Extreme Weather Risk is Reshaping the Global Economy to the Tune of Nearly US$1 Trillion in Projected Losses, CDP Report Reveals

Extreme weather is already driving material financial impacts across the global economy and could generate up to $898 billion in future financial impacts according to new analysis from CDP, even though only 35 percent of companies currently identify it as a material financial risk. The world's only independent environmental disclosure system found that 11,261 companies disclosing full environmental data in 2025 reported nearly $3 billion in real losses during the year, primarily through increased direct costs of $309 million and operational shutdowns of $266 million. The findings reveal a substantial gap between current corporate recognition of extreme weather risk and the financial impacts already being incurred, while highlighting that the cost of mitigating these risks is nearly 13 times lower than the projected financial damage they will cause.

 

The Current Cost of Extreme Weather

 

Heavy rain was the largest single driver of corporate losses in 2025, accounting for $1.5 billion across the disclosing companies. The pattern reflects the increasing frequency of intense precipitation events linked to climate change, which have disrupted operations across manufacturing, logistics, agriculture and energy infrastructure globally. These disruptions translate directly into financial losses through damaged assets, interrupted production and elevated repair and recovery costs.

Despite these losses, only 35 percent of companies recognised extreme weather as a material financial risk in their disclosures. The gap between actual financial impact and risk recognition suggests that corporate risk management frameworks may be systematically underestimating climate-related physical risks. This disconnect raises concerns about the resilience of business strategies and capital allocation decisions that are not yet calibrated to the changing risk environment.

 

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Future Financial Impacts at Scale

 

Looking ahead, companies anticipate $898 billion in future financial impacts from extreme weather, with flooding accounting for the largest share at $528 billion, followed by cyclones at $161 billion and heavy rain at $86 billion. These projections reflect both the increasing frequency of severe weather events and the growing exposure of corporate assets and supply chains to climate hazards. Critically, nearly 48 percent of these risks are expected to materialise within the next two years, placing them firmly within current investment, operational and risk management decision horizons.

Financial losses are expected to be driven primarily by reduced production capacity at $326 billion and asset impairment or early retirement at $218 billion. The impacts will not be confined to isolated assets or specific sectors but will spread across the broader systems businesses depend upon, including infrastructure, supply chains, insurance markets and public services. This systemic dimension means that no single company can fully manage its exposure independently, regardless of how well it prepares its own operations.

 

The Cost Advantage of Mitigation

 

The financial case for action is supported by the substantial cost differential between risk impact and mitigation. CDP's 2025 Disclosure Dividend report found that the median cost of risks per company stood at $39.4 million, compared with only $3.1 million to mitigate them. The ratio of approximately 13 to 1 in favour of mitigation provides one of the clearest economic arguments for proactive climate adaptation investment available in current corporate sustainability data.

Despite this favourable ratio, capital flows into adaptation remain significantly below what would be expected if companies were responding rationally to the risk signal. The pattern reflects broader challenges around the short-term focus of corporate financial planning, the difficulty of quantifying climate risk with precision and the absence of regulatory or market pressure to act on long-term physical risks. Closing this gap will require improvements in disclosure quality, stronger integration of climate risk into capital allocation processes and more credible signalling from regulators and investors.

 

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Subnational Government Perspectives

 

The picture from cities, states and regions reinforces the urgency of corporate action, with 62 percent of the 1,005 subnational governments reporting through CDP in 2025 already identifying significant impacts from extreme weather events. More than 60 percent of these entities expect hazards, particularly extreme heat, urban flooding and drought, to increase in intensity, frequency or both. Subnational governments increasingly recognise extreme weather as a financial and economic risk, with 23 percent specifically highlighting financial and insurance activities as highly exposed.

In response to these hazards, cities around the world are moving from pledges to concrete adaptation projects, but more than 60 percent of reporting governments have at least one adaptation project requiring additional funding. The global investment gap for these projects stands at a minimum of $34 billion, and 46 percent of subnational governments report budget constraints limiting their ability to adapt. This funding shortfall illustrates the scale of public infrastructure investment required to support broader economic resilience to physical climate risks.

 

Outlook for Climate Risk Management

 

Amir Sokolowski, Global Director of Climate at CDP, said extreme weather is already a financial risk with a dangerous domino effect that disrupts operations, reduces production and drives losses today while far greater impacts lie ahead. He emphasised that this is a systemic challenge that no single actor can manage alone and that efforts to address this risk coherently are not sufficiently coordinated. The gaps in collaboration are themselves a significant source of risk, alongside the direct physical impacts on assets and operations.

CDP is calling for coordinated whole-of-economy solutions including companies treating extreme weather as a system-exposed business risk, subnational governments clarifying hazard exposure through public disclosure, national governments aligning fiscal and adaptation policies, and regulators using supervisory tools to address systemic financial risks. By aligning investment, strengthening shared systems and scaling adaptation, businesses and governments can not only reduce risk but accelerate the transition to a resilient economy. The trajectory of corporate risk recognition and adaptation investment over the coming years will determine whether the projected $898 billion in future losses can be materially reduced or whether it will become a baseline reality for the global economy.

 

Source: CDP