08-04-2025
The Business Case For Climate Adaptation
A dried out bank of a nearly water empty dam is pictured on a farm in Piket Bo-berg, Piketberg, ... More north of Cape Town, on March 7, 2018 as a result of a three-year-long drought. - Fruit farmers in the Piket Bo-Berg, who have been struggling with drought for the past three years, had to adapt their ways of farming to still be able to produce a profitable harvest. (Photo by WIKUS DE WET / AFP) (Photo by WIKUS DE WET/AFP via Getty Images)
Climate adaptation needs a business case.
For years we rarely talked about adaptation because it would constitute 'giving up'. After-all, why adapt to a warming planet when renewable energy, electric vehicles and carbon capture technologies can limit global warming?
It is more common to discuss adaptation now, but we are late to the game. In fact, it took over twenty conferences of the parties (COP's) to reach a significant global adaptation milestone when the Paris Agreement at COP 21 in 2015 established the Global Goal on Adaptation (GGA).
Why even focus on climate adaptation?
Climate adaptation is often understood as the complement to climate mitigation. Mitigation is defined as 'reducing the flow of heat-trapping greenhouse gases into the atmosphere.' Renewable energy, carbon capture utilization and storage, decarbonized building materials and manufacturing, among many other critical solutions all fall under the mitigation category.
Yet, as the planet becomes hotter, and staying below the 1.5 C threshold is less likely, we have to adapt. Put differently, climate change is too large, complicated and fast-moving a phenomenon to rely purely on mitigation strategies. Case in point - in 2021 we crossed the one trillion dollar threshold in global climate finance for the first time. However, we made history again in 2023 when the United States experienced the most billion-dollar climate-linked disasters in its history. This juxtaposition between progress and damage highlights the adaptation imperative and conundrum - even though we need to rapidly increase investment into low and no GHG emission technologies, global temperatures are rising regardless and we need to rapidly adapt.
Primarily, adaptation solutions focus on minimizing and addressing the impacts of climate hazards - e.g. floods, heatwaves, wildfires, and extreme weather events that hurt physical infrastructure and human livelihoods. Tailwind, an investment firm and ecosystem builder focusing on adaptation and resilience solutions, defines adaptation as 'products and services designed to predict, prevent, mitigate, and enable recovery'.
However, while public awareness around climate adaptation has grown, we come to another hurdle - funding it.
Bottlenecks and barriers for adaptation funding
The global climate adaptation funding gap is massive. Recent estimates suggest annual adaptation funding needs are an estimated $366 billion through 2030, while current international public finance flows reached just $28 billion in 2022. However, Tailwind finds that the demand for adaptation solutions could be many times hire at over 1 trillion dollars annually. And when it comes to climate tech funding specifically, Tailwind's research suggests that between 2019 and 2023 3% of climate tech funding went to adaptation-focused startups, even though roughly 12% of climate tech firms concentrate on adaptation in some way.
So why is there a gap?
While there is no single reason that can explain the large shortfall, here are a handful of common ones.
How have we pitched adaptation investment to investors?
So far we have used a few different pitches to entice investors.
For example, we often point to the enormous funding gap around adaptation. It's used to signal that adaptation is overlooked and therefore undervalued. Similarly, we have also tried the approach of urgency - highlighting economic and social losses due to climate change to attract investors. However, a crisis does not necessarily lead to more investment. In fact, this pitch may have the opposite effect. Already, we are seeing insurance companies retreat from areas of high climate risk.
We have also tried to assign responsibility to certain countries to fund adaptation. The loss and damage funding discussions assert that although wealthier, industrialized countries have created the bulk of emissions worldwide, lower-income less resilient countries bear the brunt of global warming. Thus, lower income countries need to rapidly adapt to a warming planet, arguably more-so than wealthier ones who must foot the bill for the loss and damage caused in the Global South.
Each of these approaches has worked to varying degrees - gaps can spotlight areas where investors can be catalytic; urgency can help large foreign aid and philanthropic organizations target their funding; while guilt can help some feel an obligation to give away their money to those in need.
However, these pitches alone will not fill such enormous funding gaps.
Building the business case
The below list is a starting point for rethinking and reshaping the business case for climate adaptation. It is less-so a pitch, and more a process for helping educate the market and creating a playing field for building and investing in adaptation solutions.
Private capital has so far been significantly underutilized in addressing adaptation and resilience needs. Without a compelling case for investors, one that educates them on the risks and opportunities, provides them with an attractive pipeline and accounts for measurement challenges and discrepancies, this gap will persist. Investing in adaptation is an opportunity and an imperative, and more investors will come on board. However, we need to expedite the pace of onboarding, and building a strong business case is essential to this effort.
