The Growing Climate Change Tax

Editor's note: Since the original publication, on October 8th the death toll from Helene increased to at least 227 people and caused up to $250 billion in damages.

Helene may go down as one of the nation's top five most costly storms ever, with over 130 lives lost, damage and economic loss hitting close to $160 billion (of which only 6.25% will be covered by insurance), and impacted communities, like those in Asheville, North Carolina, dependent on supplies being airlifted amid destroyed roads and extensive flooding. The 310-mile-wide storm had exceptionally strong wind and rains, inflicting damage across more than a 650 mile swath and affecting six southeast states. Warming oceans, caused by climate change, are fueling more major hurricanes, defined as a Category 3 or higher. Helene's rapid intensification, a term we've heard all too often lately, raised it to a Category 4 before landfall, where flooding already began before the storm arrived ashore.

While shocking, the event is not unexpected. With 7% more water vapor in the air for every 1°C of ocean warming, climate change is supercharging these storms with heavier rains and flooding. Helene's landfall marks the U.S.'s eighth Category 4 or 5 hurricane in just eight years — a rate unprecedented compared to the previous 57 years.

The Growing Climate Tax

If this dramatic human toll isn't compelling enough, consider this larger point: climate change acts as a pervasive and continually increasing regressive tax on every aspect of our societies and the global economy, permeating all industries and niches of the world. Its impacts are often hard to parse out at first, but the costs are real, measurable and will grow astronomically.

Today, extreme climate events — such as Helene — cost the U.S. economy $150 billion annually, not including losses related to human lives, healthcare, and damages to ecosystem services. And it doesn't end there — budget analyses project a future where climate change could drain federal revenues by as much as 7.1%, equating to a $2 trillion annual loss. Globally, recent studies indicate that climate change could cost the world economy a mind-blowing $38 trillion annually by 2050. This could reduce global income per capita by 19% due to the widespread effects of emissions like high temperature, ocean acidification, loss of habitat and biodiversity, air pollution and beyond.

For individuals, this economic burden is severe. A child born today is expected to face a lifetime financial penalty of up to $1 million due to climate change, thanks to increased living costs and decreased earnings. As temperatures rise, sectors like agriculture, energy, and labor are being hit the hardest. With every 1°F increase, the U.S. alone could lose 0.7% of its GDP — potentially up to 4% annually by century's end. The price tag for inaction is getting harder and harder to ignore.

Catastrophes… Sector by Sector

While the global costs of climate change convey a sense of magnitude, breaking them down by industry provides a more immediate understanding. The food, real estate and data center sectors alone highlight how ubiquitous — and unavoidable — these financial pressures are becoming.

Food and Beverage: Food insecurity has jumped dramatically, increasing from 135 million people in 2020 to 345 million people by mid-2022, as climate change, the war in Ukraine, and continued supply chain and economic fallout from the Covid-19 pandemic push food prices skywards. A recent study revealed that top agricultural and food retailers could face a 7% decline in value — potentially translating to $150 billion in investor losses by 2030 — unless they adopt sustainable practices. Case in point: Companies like Danone, which rely heavily on dairy, are grappling with the impact of climate change on milk production. Danone's reliance on milk, which constitutes 60% of its raw material costs, makes it particularly vulnerable, with prices projected to rise by an average of 9% by 2030.

Real Estate: Experts warn of an impending "climate bubble." Extreme weather events like floods and wildfires are expected to erode property values, with millions of homes at risk of being significantly overvalued. A recent study estimated that U.S. properties are currently overvalued by as much as $237 billion due to underestimating flood risk. Actuarial firm Milliman puts the true value at $520 billion. Case in point: The insurance market is already nearing collapse in places with high natural disaster risk like Florida, Louisiana and California. A collapse of this "bubble" could severely impact lower-income homeowners, leading to macroeconomic effects comparable to the 2008 housing crisis.

Data Centers: Data centers are facing mounting challenges due to climate change. Currently accounting for over 1% of global electricity consumption, these energy-intensive operations are increasingly vulnerable to rising temperatures and extreme weather events like heat waves, which are driving up cooling demands. In some locations, operational costs could increase by as much as 26%. Case in point: In the summer of 2022, a heatwave in the United Kingdom caused several Google and Oracle data centers to shut down as their cooling systems failed. In fact, 45% of U.S. data centers have faced extreme weather events that threatened their operations.

Creating Solutions through Sustainable Innovation

Despite the myriad challenges posed by climate change, businesses are increasingly embracing sustainable innovation — not only as a way to mitigate risk, but as a means to unlock new opportunities and actively contribute to solutions.

Food and beverage companies are increasingly adopting regenerative agriculture to ensure long-term food security and stabilize production amid climate risks. Danone aimed to source 30% of key ingredients from regenerative farming by 2025, and has already achieved 38%. PepsiCo plans to expand its regenerative footprint from 1.8 million to 7 million acres by 2030, while Cargill targets growth from 880,000 to 10 million acres. Farmers using regenerative methods report 70–120% higher profitability and a 15–20% return on investment over 10 years.

Real estate firms are increasingly recognizing the value of climate resiliency as a key investment differentiator. Companies like Galvanize Climate Solutions, Fifth Wall, and Brick & Mortar Ventures are using resiliency-focused strategies to attract investors. A 2018 study by FM Global found that every dollar spent on hurricane protection can reduce a building's loss exposure by $105. Babcock Ranch, a solar-powered and possibly the world's first "hurricane-proof" town in Florida, showcased the strength of resilient design by surviving Hurricane Ian in 2022 without major damage.

For data centers, energy efficiency has been a top priority. Cutting-edge solutions are emerging, such as Microsoft's Project Natick, which submerges data centers underwater for cooling benefits. Companies like Sustainable Metal Cloud are pioneering immersion cooling systems that are 28% cheaper to install and cut energy usage by 50%.

Getting on the Front Foot

Hurricane Helene, and countless storms like it, illustrate a hard truth: these events are no longer rare, but rather a powerful and persistent force that is slowly eroding the global economy and our way of life. Businesses can no longer treat climate change as an isolated risk or future threat; it's a continuous tax on human health, infrastructure, and every part of companies' value chains. The core role of business — to provide goods and services that meet public needs — remains true. The need of today's world is clear: businesses must create the goods, services and solutions that enhance safety, stability, and resilience in the face of climate change. It's the only path that makes sense.

*Note: 6.25% of insured losses refers to a $10 billion high-end estimate for the insured amount of damages caused by Helene, according to a Bloomberg Intelligence report, which cited reinsurance broker Guy Carpenter.