While climate mitigation – the reduction of carbon emissions has gained much attention and investments, climate adaptation in all areas – wildfire and flood prevention, agriculture, clean water supply, infrastructure modification, and population resettlement, drags behind.
The Climate Policy Initiative 2021 report shows that the climate adaptation initiative only receives 7% of climate-related investments.
Yet, climate adaptation presents a huge business opportunity. Bloomberg’s article, “Investors Bet Climate Adaptation Will Soon Be Profitable”, reported that Bank of America analysts estimate that the climate adaptation market could be worth $2 trillion a year within the next five years.
There is clearly an opportunity as climate adaptation involves changes in the organisational and institutional infrastructure and technological upgrades, which would be crucial in regions that are highly exposed to weather extremes.
The article notes that there will be opportunities to invest in innovation, such as highly efficient air conditioners that consume less energy, floodgates or coastal protection solutions that can protect low-lying areas, weather-resistant building materials, erosion control, and technologies that can prevent the spread of wildfires.
There’s a current rush into ESG (Environmental, Social, and Governmental) investments, a trend that will continue in the future. Investors who plan to make the most of this rush and start investing in socially responsible investments such as climate adaptation projects will soon reap the benefits.
The report from the Bank of America notes that the financial markets are only just beginning to see climate-related tailwinds. It will take time for an opportunity set of climate adaptation securities to mature, which means investors can gain a first-mover advantage.
During the Glasgow Climate Change Conference (COP26), there were a lot of discussions on the failure of developed countries to deliver their climate pledge of $100 billion to support climate adaptation and mitigation in poor and developing nations.
Considering the many unresolved issues during the conference, the COP26 presidency put together the Glasgow climate pact – an agreement that parties will re-visit these issues during the next UN Climate Change conference the following year.
Included in the pact is to urge countries to “at least double their collective provision of climate finance for adaptation” to developing countries by 2025.
Carbon Brief estimates the amount of climate adaptation funding at $40 billion. The United Nations Environment Programme estimates annual climate adaptation costs in developing countries at around $70 billion.
The numbers are expected to rise to more than $140 billion in 2030 and as much as $500 billion in 2050.
Quinson, T. (2021, November 18). Investors Bet Climate Adaptation Will Soon Be Profitable. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2021-11-17/why-investing-in-climate-adaptation-will-soon-be-very-profitable-green-insight
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