The cost of doing nothing
Last year, Europe endured a summer of extreme heat, droughts and floods that pushed communities and infrastructure to their limits.
In Andalusia and southern Spain, communities were forced to evacuate as rivers burst their banks and soils, already saturated from previous storms, could no longer absorb more water. In Portugal, flooding in the Coimbra and Mondego river area forced around 3,000 people from their homes and led to partial collapse of the A1 motorway, damage to ancient walls and widespread loss of water and electricity.
These disasters are first and foremost human tragedies. But beyond the immediate human toll lies a critical question for business and finance: what does climate inaction mean for economic resilience and risk exposure?
The answer is already visible in corporate supply chains.
When a cyclonic depression hit the Leiria region, it caused severe damage to several industrial sites; two of the five companies in the TJ Moldes group were destroyed (article). The knock‑on effect? The loss of capacity put Porsche’s production in Germany at risk because crucial parts could no longer be supplied.
Zooming out, the macro picture is just as stark. A recent EU assessment found that last summer’s extremes caused at least 43 billion euros in short‑term economic losses (article), with costs potentially rising to 126 billion euros by 2029. The summer of 2025 alone generated losses equivalent to about 0.26% of the EU’s 2024 economic output (article) – proof that a single season can shift macroeconomic indicators, not just the fortunes of a few unlucky firms.
And that’s not all. The European Central Bank has highlighted that natural disasters led to around 30 billion euros in economic losses in 2024, of which only 13 billion was insured (Article). The remainder represents a protection gap that lands directly on companies’ balance sheets. The ECB has also signalled that it will step up its monitoring of physical climate risk and expects banks to strengthen how they assess climate‑ and nature‑related risks in their portfolios of EU corporates (article)
Translation? Physical risk is no longer a niche ESG concern; it sits at the heart of financial stability policy in the EU. Regulators now expect banks – and, by extension, EU companies – to understand, quantify and actively manage physical climate risk rather than treat it as an externality.
Most companies have some mitigation story – net‑zero targets, Scope reductions, decarbonisation roadmaps – but far fewer have an adaptation strategy. Why does that matter? Even if we cut emissions fast, we’re already committed to more extreme weather over the next decades. That means physical risk will keep hitting assets, supply chains and P&L, regardless of how green your power is.
As the saying goes, you don’t know what you don’t know. To understand where that risk sits for your business, you need visibility into the ports, farms, forests and factories that feed your supply chain. Without a clear map of where those nodes are, and how exposed they are, you are effectively blindfolded. You know physical risk is rising, but you have no idea where it sits.
This is why Scope 3 visibility is critical for all companies. Understanding where the risk sits in your supply chain means you can start asking the real adaptation questions: which suppliers sit in flood zones, which routes fail under extreme heat, which regions combine high emissions with high physical exposure?
Only once those questions can be answered can businesses begin to take real steps towards managing the very real risk sitting inside their value chains.
