The economics of climate adaptation are clear: It’s a good buy. Every dollar spent today on proven measures such as cooling systems, irrigation, and sea dikes avoids $3 in damages on average. At 2 degrees Celsius of warming, that payoff jumps to $7 to $1.
Yet despite such great bang for the buck, the world currently significantly underspends on climate protection. While adapting to today’s pattern of climate hazards would cost $540 billion annually, we spend just $190 billion. Put simply, the world is buying just over one-third of the climate protection it needs today despite overwhelmingly good economics. Spending roughly $130 per person would be enough.
Today, emissions remain stubbornly high, with the world on a path to reach 2 C of warming by 2050. Three billion people who live in places across the globe that may experience extreme heat, prolonged drought, destructive wildfires, and intense flooding have only limited protection, and their ranks are expected to grow.
About the authors
Annabel Farr
Annabel Farr is a senior fellow at McKinsey Global Institute, contributing to research on the net-zero transition and climate adaptation. She brings deep expertise and rigorous analysis to complex challenges related to economic development and resilience, helping leaders understand opportunities and pathways to sustainable, inclusive growth across regions and sectors.
Mekala Krishnan
Mekala Krishnan is a partner at the McKinsey Global Institute. Her research focuses on topics related to sustainable and inclusive growth, including climate risk, adaptation and the net-zero transition, globalization, productivity, and gender economics. Her recent publications include “Advancing adaptation: How evolving hazards could shape the agenda,” “Advancing adaptation: Mapping costs from cooling to coastal defenses,” and “The hard stuff: Navigating the physical realities of the energy transition,” taking stock of the energy transition.
Olivia White
Olivia White is a senior partner at McKinsey & Company and a director of the McKinsey Global Institute. White’s research spans a range of global trends, including topics related to resilience, adaptation, global flows and value chains, financial markets, technology and innovation, labor markets, and inclusive growth, most recently focused on Africa.
