In a world with more extreme weather events, climate resilience matters for a city’s competitiveness, not just its ability to attract multinationals, technology, and talent. Repeated flooding raises insurance costs, water scarcity disrupts industrial production, and extreme heat delays outdoor work and increases fire risks — all constraints on business activity. Companies must consider whether cities are investing in resilience against weather-related business disruption as well as improving livability and workability.
The challenges are especially acute for the world’s developing cities, where rapid growth strains infrastructure. Over 85% of cities whose population growth doubled during the past five years were in developing countries, including cities such as Angola’s Luanda and Ethiopia’s Addis Ababa. Companies will need to assess how lack of investment in resilience impacts business opportunities in such cities, or what measures can be taken to mitigate the risks.
Weather disruptions
Exhibit that shows how more than 85% of rapidly expanding cities are in developing countries.
85%
of rapidly expanding cities are in developing countries, where growth is outpacing infrastructure and increasing business risk
$100 billion
Global insured climate losses exceeded $100 billion for the fifth year in a row in 2024
Some are investing, but many aren’t
Business leaders will find plenty of climate leaders. Paris, for example, aims to ensure that every resident is within a seven-minute walk of a “cool island,” such as a park or open-air pool, and plans to install solar panels on priority buildings by 2030. Miami has issued climate bonds to fund the installation of water pumps, new flood barriers, and the elevation of roadways. Singapore has responded to flood risks by widening drains, raising ground levels, and building water detention tanks.
Examples are not limited to developed cities. Dhaka is investing in flood barriers and has appointed a city heat officer, all of which support companies investing in the city’s manufacturing. Freetown has planted over 1 million trees to reduce landslide risks during floods and to provide shade and water catchment areas.
Cities will need the right levels of governance and capital to prepare for extreme weather or risk higher insurance and borrowing costs. Extreme weather events, such as flooding or droughts, also could trigger internal migration, adding to population pressures in more resilient cities, particularly in developing markets. CEOs will need to consider these risks, especially as they enter new cities or expand their footprint.
World's hottest countries
Total count of days per year where the daily mean Heat Index rose above 35 degrees C. (2018-20 average)
Source: World Bank Group; Oliver Wyman Forum analysis
Flood risks threaten manufacturing, especially outside of China
The world’s supply chains are equally exposed to climate risks, with many manufacturing hubs in flood-prone or water-scarce areas. Over 40 of Asia’s top 100 manufacturing cities have high flood risks, according to our data. Ho Chi Minh City, Dongguan, Jakarta, Shanghai, and Chennai, for example, suffer periodic flooding following storm surges, and leading companies conduct regular risk assessments before investing or signing up new suppliers.
Companies cannot assume this is only a developing market challenge. Manufacturing hubs in Europe and the United States also experience flooding, although they are more often exposed to inland river flooding. Industrial areas in Liege and San Antonio, for example, suffered significant flooding in the last five years. Nevertheless, the challenges are most acute for developing markets, as factories are more likely to be located near coastal ports where shipping exports are easy, making them more exposed to coastal events.
Chinese cities have an opportunity to lead. The country is exposed to higher climate risks than many developed countries, but sustainability investments in places like Shenzhen, which has a triple dyke coastal defense system, may persuade manufacturers to stay in China rather than diversify to lower-cost countries. China's investments in renewables technology, such as water recycling systems, also protect against the water scarcity that will challenge other less developed competitors.
Climate change challenges livability and talent attraction
Climate resilience and livability are key to attracting and retaining the world’s best employees, from architects to AI engineers. Talent may migrate from cities affected by excess heat and humidity, frequent floods, or water shortages to areas with milder climates, more resilient infrastructure, and easy access to natural surroundings and activities like hiking, cycling, and skiing — a consideration for companies seeking to attract workers.
The challenges are especially acute for cities in the tropics, such as Chennai or Manila, where extreme heat, flooding, and typhoons regularly occur. Of the 1,500 cities analyzed, 281 are in tropical areas. On average, they rank 500 places lower in our Climate Resilience index than other cities in the index. That implies higher adaptation costs and greater risks to business should the frequency of extreme weather events worsen.
Middle East cities provide examples of how to respond. Extreme heat and arid conditions make summers especially challenging and a potential deterrent to talent. But the adoption of smart cooling systems and reflective materials are just some of the approaches used in cities like Riyadh to ensure buildings are sufficiently cooled. Urban planners also are creating more canopies and green “pocket spaces” to improve walkability.
Distribution of top 250 cities in our climate rankings, by region and ranking tier
Source: Oliver Wyman Forum
