Countries will suffer significant economic damage over next 25 years without investments in resilience against climate change impacts

Climate change impacts are already damaging economies, particularly in lower-income countries, and finance ministries should prioritise investments in adaptation and resilience to limit further harm, according to a groundbreaking new analysis published today (15 April 2026) by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

The report shows that “the macroeconomic and fiscal consequences of climate impacts are still difficult to quantify accurately but are already significant, growing, and likely to continue and intensify without further efforts to adapt and increase resilience”.

But the report points out: “Our evidence also shows that early and strategic adaptation investments can bolster economic stability, reduce debt levels and borrowing costs, and accelerate development”.

The report’s authors, led by Dr. James Rising of the University of Delaware, find: “Economic metrics indicate median economic benefit–cost ratios of around 4:1 and economic internal rates of return of about 25% representing substantial returns on adaptation investment”.

The authors of the report highlight the macroeconomic and fiscal benefits of adaptation and resilience. They write: “Adaptation investments can yield a ‘triple dividend’, preventing losses, stimulating economic activity and providing social and environmental co-benefits”.

The analysis is being presented today (15 April) at a meeting of the Coalition of Finance Ministers for Climate Action in Washington DC.

The analysis draws upon almost 300 studies to evaluate macroeconomic risks to countries in terms of gross domestic product (GDP) per capita, productivity, inequality, inflation, and debt.

The results suggest that the low-income and lower-middle-income countries are today collectively already 4 to 12 per cent poorer in terms of GDP per capita due to rises in local temperature and sea level.

In a plausible worst-case scenario of global warming by about 2.5°C by 2050 compared with the pre-industrial average, without further investments in climate adaptation and resilience, low-income and lower-middle-income countries collectively would suffer approximately a further 8 to 18 per cent cut in GDP per capita due to local temperature changes and sea level rise, together with some tipping points. The increasing severity and frequency of flooding, wildfires and drought would cause even greater losses.

The global macroeconomic effect of this warming would be a cut in GDP per capita of 3 to 15 per cent.

The study also considers market and non-market impacts of climate change on aggregate ‘welfare’, expressed as an equivalent change in GDP.

The analysis indicates that welfare in low- and lower-middle-income countries could be 8 to 23 per cent lower in 2050 as a result of a warming of about 2.5°C, assuming no further increases in adaptation and resilience, with global losses of 8 to 19 per cent.

Almost 50 per cent of damages would be due to catastrophic impacts of climate change, caused by the breach of climate and economic tipping points.

The report warns: “The studies underlying these estimates are not comprehensive. Because they exclude many important impacts, such as flooding and the full impacts of tropical cyclones, cascading and compounding risks and tipping points, they are likely to be significant underestimates of the potential consequences, assuming no further increases in adaptation and resilience.”

The report concludes:

“Early and strategic adaptation investments bolster fiscal stability by reducing expenditures on losses from climate change impacts, maintaining government revenues, supporting economic stability, reducing future borrowing costs, improving debt-to-GDP ratios and mitigating credit rating impacts.

“The broader economic returns from adaptation are typically higher than financial ones, since some benefits are not priced by the market. This highlights the need for government intervention and partnerships with other actors to avoid underinvestment in adaptation.”

The report also points out: “While this report focuses on the benefits of domestic adaptation, the evidence also clearly points to the returns on investments in adaptation and resilience overseas, particularly in lower-income countries.”

The report calls for finance ministries and other economic decision-makers to “invest in building their analytical capabilities to identify and assess physical climate risks and benefit from the opportunities of leveraging proactive adaptation”.

It states: “It is also essential to address knowledge gaps for low- and lower-middle-income countries, which are often found to be impacted the most by physical climate risks. These gaps are not an excuse to delay adaptation investment, but unless they are addressed, they will continue to slow down the urgent and decisive action needed for adaptation and for the rapid decarbonisation of the global economy necessary to accelerate growth and development.”