Global GDP could be halved without urgent action on climate change, report warns

Climate change could cause a 50 per cent loss of global GDP if policymakers continue not to recognise the severity of the crisis. 

That’s the warning coming from the Institute and Faculty of Actuaries (IFoA) and the University of Exeter in a new report published Thursday. Titled “Planetary Solvency – Finding Our Balance with Nature,” the study calls for accelerated action by political leaders to tackle the climate crisis.

It comes after data from the EU’s Copernicus Climate Change Service showed the annual global temperature had broken the internationally agreed 1.5C target for the first time in 2024.

“Populations are already impacted by food system shocks, water insecurity, heat stress and infectious diseases,” says the IFoA. “If unchecked, mass mortality, mass displacement, severe economic contraction and conflict become more likely.”

Scientists are clear that exceeding this 1.5C temperature limit could trigger multiple ‘tipping points.’ Crossing these irreversible boundaries risks permanent damage to the Earth’s systems, supercharging extreme weather events.

“You can’t have an economy without a society, and a society needs somewhere to live,” says Sandy Trust, lead author and IFoA Council Member “Nature is our foundation, providing food, water and air, as well as the raw materials and energy that power our economy. 

“Threats to the stability of this foundation are risks to future human prosperity which we must take action to avoid.”

The authors state that “these damages already outweigh the mitigation costs required to limit global warming to 2C,” noting that, economically,  it will be overwhelmingly positive to limit global warming.

Widely used but deeply flawed assessments belittle the GDP impact of climate change

Without urgent action on decarbonisation and repairing nature, the IFoA report says that global economies could be hit by a 50 per cent loss in the two decades before 2090.

The IFoA hits out at previous estimates of GDP impacts of climate change, saying that they exclude most of the most severe risks. Risk management assessments to date often focus on single risks in isolation, without accounting for interconnected or compounding risks.

“This is analogous to carrying out a risk assessment of the impact of the Titanic hitting an iceberg but excluding from our model the possibility that the ship could sink, the shortage of lifeboats, and death from drowning or hypothermia,” says IFoA.

Specifically, it says an estimate of a 2 per cent drop in GDP by 2100 as a result of 3C warming published by Nordhaus and Boyer is still being used by policymakers to justify inaction. 

“Widely used but deeply flawed assessments of the economic impact of climate change show a negligible impact on GDP, rendering policymakers blind to the immense risk current policy trajectories place us in,” says Trust. “The risk-led methodology, set out in the report, shows a 50 per cent GDP contraction between 2070 and 2090 unless an alternative course is chartered.”

The economic risks of climate change are beginning to come to light

Numerous other reports delving into the economic impact of climate change have drawn similar conclusions.

A report published by the National Bureau of Economic Research (NBER) in May 2024  found that each 1C rise in temperature could be linked to a 12 per cent decline in global GDP.

Adrien Bilal, an economist at Harvard who co-authored the paper, said: “There will still be some economic growth happening but by the end of the century people may well be 50 per cent poorer than they would’ve been if it wasn’t for climate change.”

The World Bank has repeatedly warned on the economic impact of unchecked climate change. It says that, between 1980 and 2022, weather and climate events caused Europe some €650 billion of losses -over €15 billion per year.

The problem is, the World Bank says, that there is not enough funding to cover these losses, particularly if multiple events occur in the same year. 

“The size of a potential funding gap due to major earthquakes and floods varies between €13 billion to €50 billion,” says the World Bank. “Should a drought or a wildfire happen in a year where a major earthquake or flood has already occurred, there would be no funding available at the EU level to respond to a wildfire or drought event.”

Research by the Network for Greening the Financial System (NGFS) in November 2024 found that “estimated global losses from (chronic) physical risk are now 2 to 4 times higher globally by 2050 compared to the previous version of the NGFS scenarios.”

Livio Stracca, chair of the NGFS workstream “Scenario and Design Analysis” and deputy director of financial stability at the European Central Bank says insufficient climate policies are making the green transition even more challenging. 

“The lack of policy ambition creates a vicious circle; increasing costs of mitigation policies complicate their implementation, resulting in further unabated emissions, climate damage and thus necessitate more ambitious future policies,” Stracca continued. This then further increases economic losses from a warming climate. 

“The scenarios show that climate change is becoming a first-order factor for our economies.”