Overcoming Climate Challenges: Strategizing for Climate Change Adaptation Investment
In the face of increasing climate change, the global landscape of climate finance is evolving, with a growing focus on adaptation measures. According to a report by CPI in October 2024, global spending on climate adaptation more than doubled in the five years to 2022, reaching $76bn. However, less than 5% of this total public and private spending was focused on specific adaptation measures [1].
The UK, for instance, experienced the hottest June on record this year, highlighting the urgent need for climate adaptation. The number of extreme weather events is on the rise, with the World Resources Institute estimating that climate change is causing a huge increase in severe weather events such as wildfires, heatwaves, droughts, and floods [2]. Over 175,000 annual heat-related deaths in Europe alone were estimated by the World Health Organisation over the 20 years to 2019 [3].
The private equity opportunity in climate adaptation and resilience is being highlighted by BCG, Temasek, and Ecosperity. A study by these organisations identified promising investment areas within the adaptation space. These sectors include climate-adapted agricultural inputs, human engineered flood defence, climate resilient building materials, cooling, emergency medical products and services, climate intelligence, urban and industrial water efficiency, and distributed energy solutions [4].
The most attractive investment areas within this space include climate-adapted agricultural inputs, climate-resistant building materials, water efficiency technologies, distributed energy, medical services and equipment responding to climate-driven health risks, and climate intelligence services [5]. Companies in these areas are already profitable or close to mainstream private equity investment readiness, despite common misconceptions that the space is too early-stage or sub-scale. For example, flood-resistant building materials are expected to see growing regulatory demand, and climate intelligence firms are benefiting from increasing demand for climate risk analytics [5].
The collaboration between BCG and Temasek has mapped these investment opportunities to help private investors navigate the climate adaptation landscape effectively. The Climate Adaptation and Resilience (Climate A&R) sector is forecast to need investments rising globally to between $0.5 trillion and $1.3 trillion annually by 2030, with significant opportunity for private capital alongside public funding [1]. Growth in climate change analytics companies is strong, with revenues growing over 25% year-over-year and strong profitability margins [2].
Investing in climate adaptation faces challenges such as hard-to-quantify benefits, long time horizons, complex procurement cycles, and focus on emerging markets. However, the private equity model is well suited to scale these companies quickly in response to rapidly growing demand driven by climate change impacts [6].
In conclusion, private equity and other private investors are advised to focus on these sub-sectors within Climate A&R, where business models are proven or emerging rapidly, and where underlying climate risks drive clear and urgent demand. Climate adaptation is not just a mitigation strategy, but also an investment opportunity with long-term tailwinds.
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The International Chamber of Commerce reports that 4,000 extreme weather events caused $2 trillion in economic losses in the decade to 2023.
The World Resources Institute estimates that every $1 spent on climate adaptation can yield over $10.50 in benefits.
[1] BCG and Temasek, "Investing in Climate Adaptation and Resilience," 2023. [2] Temasek, "Climate Change Analytics: A Growing Market with Strong Profitability," 2023. [3] World Health Organisation, "Climate Change and Health: A European Perspective," 2022. [4] CPI, "The Global Landscape of Climate Finance," October 2024. [5] BCG and Temasek, "The Most Attractive Investment Areas in Climate Adaptation and Resilience," 2023. [6] BCG, "Scaling Climate Adaptation and Resilience Companies," 2022.
- Recognizing the growing focus on climate adaptation measures, especially in the face of soaring climate change, it is prudent for the financial sector to invest in environmental science, such as climate-adapted agricultural inputs, climate-resistant building materials, water efficiency technologies, distributed energy, and climate intelligence services, as suggested by BCG, Temasek, and Ecosperity.
- Given the escalating number of extreme weather events caused by climate change and the World Resources Institute's estimate that investing in climate adaptation can yield over $10.50 in benefits for every $1 spent, it is a profitable and strategic move for investors to explore financing these adaptation measures, as indicated by the increasing investments in climate adaptation, which more than doubled in the five years to 2022, reaching $76bn, as reported by CPI in October 2024.
