From mitigation to adaptation: Climate resilience as a long-term investment theme

Decarbonization has been the clarion call for sustainable investors dating to the “clean tech 1.0” era in the early 2000s. Trillions of dollars have gone into innovative technologies and business models aimed at reducing greenhouse gas emissions and helping ensure global average temperatures rise no more than 1.5°C above the pre-industrial average. But today, that 1.5°C target is generally regarded as out of reach.

Out of necessity, investors are now broadening their focus to include a historically neglected area of climate finance: adaptation and resilience. Dubbed by some as the “unavoidable opportunity,” we believe climate adaptation and resilience will become a dominant theme in both sustainable and traditional investment in the years to come.¹

What follows is the first in a series of articles from our Sustainable Investing team exploring the concept of climate adaptation and its relevance to our clients’ portfolios.

What is climate adaptation and resilience?

Climate experts often talk about three inter-related strategies for addressing climate change: mitigation, adaptation, and resilience. Mitigation activities are focused on addressing global warming, the cause of climate change. Investments in clean energy generation, energy efficiency technology, batteries and other businesses are all designed to reduce the greenhouse gas emissions that are fueling global temperature rise.

Adaptation and resilience, by contrast, are focused on dealing with the physical effects of climate change. Individuals, communities, and businesses that are “climate resilient” are ones that have the capacity to endure the harmful effects of climate change and recover when disaster hits. They often improve their resilience by proactively investing in “climate adaptation.” Municipalities, for instance, may build cooling centers to prevent heat-related injuries in their communities or mandate that local office buildings locate critical HVAC, water, and electrical infrastructure on higher floors to avoid flood damage.

To date, climate adaptation and resilience have largely consisted of these kinds of public sector efforts. The private sector has sent its capital elsewhere. According to the Climate Policy Initiative, total private investment in climate adaptation amounted to just 1% of all climate financing in 2023, the most recent year for which data is available. By contrast, the private sector was responsible for 70% of all investments dedicated to mitigation.

As the physical effects of a warming planet manifest themselves more broadly and deeply, we expect these numbers to change. We expect business and investment leaders to talk more frequently about the risks extreme weather events pose to their portfolios and the solutions available to help manage them.

Putting climate risk in financial terms

Climate change is often discussed in time scales of decades, if not centuries. The U.N. Intergovernmental Panel on Climate Change’s report on the physical effects of climate change includes forecasts out to 2100.²

Unfortunately, the effects of climate change are not so far away. In the five years ending in 1984, the U.S. experienced an average of just three natural disasters—hurricanes, floods, droughts—carrying an inflation-adjusted price tag of $1 billion or more and totaling less than $19 billion. Four decades later, the average had jumped to 23 natural disasters with a total price tag of nearly $150 billion.³

Exhibit 1: Billion dollar disasters
Average trailing five-year count and cost (CPI-adjusted)

 

Trailing five-year averages from 1984 through 2024. Source: National Centers for Environmental Information

While hurricanes and wildfires are headline-grabbing, the largest contributors to the financial costs of climate change over time are likely to be extreme heat, water stress, and the twin risks of river flooding and drought. Industries with large portfolios of fixed assets, such as telecommunications networks, electrical grids, and pipelines, will suffer the most from these effects.

Operational and maintenance costs, combined with accelerating depreciation, have already started to weigh on corporate earnings. S&P Global forecasts that, in the absence of adaptation, the “total cost of climate physical risk for the world’s largest companies that make up the S&P Global 1200 is projected to reach $1.2 trillion annually by 2050,” even if major greenhouse gas reduction efforts are successful.⁴ Fixed asset losses as a percentage of operating cash flow could reach as high as 20% by the mid-2030s for the most exposed corporations.⁵

Investors have been slow to wake up to this new reality. In 2017, the Task Force on Climate-related Financial Disclosures (TCFD) recommended that companies and their investors conduct climate scenario analysis to assess their vulnerability to climate shocks. By 2024, the U.N. Principles for Responsible Investment reported that just 34% of asset managers and 59% of asset owners have followed through.^₆

But the primacy of heeding TCFD’s advice is only becoming more evident. Earlier this year, Norges Bank Investment Management, which oversees Norway’s $2.1 trillion sovereign wealth fund, published the results of a stress test that assessed the potential effects of extreme weather events on portfolio performance. Specifically, they modelled the impacts of crop failures in two major food staple production areas, leading to food shortages, supply chain disruptions, and an acute increase in inflation. Together, these shocks were forecast to trigger a 20% drawdown in the portfolio. While that was less than the impact of other modelled events, including a regional debt crisis and an “AI correction,” climate-related shocks stem from a structural shift, not idiosyncratic circumstance. They only promise to grow in frequency and severity.

Exhibit 2: Stress testing portfolios

As of December 31, 2025. Source: Norges Bank Investment Management

Investing in solutions

With such large costs on the horizon, businesses, governments, and households are increasingly looking for solutions to help measure and manage climate risk. In a report prepared in partnership with Bain Capital, the Government of Singapore Investment Corporation (GIC) has projected global annual revenue from climate adaptation solutions will grow from $1 trillion in 2025 to $4 trillion by 2050.⁸ Investors are eager to chase adaptation revenue, not only because it is fast growing, but also because it is expected to be uncorrelated with other market trends and the inevitability of climate change provides some certainty of demand.⁹

Opportunities to invest in adaptation and resilience solutions exist in public and private markets. For example, a large, publicly traded German industrial firm is on the front lines of the effort to modernize and harden electrical infrastructure. The firm helps utilities implement digital grid management solutions and supplies smart grid hardware that enhances the resilience of electrical transmission networks.

Not surprisingly, impact venture capital investors have been among the most forward-thinking in prioritizing climate adaptation. One venture manager has invested in a robotics company that helps firefighters conduct controlled burns in terrain that is rugged, dangerous, and at high risk of wildfires. Another firm has backed the maker of an innovative subsea desalination system that has the potential to reduce the cost of clean water production in water-scarce geographies.

The way forward

Climate adaptation is an emerging theme whose appearance in investment portfolios will continue to evolve in the coming years. In coming articles, we will share more thoughts on how companies in both the public and private markets are managing their climate risk and positioning themselves to capture the climate adaptation opportunity.

 

 

 

 

1. GARI Unavoidable Opportunity, https://unavoidableopportunity.com/climate-change-white-paper/ 

2. https://www.ipcc.ch/report/ar6/wg2/

3. https://www.ncei.noaa.gov/archive/archive-management-system/OAS/bin/prd/jquery/accession/download/209268

4. https://www.spglobal.com/sustainable1/en/insights/special-editorial/ceraweek-physical-risk

5.https://reports.weforum.org/docs/WEF_Business_on_the_Edge_2024.pdf

6. https://public.unpri.org/download?ac=20594

7. https://www.nbim.no/contentassets/c7d3b015300d48a1ac0136f069b9bed7/gpfg_stresstesting-2025.pdf 

8. https://www.gic.com.sg/thinkspace/sustainability/sizing-the-climate-adaptation-opportunity/

9. https://img1.wsimg.com/blobby/go/66c2ce28-dc91-4dc1-a0e1-a47d9ecdc17d/downloads/GARI%202024.pdf?ver=1711122403467