Climate Risk Awareness Gap Widest in Australia, Canada, and the UK!

Businesses worldwide are underestimating their physical risks from climate change with Australia, Canada, and the United Kingdom being amongst the countries with the biggest awareness gaps. FM, an international insurance company focused on risk and resilience, has published the 2026 FM Resilience Index, assessing macro and physical risks in 130 countries and territories. Amongst the physical risks include climate change exposure; climate risk exposure; climate risk quality; cybersecurity; fire risk quality; and seismic risk exposure.

 

What are physical climate risks?

As anthropogenic greenhouse gas (GHG) emissions are released into the atmosphere – and consequently increasing global temperatures, the intricate balance of our ecosystems is being compromised. For instance, sea levels are rising at an unprecedented rate as glaciers are retreating. The climate is changing at such a fast pace that our natural systems are unable to adapt and evolve. This is creating a wide range of physical impacts that are being felt worldwide. Physical impacts include more frequent and intense heatwaves, wildfires, more droughts, and more extreme rainfall, amongst others. These impacts will be felt throughout the economy by damaging assets, reduce productivity, increase illnesses and death, and decrease biodiversity.

Estimates believe that weather and climate-related extremes cost the European Union around €208 billion between 2021 and 2024 alone (Figure 1), with those figures expecting to increase dramatically over the coming years.

Figure 1 - European Environment Agency, 2024.

Estimates also suggest that Australia is among the countries with the highest economic and insured losses per capita from extreme weather, right behind New Zealand and the United States of America.

All in all, analysts have estimated that global natural catastrophes in 2024 created a global economic cost of around $320 billion. They also suggest that in 2050, those costs may reach $41.4 trillion – 14.5% loss in gross domestic product (GDP). That would be an increase of 12,837.5% compared to current levels.

Why is there an awareness gap?

Although these numbers are worrying, FM’s Resilience Index suggests that businesses in numerous countries are underestimating the risks that they are under. China and India ranked the highest for the awareness gap, followed by Australia, Canada, and the United Kingdom. Other reports suggest a similar trend with the Recalibrating Climate Risk report explaining that governments, central banks, and investors globally are understating economic risks from climate change.

A possible cause would be that companies are failing to conduct comprehensive risks analysis and disclosures, resulting in operating with significant physical risk blind spots. Climate risks themselves are also believed to have been widely underestimated due to misjudging the planet’s sensitivity to GHGs. There is also a hidden “cooling” effect from air pollution – as they are being cleaned up, there may be a further 0.5°C warming, exacerbating climate risks.   

What should businesses do?

Although it may be difficult to assess physical climate risks, it is imperative that businesses conduct an assessment to understand how their operations may be impacted in the future. By recognising and understanding those risks, businesses can adopt the appropriate measures to mitigate these risks and ensure long-term resilience. Businesses can turn toward their associations for guidance on specific climate risks that their industry might be facing as well as solutions and initiatives that are being adopted by other businesses with similar risks and scale.

 

What can membership bodies do?

Membership bodies such as trade associations and professional bodies are uniquely positioned to understand and assess the physical climate risks that their sectors and professions are facing. They can guide and support their members through the transition to ensure sector-wide resilience and long-term prosperity.

If you are a membership body and are unsure what this looks like for you, CAFA provides the tools and resources professional bodies need to navigate this. By joining our free membership, you can access the frameworks and support to guide members into leaders. Join us today.