After more than 10,000 years of relative stability— potential impact on their organizations in different the full span of human civilization—the Earth’s locales around the world. climate is changing. Since the 1880s, the average global temperature has risen by about 1.1 degrees Celsius, driving substantial physical impact in The new climate reality regions around the world. As average temperatures Some climate change is locked in. rise, acute hazards such as heat waves and floods grow in frequency and severity, and chronic The primary driver of temperature increase over hazards such as drought and rising sea levels the past two centuries is the human-caused rise intensify. These physical risks from climate change in atmospheric levels of carbon dioxide (CO2) and will translate into increased socioeconomic risk, other greenhouse gases, including methane and presenting policy makers and business leaders with nitrous oxide. Since the beginning of the Industrial a range of questions that may challenge existing Revolution in the mid-18th century, humans have assumptions about supply-chain resilience, risk released nearly 2.5 trillion metric tons of CO models, and more. 2 into the atmosphere, raising atmospheric CO 2 concentrations by 67 percent. Carbon dioxide To help inform decision makers around the world lingers in the atmosphere for hundreds of years. so that they can better assess, adapt to, and As a result, nearly all of the warming that occurs is mitigate the physical risks of climate change, the permanent, barring large-scale human action to McKinsey Global Institute (MGI) recently released a remove CO2 from the atmosphere. Furthermore, report, Climate risk and response: Physical hazards the planet will continue to warm until we reach and socioeconomic impact. (For more on the net-zero emissions. methodology behind the report, see sidebar “About the research.”) Its focus is on understanding the If we don’t make significant changes, scientists nature and extent of physical risk from a changing predict that the global average temperature may climate over the next three decades, absent possible increase by 2.3 degrees Celsius by 2050, relative to adaptation measures. the preindustrial average. Multiple lines of evidence suggest that this could trigger physical feedback This article provides an overview of the report. We loops (such as the thawing of permafrost leading explain why a certain level of global warming is to the release of significant amounts of methane) locked in and illustrate the kinds of physical changes that might cause the planet to warm for hundreds or that we can expect as a result. We examine closely thousands of years. Restricting warming to below four of the report’s nine case studies, showing 1.5 or 2.0 degrees would reduce the risk of the earth how physical change might create significant entering such a “hothouse” state. socioeconomic risk at a local level. Finally, we look at some of the choices most business leaders will have to confront sooner than later. The nature of climate-change risk Stakeholders can address the risk posed by climate Our hope is that this work helps leaders assess change only if they understand it clearly and see the the risk and manage it appropriately for their nuances that make it so complicated to confront. company. The socioeconomic effects of a changing We find that physical climate risk has seven climate will be large and often unpredictable. characteristics: Governments, businesses, and other organizations will have to address the crisis in different and often — Increasing. Physical climate risks are generally collaborative ways. This shared crisis demands a increasing across the globe, even though shared response. Leaders and their organizations some countries may find some benefits (such will have to try to mitigate the effects of climate as increased agricultural yields in Canada, change even as they adapt to the new reality it Russia, and parts of northern Europe). The imposes on our physical world. To do so, leaders increased physical risk would also increase must understand the new climate reality and its socioeconomic risk. 96 What now? Ten actions to emerge stronger in the next normal September 2020