Required Investment Approximately 3 Times Current Levels; "Adaptability" Questioned After Decarbonization -- 3 Billion People Exposed to Climate Change Risks Without Adequate Protection

McKinsey & Company (Japan Representative: Naoyuki Iwatani) has announced the release of its latest white paper, "Advancing Adaptation," which analyzes the response to physical risks from climate change, the necessary adaptation measures, and the scale of investment required.

Labor productivity declines due to extreme heat. Logistics networks are disrupted by heavy rainfall. Agricultural production is affected by drought.

Climate change is no longer a future environmental issue, but a management challenge that directly impacts corporate activities, social infrastructure, and regional economies.

Globally, climate change measures have primarily focused on "decarbonization," centered on reducing greenhouse gas emissions. However, as the impacts of climate change become a reality, the importance of "Adaptation"—how to prepare for unavoidable changes—is rapidly increasing.

This white paper analyzes 20 key adaptation measures, including cooling facilities, water resource management, irrigation, disaster prevention infrastructure, and coastal protection facilities, revealing the extent of global preparedness and the future investment needed.

This white paper was created based on the latest research conducted by the McKinsey Global Institute (MGI). The Japanese version was supervised by Yuto Yamada (Senior Partner), Kohei Wada (Partner), and Takaharu Kihara (Associate Partner) from the Tokyo office.

▼ White Paper

https://www.mckinsey.com/jp/~/media/mckinsey/locations/asia/japan/our%20insights/advancing%20adaptation-20260612.pdf

Key Themes Available for Interview

Regarding this matter, McKinsey's experts in climate change and sustainability are available for background explanations and individual interviews on the following themes:

Transformations required for urban and infrastructure policies in Japan

Risks of extreme heat, heavy rainfall, and water shortages faced by Japanese companies

Supply chains and climate change risks

Will climate change adaptation become a new growth market?

How to approach resilience investment through public-private partnerships

Why "Adaptation" is now more important than "Decarbonization"

The reality of 3 billion people exposed to climate change risks

The impact of 2.2 billion people experiencing heat stress by 2050

The World is "Under-Adapting"

Analysis shows that global investment in climate change adaptation is approximately $190 billion annually. However, it is estimated that $540 billion annually is needed to protect people exposed to climate risks to developed country standards.

At the current investment level, only about 1.2 billion people receive adequate protection, while approximately 3 billion people remain inadequately protected. The world faces a significant "resilience gap."

By 2050, an Additional 2.2 Billion People May Be Exposed to Heat Stress

If current emission trends continue and the global average temperature rises by approximately 2°C compared to pre-industrial levels around 2050, it is estimated that the population exposed to heat stress will increase by an additional 2.2 billion people. The population exposed to drought risk is also expected to increase by about 1.1 billion.

Addressing heatwaves and water shortages, in particular, will be central issues for future adaptation investment, with investments in cooling facilities and irrigation systems alone potentially accounting for over half of the future adaptation investment required.

Required Adaptation Investment to Reach $1.2 Trillion Annually

If the global average temperature rises by approximately 2°C, the required investment will be about 2.5 times the current level just to maintain the same level of protection.

Furthermore, it is estimated that $1.2 trillion annually will be needed to protect all people to developed country standards. This is more than six times the current global adaptation investment.

Adaptation is Still a "Worthwhile Investment"

On the other hand, this white paper points out that adaptation investment is not merely a cost.

Analysis suggests that the benefits derived from adaptation could reach approximately seven times the cost. Considering the avoidance of business interruptions, reduction of infrastructure damage, maintenance of agricultural productivity, and improvement of labor productivity, adaptation is considered a highly economically rational investment.

"Adaptation Strategies" Also Required for Japanese Companies

In Japan as well, record-breaking heatwaves and heavy rainfall disasters have occurred frequently in recent years, and climate change risks are beginning to directly impact corporate management and regional economies.

Production bases, logistics networks, supply chains, human capital, infrastructure—

Climate change adaptation is a theme that concerns not only the environmental sector but also management strategy and investment decisions themselves.

Going forward, in addition to decarbonization efforts, how to enhance the "ability to withstand and prepare for change" will become a critical factor determining the competitiveness of companies and regions.

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