Creating climate and energy transition strategiesto weather short-term volatility

Introduction

Sustainability-minded companies and investors continue seeking to understand what factors will impact their success beyond quarterly reporting cycles or political terms to create businesses that prosper for decades.

These factors range from climate risk, decarbonization and net-zero strategies to nature impacts and dependencies and sustainable supply chain management. Sustainability gained momentum in the corporate world following the 2015 adoption of the Paris Agreement on climate change, providing investors and market participants with a clearer view of companies’ nonfinancial risks and opportunities.

A decade later, geopolitical volatility is reshaping the sustainability landscape. This volatility will have implications that last well beyond 2025 for clean technology, investor sentiment, corporate strategy, and adaptation and resilience efforts.

The Take

Geopolitical volatility and pushback in the US are reshaping the global landscape for sustainability, climate action and energy transition strategies. As the goal of the Paris Agreement on climate change to limit global warming to 1.5 degrees C appears increasingly unattainable, countries and companies are pivoting to strategies that emphasize adaptation through stronger, more resilient economies.

This repositioning will continue to play out in 2026. We expect companies to continue working toward their energy transition, climate and sustainability goals, but with a heightened focus on making clear business cases for these strategies. Pragmatism has become the name of the game.

A pragmatic approach recognizes that exposure to extreme weather events and chronic climate hazards, such as heat, water stress and drought, has led to significant financial costs across all sectors. Without adaptation, these costs are projected to continue climbing.

The total cost of climate physical risk for the companies that comprise the S&P Global 1200 index is projected to reach $1.2 trillion annually by 2050 under SSP2-4.5, a climate change scenario that assumes strong greenhouse gas emissions reduction. This figure assumes no adaptation measures, is not adjusted for future inflation and is based on projections from the S&P Global Sustainable1 Physical Risk dataset.

Despite the substantial cost, our data shows that corporate attention to building resilience against climate physical risk is uneven. Only 35% of companies assessed in the 2024 S&P Global Corporate Sustainability Assessment (CSA) have adaptation plans. As physical climate risks become more frequent and severe, the slow pace of adaptation planning presents crucial risks to the global economy.

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