11-07-2025
Investing in climate adaptation is no longer optional. It's business-critical
July 3 - As world leaders prepare for COP30 in Belem this November, climate adaptation – adjusting to the current and future impacts of a changing climate – is finally moving from the sidelines to center stage.
With world leaders and the private sector now acknowledging that 1.5C warming since pre-industrial times is already a reality, opens new tab, adaptation is no longer optional. It's an economic imperative.
The financial stakes couldn't be higher. The world's largest companies face annual losses of $1.2 trillion by 2050 without adaptation measures, ranging from utilities burying power lines and substations to protect them from wildfires and flooding, to port operators building sea walls and restoring wetlands to prevent damage from extreme storms.
Yet adaptation remains dramatically underfunded, receiving less than 10% of global climate finance and covering only one-sixth of expected physical climate risk costs by 2030.
For responsible investors, this funding gap presents unprecedented opportunities to drive both impact and returns.
Recent analysis shows that adaptation investments can deliver returns of $2 to $43 for every dollar spent. And some investors are already capitalizing on what they see as significant market mispricing of climate risks.
Through Ceres's work with investors, we've identified some key investment themes emerging from early-stage adaptation strategies.
The first is the importance of forward-looking risk assessment. Adaptation investors are moving beyond historical data to incorporate climate projections that correspond to investment time horizons, recognizing that past trends fail to capture how quickly risks are accelerating.
The municipal bond market offers a stark illustration. Where traditional credit analysis might have deemed a 20-year municipal bond relatively safe based on a community's historical resilience to storms, forward-looking models reveal how sea-level rise, intensifying hurricanes, and changing precipitation patterns could alter that risk profile over the bond's lifetime.
This mispricing of risks is why Breckinridge Capital Advisors, which manages investments across over 3,500 municipal issuers, implemented a comprehensive approach to integrating these risks into its municipal credit assessment process. The firm's analysis relies on third-party data providers that offer forward-looking risk projections under various climate scenarios, allowing it to assess risks that correspond to each municipal bond's maturity date.
Another key strategy is analyzing supply chain vulnerabilities. A common misstep many investors make is limiting their risk assessment to direct operations – ignoring the supply chains, infrastructure networks, and communities that are equally exposed to severe climate impacts. This narrow focus can leave portfolios vulnerable to financial shocks.
Take, for example, Hurricane Helene's impact on global semiconductor supply chains. Flooding and road closures halted, and then disrupted for months, the mining capacity of a high-purity quartz mine in North Carolina that supplied 80% of global demand for semiconductor manufacturing. This single point of failure hit companies throughout the global supply chain.
In response to these kinds of risks, Impax Asset Management, an asset manager based in the UK, evolved its corporate engagement strategy. Where it initially requested basic geolocation data on vulnerable assets, Impax now has more sophisticated expectations for corporate risk disclosure.
This includes reporting on geolocation data for key value chain hubs, the methodologies used to assess value at risk, and the specific actions and capital investments made for building resilience and planning for supply chain disruptions.
Based on these sophisticated risk and vulnerability assessments, adaptation investors are working with their portfolio companies to ensure they're addressing those risks. For IFM Investors, a global investment fund and asset manager based in Australia, that means requiring every asset across its infrastructure equity portfolio, which includes ports, airports, toll roads, and pipelines, to develop and implement a climate transition plan addressing both emissions reduction and adaptation. That way, it can accurately assess how companies are evaluating climate risks and what they are doing to address them.
For responsible investors, the choice is becoming clear: engage proactively with adaptation opportunities while markets still misprice climate realities, or face the mounting costs of reactive responses to an increasingly volatile climate system.
As the world looks to COP30 for greater action, capital markets face pressure to develop more sophisticated approaches for assessing, pricing, and managing climate risks while identifying adaptation opportunities. This year's emphasis on implementation over negotiation is an opportunity to embrace practical financing mechanisms and cross-sector collaboration.
