Adapting to climate change: investing in the resiliency imperative

Channels: Risk

Climate change is accelerating, and society is underprepared for the rising human, environmental, and economic toll. Investing in climate adaptation can help address the problem.

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For professional investors only.

Key points:

  • Climate change is accelerating, and society is underprepared for the rising human, environmental, and economic toll.
  • We believe demand for climate adaptation solutions will increase significantly.
  • By investing in climate adaptation, investors can help address the climate challenge, gain exposure to a growing and inefficient market segment, and hedge portfolio exposure to climate risk.

Combating climate change is fast becoming an economic necessity. Swiss Re estimates global GDP could shrink 18% by 2050 if global temperatures are allowed to rise by 3°C. To date, most efforts have focused on mitigating climate change through regulation or carbon pricing, while spending on innovations to help society adapt to physical climate threats has lagged. Our work with Woodwell Climate Research Center gives us conviction that physical climate risks will rise significantly over the next 10 to 30 years, driving demand and expanding markets for adaptation solutions. This thesis is corroborated by the United Nations Intergovernmental Panel on Climate Change's (UN IPCC's) recent report, which calls for an increase in adaptation investment across public and private sectors to build resilience to climate extremes and climate variability.

Here, we share why we believe market growth for climate adaptation has been slow and how a growing need for climate resiliency will accelerate investment. We also share how we translate insights we have gained from Woodwell's climate research into our investment process. Finally, we discuss why we believe investors need to think differently about climate adaptation, adopting longer time horizons and accepting uneven growth in a segment we believe can outpace broader markets over time.

 

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