Summary

Climate risk is fundamentally reshaping the world’s most populous markets. Natural disaster damages have risen more than tenfold since the 1980s, now costing the global economy over USD 200 billion annually. These losses fall disproportionately on urban centres, which serve as the primary hubs for global growth and investment. First Street’s analysis of 426 major global cities reveals a striking paradox: over half of global urban GDP is concentrated in locations facing the highest levels of acute climate risk. While chronic risks like drought and extreme temperatures impact emerging economies, acute risks such as hurricanes, floods, and wildfires increasingly threaten affluent regions in North America, Europe, and East Asia.

Key takeaways

The report highlights ten critical insights regarding global resilience. Acute risks are clustered in higher-income regions, while chronic hazards are more prevalent across Southeast Asia and Sub-Saharan Africa. Over 52% of global urban GDP resides in the top 25th percentile for acute climate risk, including major markets such as New York, Sydney, and Vancouver. Historically, high-risk cities have driven economic growth; for instance, Miami’s GDP has grown at more than twice the global average since 2001, despite its extreme exposure. However, the global “resilience spread”—the buffer between economic capacity and climate exposure—is eroding. While it stands at USD 1.8 trillion today, it is projected to turn negative by 2085 without significant adaptation.

Climate analysis

Physical climate risk has cost the global economy an average of 0.2% of its GDP annually over the last decade, amounting to more than USD 203 billion in yearly losses. This analysis focuses on 426 urban cores with populations exceeding one million. The report distinguishes between chronic hazards (sea-level rise, extreme heat, and drought), which allow for planned adaptation, and acute hazards (flooding, wildfires, and extreme winds), which deliver sudden, costly shocks. Acute risks are of particular concern as they can destroy assets and disrupt capital flows more suddenly in the near term.

Economic impact

The distribution of acute climate risk is skewed, with 52% of global urban GDP (USD 29.3 trillion) clustered in the highest risk quartile. This concentration is often linked to long-standing geographic advantages, such as deep-water ports and access to natural resources, which have historically drawn capital. Conversely, only 12% of urban GDP falls within the lowest-risk quartile. Data shows that cities like Sydney and Miami rank among the top 2% of the most exposed cities globally, yet they have outpaced global economic trends significantly over the past two decades.

Market dynamics

First Street defines the resilience spread as the balance between a market’s structural advantages and the costs of climate risk. Currently, 70% of global cities maintain a positive spread, while 30% already face negative spreads where climate risks outweigh local economic strengths. Case studies illustrate these pressures: New Orleans faces the deepest negative resilience spread at -10.3% due to repeated hurricane shocks and declining population. Amsterdam shows a -1.5% spread, where sea-level rise and flood risks are only partially offset by its diversified economy. In contrast, Johannesburg (+2.4%) and Doha (+9.1%) maintain positive spreads due to strong domestic markets and sovereign wealth funds, respectively.

Future outlook

Projections through 2100 under high-emissions scenarios (SSP5-8.5) suggest a steady erosion of the resilience spread. By 2050, the global spread is expected to fall to USD 827 billion, potentially crossing an inflection point near 2085. North America and Europe are projected to see the greatest erosion, losing 1.5% and 1.2% of their spreads over the next 30 years. Markets are expected to sort into distinct trajectories: 9% expanding, 53% maturing, and 38% softening or contracting. In London, while adaptation plans like the Thames Estuary 2100 are underway, waterfront neighbourhoods could experience negative impacts as early as 2035.

Conclusion

Climate resilience cannot be understood through hazard exposure alone; it exists at the intersection of climate risk and economic fundamentals. High climate risk does not automatically render a market unattractive, as many productive cities remain hubs of growth despite being in high-risk quartiles. However, resilience is a moving balance sheet. For policymakers, this necessitates prioritising forward-looking adaptation to preserve tax bases. For investors, it underscores that climate pressures will increasingly determine where capital can achieve true climate-linked alpha.