As the physical impacts of climate change escalate, adaptation efforts become an unavoidable necessity – requiring scale across all levels of society, from governments and businesses to communities and households.
Much of the existing research on climate-related investment opportunities has largely focused on decarbonisation, reflecting the urgent need to transition to a lower-carbon global economy. However, climate adaptation has received comparatively less attention, partly due to the misperception that the responsibility lies primarily with national governments.
This creates a vital role for the private sector in strengthening economic and community resilience to physical climate risks. In response, companies offering adaptation solutions are emerging as a complementary and increasingly investible part of the broader climate response.
In partnership with Bain & Company, GIC have reviewed industry and scientific studies to identify the climate adaptation solutions most relevant to private sector investors. Our research was augmented by interviews with experts across a range of fields, including industry practitioners, climate scientists, insurers and weather modellers, for a more holistic assessment of the size and nature of the opportunity.
We examined a broad investment universe before narrowing our focus on a select group of adaptation solution categories. Within this set, we identified emerging and more established solutions to develop early-stage estimates of the potential investment opportunity, both current and future. We sized their total addressable market, quantified their potential investment value and evaluated the proportion of market revenue driven by climate change.
Our study revealed five key findings. First, global annual revenues from a select set of climate adaptation solutions are projected to grow from $1tn today to $4tn by 2050 in our base case. Of this, we estimate $2tn will be incremental revenue growth driven by global warming – a factor not typically accounted for in current industry forecasts.
Second, the corresponding investment opportunity set across public and private debt and equity is expected to increase from $2tn today to $9tn by 2050 – with $3tn representing an incremental increase attributable to global warming. While our model conservatively assumes adaptation demand will be reactionary, greater awareness of physical risks may prompt a shift to anticipatory action, accelerating revenue growth and related investment opportunities before 2050.
Third, the opportunity remains significant across all climate scenarios. Variation in estimated value is more or less than 4% across scenario bookends, as projected temperature differences over the next 25 years are minimal across scenarios. This suggests investors can build conviction in this space without needing to predict the precise climate pathway.
Fourth, in our base case, we expect adaptation revenues in 2050 to exceed projections based on historical trends by 61%. This upside surprise reflects the difficulty of translating climate science into long-term business implications. Most financial planning and analysis teams and sell-side analysts continue to rely on historical data for forecasting. This information gap presents long-term investors with an opportunity to invest in a space where company earnings may positively surprise as demand for adaptation solutions increases.
Lastly, the inevitable need for climate adaptation will fuel growth across both established and emerging solutions. Our analysis suggests that climate adaptation will foster technological innovation (such as weather intelligence) while boosting the adoption of mature technologies (such as weather-resilient building materials). Together, these dynamics create investment opportunities across traditional and emerging industries.
While decarbonisation remains essential to mitigating emissions, our research highlights climate adaptation as a complementary investment theme – one that is gaining importance as the physical impacts of climate change become more pronounced. Both offer valuable opportunities for long-term investors, addressing different but urgent dimensions of the climate challenge.
Wong De Rui is Senior Vice President of Sustainability, and Kim Kee Bum is Assistant Vice President of Sustainability at GIC.
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