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The compelling economic case for climate investment

4 Jul, 2025
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First published 12 March 2025

A report by the climaTRACES Lab with Boston Consulting Group and the Cambridge Judge Business School highlights the importance of investing in climate mitigation and adaptation and the significant economic consequences of failing to do so.

Allowing global warming to reach 3°C by 2100 could reduce cumulative economic output by 15% to 34%. Alternatively, investing 1% to 2% in mitigation and adaptation would limit warming to 2°C, reducing economic damages to 2% to 4%. This net cost of inaction is equivalent to 11% to 27% of cumulative GDP—equivalent to three times global health care spending.

These are among the findings of the Boston Consulting Group (BCG) Climate Change and Sustainability consulting experts, Cambridge Judge Business School, and the University of Cambridge’s climaTRACES Lab report, Too Hot to Think Straight, Too Cold to Panic: Landing the Economic Case for Climate Action With Decision Makers, published today.

“Research on climate change impacts across all regions and sectors is expanding rapidly,” said Kamiar Mohaddes, King’s Fellow in Economics, Co-Founder and Director of the King’s E-Lab, and Director of the University of Cambridge climaTRACES Lab. “What stands out is that productivity loss—not merely capital destruction—is the primary driver of economic damage. It is also clear that climate change will reduce income in all countries and across all sectors, affecting industries ranging from transport to manufacturing and retail, not only agriculture and other sectors commonly associated with nature.”

“The economic case for climate action is clear, yet not broadly known and understood” said Annika Zawadzki, BCG managing director and partner, and a co-author of the report. “Investment in both mitigation and adaptation could bring a return of around tenfold by 2100.”

Another challenge is that the costs and benefits of the transition are not evenly distributed among countries. Even so, the net cost of inaction is high enough that it will likely justify unilateral action from the world’s biggest emitters. The report looks at five priority levers that can be pulled to address these challenges:

  • Reframe the debate on the costs of climate change
  • Create transparency on net cost of inaction across
  • Strengthen national climate policies to accelerate mitigation and adaptation
  • Reinvigorate international cooperation on climate change
  • Advance our understanding of the net cost of inaction

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climaTRACES Lab is an interdisciplinary initiative at the University of Cambridge focusing on climate, nature, and sustainability research. Their data-driven research and policy engagement covers the following four themes: Communication & Communities, Macroeconomics & Sustainability, Green & Sustainable Finance, and Nature & Biodiversity. Collaborating with a network of climate and nature experts globally, we conduct cutting edge research for wider societal benefit, and create and test innovative policy communications formats that translate the evidence and multidisciplinary research generated by the lab for policy and industry audiences.