Climate adaptation and resilience solutions: Emerging opportunities across public and private markets

Climate adaptation and resilience (A&R) is becoming an increasingly important investment theme as businesses, governments and communities equip themselves for more frequent extreme weather and other physical effects of climate change. Those investments are creating new opportunities across public and private markets—but they don't look the same in each.

In public markets, investors may be more likely to find opportunity through established companies that are expanding their climate adaptation businesses than through companies dedicated entirely to these solutions. In private markets, by contrast, many of the most compelling opportunities remain concentrated in “pure play” businesses built specifically around climate A&R technologies and services.

Our previous article mapped the climate (A&R) opportunity set by examining how solutions help businesses and communities prepare for, respond to and recover from climate impacts. Here, we explore how those opportunities differ across public and private markets and where we believe investors may find the strongest long-term growth potential.

Public markets: Large diversified incumbents

Pure-play climate A&R exposure remains limited in public markets. Analysis from the MSCI Sustainability Institute found that only 11% of companies in the MSCI ACWI index offer a technology or solution that addresses climate A&R after excluding companies causing significant social and environmental harm.¹ Companies offering A&R solutions were also concentrated by sector, with about 58% in industrial and materials.²

Still, we have uncovered this theme in our analysis of many different public equity portfolios, regardless of their focus on sustainability. For example, a publicly listed company that provides advanced location-based software solutions is a common holding across several of our sustainable and traditional active managers. This company is developing high-accuracy devices that can help improve weather forecasting, early warning systems for natural hazards, and crop monitoring.

This observation reinforces our view that the public-market opportunity lies less in small pure-play companies than in large incumbents growing A&R-related revenues. For example, A&R solutions currently account for less than half the revenues of a large, publicly listed manufacturer of industrial equipment. But rising temperatures are likely to increase its sales of high-efficiency HVAC equipment, heat pumps and low-emitting refrigerants, all of which could help building owners adapt to global warming.

Private markets: Pure-play opportunities

We believe private equity and real assets are more fertile ground for pure-play climate A&R solutions. The near-term investment opportunity depends in part on a solution’s benefit-cost ratio and the availability of downstream funding—factors that favor proven technologies with clear adoption signals. We find the following areas particularly compelling.

Energy

Energy is an area where we see some of the greatest private-market A&R investment activity, in part because adaptation and mitigation opportunities can overlap.

Many solutions related to strengthening the electrical grid support both the transition to clean energy and energy resilience. Distributed renewable energy and battery storage, for example, can improve community resilience by reducing reliance on single points of failure and expanding access to more cost-effective and efficient energy delivery systems. Hardware-enabled software can also monitor critical equipment, reduce downtime, extend asset life and support transmission and distribution maintenance and upgrades.

Climate intelligence

We believe climate intelligence solutions may be another compelling area for investment given clear, growing demand for better data and their limited capital investment requirements.

Businesses need better insight into short-, medium- and long-term climate impacts to prepare for extreme weather and quantify the value of climate resilience. Several companies are creating vertically integrated models based on data collected from their own sensors and instruments. One private company, for example, uses proprietary satellite technology to provide hyperlocal forecasts that help customers anticipate near-term weather, improve operational efficiency and reduce delays.

Insurers also need better tools to assess and price risk. Climate intelligence startups are developing more accurate property-level risk assessments for existing insurer products, while AI-driven platforms can support the design and administration of products such as parametric insurance. Parametric insurance payouts are triggered when a specific predefined, objectively measurable event occurs, enabling faster payments and helping fill coverage gaps for events like flooding or short-duration power outages. Insurers may also need to provide structural incentives that reward proactive risk reduction.

Water and food

The investment case for water resilience is becoming increasingly attractive as higher temperatures and droughts exacerbate water stress. Solutions that can help decentralize water systems and improve management can strengthen resilience.

Agriculture is one of the primary uses of water. Groundwater storage and recharge can improve climate resilience in key agricultural markets and benefit from water premiums during periods of scarcity. Atmospheric water harvesting and recycling can provide buildings with off-grid water resources, while leak detection and repair can reduce distribution losses.

Food and agriculture systems are also heavily exposed to climate risks, making climate-resilient inputs and practices critical to supporting food security and affordability. Materials that reduce heat gain in greenhouses can help growers manage higher temperatures and water scarcity, while cold-storage technologies can help prevent post-harvest loss in hotter climates.

From mitigation to adaptation

We began this series by detailing how climate investing is evolving from its historical focus on providing capital for climate change mitigation to a broader focus that includes adapting to the physical risks and impacts of climate change. The time for communities, companies and investment portfolios to begin adapting has arrived. We believe climate A&R solutions deserve a more central place in investment analysis because the financial materiality of physical climate risks is substantial and growing.

Investors will increasingly need to understand how climate risks could impact the assets they own across business operations, infrastructure, supply chains, workers and end-markets. At the same time, we expect physical climate risks to create durable, growing demand for A&R solutions across a range of distinct categories.

We see climate adaptation and resilience as a long-term theme that will reshape risk management and capital allocation decisions over the coming decades. As climate impacts intensify, we believe investors that can identify the leading companies enabling preparation, response and recovery will be well placed to capture long-term value from the growing investment needed to protect assets, infrastructure and livelihoods.