It would be easy to treat adaptation as another exercise in measuring physical climate risk exposure. This is necessary, but incomplete.
For investors, the structural need to protect assets, revenues and economic activity is also creating demand for products, services and infrastructure that can strengthen the wider system resilience.
Climate adaptation is the process of making adjustments to actual or expected climate change and its impacts – while considering climate resilience as the broader capacity of an individual asset, organization or system to anticipate, withstand, absorb and recover from shocks and stresses such as climate change.
A market that is becoming easier to see
External estimates put annual climate adaptation and resilience demand at US$0.5–1.3 trillion by 2030 and the potential private-capital opportunity in resilience technologies at about US$1 trillion. Those are projections, not observed revenue pools.
Tracked private adaptation-relevant finance remains about US$4.7 billion a year, while UNEP estimates that targeted policy and blended-finance structures could lift private flows towards US$50 billion annually.1
A disciplined opportunity screen
The report evaluates 102 adaptation and resilience activities across infrastructure, products, services and enablers. Our model estimates the present value of physical-climate losses avoided for each dollar of cost, to identify the social benefit – and likely attractiveness – of investing in a range of different activities.
What the analysis shows
95 of the 102 activities have modelled benefits at or above modelled costs. The median Avoided Loss BCR (Benefit Cost Ratio) is 3.1x and the mean is 3.8x.
Direct interventions and warning systems lead the ranking, while some digital enablers score less well because their value is indirect. These are economic model outputs, not expected investor returns.
How investors can use it
The framework can map the opportunity set, support company and manager engagement and compare public- and private-market routes. It should be used alongside conventional physical-risk measures, not instead of them.
In itself, it doesn’t define investment opportunities – societal benefits do not translate directly into durable cash flows – but it provides an objective framework to identify areas well placed to benefit from increased investment in the future.
Informed by CalPERS’ ground experience with climate solutions investing and its views on how to integrate climate adaptation and resilience into its investment portfolio as fiduciaries to its pensioners, Section 4 provides a practitioner playbook on how to apply the framework to investment portfolios, covering the critical aspect of the investability of climate adaptation and resilience across asset classes.
It is telling that the relationship between the social value (benefit) of the 102 activities examined and the investment returns they have achieved is weak; policy incentives have not supported attractive returns in the most beneficial areas.
Going forward, unlocking private capital across many of the most valuable areas will require changing those incentives and supporting new investment models. Selectivity and investment judgement will be key.
Download or read the full report here.
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