Adaptation solutions: The investment opportunity in climate resilience

LSEG’s latest analysis of the green economy presents first-of-its-kind insights into the US$1 trillion investment opportunity in climate adaptation and resilience.

The physical impacts of a changing climate are becoming increasingly apparent – and increasingly costly. In January, wildfires in Los Angeles caused up to $150 billion in total economic losses and the loss of 30 lives. Over the last decade, climate-related weather events cost some $2 trillion.

Even if global efforts to reduce greenhouse gas emissions accelerate, the inertia in the climate system means that more warming is locked in for decades to come.^[1] As a result, extreme weather events – such as floods, droughts and windstorms – are becoming more frequent and severe due to rising temperatures. Similarly, even if emissions were reduced to net zero today, we face hundreds of years of gradual sea-level rise from slowly melting polar ice.^[2]

Globally, Swiss Re suggests that 11-14% of global GDP is at risk by 2050 under the current temperature rise trajectory of 2.0-2.6°C. At the company level, large firms have already gone bust due to climate impacts – two years of wildfires bankrupted Californian utility PG&E in 2019, for example.

These facts mean that the world is beginning to adapt to a warmer world. Research we conducted in 2023 found that 19 G20 governments had developed national adaptation plans; a wider UN study last year found that 171 countries worldwide have at least one national adaptation policy, strategy or plan in place.

Companies, too, are making plans to adapt. According to LSEG’s climate data, 34% of companies in the FTSE All World Index disclose some reference to adaptation activities they are undertaking in response to climate change (see Figure 1).

Examination of company disclosures reveals that the most common adaptation measures focus on flood control, water-use efficiency and storm preparedness. Energy efficiency improvement is another theme, as companies recognise its importance in managing the rising demand for power, driven by the need of air conditioning in response to high temperatures. Digital technologies and AI are being explored to improve weather forecasting and warnings, although these tools are largely still in development. Additional strategies include diversification of supply chains and strengthening of building materials. 

These efforts will require trillions of dollars of investment: the UN has calculated that developing countries alone need to invest nearly $400 billion each year this decade to adapt to climate change.

These factors create an enormous growth opportunity for companies providing products and services that can support adaptation and build resilience – and investors are keen to identify companies that are exposed to the theme.

Doing so is challenging. Unlike with other aspects of the green economy, such as climate change mitigation, there are relatively few discrete products that enable adaptation and resilience. Instead, adaptation measures typically benefit a range of industries and products. Many of these are linked to broader demand drivers, and provide co-benefits, including higher efficiency and lower environmental impacts.

However, LSEG’s Green Revenues Classification System (GRCS) is uniquely suited to identify the sub-sectors and companies that are exposed to the adaptation theme. It defines 133 green economic activities, or microsectors, that comprise the green economy and calculates the revenues that 20,000 listed companies earn from each of these activities.

Of these microsectors, 35 contribute to climate adaptation. Our bottom-up analysis found that, in 2024, some 2,100 companies generated over US$1 trillion in revenues from products and services that contribute to climate adaptation – a figure that has been steadily growing over the last decade, with a compound annual growth rate of 5.1% since 2016 (see Figure 2). This currently makes up around one-fifth of the global green economy.

Calculating revenues that can be assigned to adaptation is a complex process. The 35 microsectors include ‘pureplay’ adaptation activities, such as flood control, as well as activities that can include adaptation elements, such as green buildings and waste management. In identifying these adaptation activities, we consulted 24 recently published taxonomies of adaptation effects, including from the Climate Bonds Initiative and the Climate Policy Initiative.

The most significant of these sectors is green buildings, which generates $424 billion in revenues, followed by water infrastructure, which is a key sector for post-disaster recovery. Dedicated adaptation sectors are much smaller, with US$17 billion in revenues for flood control and US$1 billion for land erosion.

In addition to adaptation-oriented equities, investors can gain exposure to the theme via the US$2.9 trillion green bond market. We have found that one-quarter of the green bonds in LSEG’s GovCorp database are related to adaptation and resilience investments – these accounted for US$160 billion of issuance in 2024 (see Figure 4).

Examples include: green bonds issued by the Dutch government to fund its Delta Plan flood defence scheme; the UK’s green gilts programme, which has directed 12% of proceeds to flood and coastal erosion management; and Fiji’s 2018 green bond, 91% of the proceeds of which were earmarked for adaptation. Development bank issuers are also raising adaptation finance: the European Bank for Reconstruction and Development has issued Climate Resilience Bonds, and the Asia Infrastructure Investment Bank has issued a Climate Adaptation Bond.

It is challenging to predict how successful efforts to decarbonise the global economy will be. We can predict with confidence, however, that the physical impacts of climate change are expected to get worse in the years to come. Increased spending on adaptation and resilience is coming into increasing focus, creating opportunities for growth in the adaptation economy.

[1] https://archive.ipcc.ch/ipccreports/tar/vol4/011.htm#

[2] https://www.gov.uk/guidance/climate-change-explained