics can lower crop yields, disrupt manufacturing and pharmaceutical supply chains, and reduce tourism revenue, affecting both financial and social stability.

Change is Required Climate risks are already reshaping Europe’s economy and energy systems, demanding urgent and coordinated action. Businesses need to assess their exposure to both physical and transition risks and integrate adaptation and resilience into their core strategies. Investors must evaluate portfolio exposure, while identifying opportunities in adaptation technologies and ecosystem restoration. Policymakers should connect climate ambition with competitiveness by treating adaptation and nature recovery as investments in their country’s long-term growth.

As the EU finalizes its 2040 climate framework, one message is clear: the cost of inaction will be far higher than the cost of transformation. Acting now can strengthen Europe’s economy, protect natural capital, and preserve its global leadership in sustainable finance and climate action.