SINGAPORE – Escalating climate change impacts will drive demand for adaptation strategies like flood protection and cooling systems, which by 2050 could make up a sizeable investment opportunity worth US$9 trillion (S$11.7 trillion).
This is up from the current US$2 trillion investment opportunity for this sector, according to a new report by Singapore sovereign wealth fund GIC. And the investment value is less volatile in different scenarios of the severity of rising temperatures, the report found.
When it comes to climate action, decarbonisation, or cutting emissions, has been a key focus. But as climate change hits the world harder, adaptation efforts to prepare for these impacts are also gaining traction.
Demand for adaptation strategies tends to increase after a climate-driven disaster. For example, Pakistan said it will build climate-resistant homes for flood victims after the country was hit by severe floods in 2022.
But the report, which included research input from global management consultancy Bain & Company, said that if countries pay more attention to the physical risks of climate change and start taking action earlier, revenue growth and investment opportunities in this area could accelerate before 2050. Physical risks of climate change refer to how climate impacts, such as rising sea levels or extreme weather events, can affect people and infrastructure.
The report, released on May 2, offers insight into the role of the private sector in financing the development of climate adaptation solutions.
Investing in climate adaptation – or solutions to protect people from the impacts of climate change, like building sea walls to keep out rising tides – is often assumed to be the responsibility of governments.
But the authors of the report said: “We believe that companies offering these solutions present promising investment opportunities, enabling investors to contribute to building economic and community resilience.”
For instance, the report pointed to firms offering weather intelligence, wind-resistant building components and flood-resistant construction materials as having growth potential.
Weather intelligence allows companies to determine how weather data could impact their operations. Among other uses, this could help agricultural businesses with irrigation and harvesting planning, said the report.
Wind-resistant building components enhance resilience against storms and hurricanes – disasters that accounted for over 55 per cent of global economic damage from climate-related events between 2000 and 2024, said GIC and Bain.
With the impacts of climate change being felt more keenly across the globe, multilateral organisations, including the UN and humanitarian groups, are calling for more sectors to get involved in adaptation planning to save lives and livelihoods.
For instance, as part of the international climate change negotiations, countries are urged to have in place national adaptation plans – road maps to help them prepare for climate change impacts – by 2025.
The World Meteorological Organisation has declared 2024 as the warmest year on record. The WMO has also said extreme weather, climate and water-related events caused nearly 12,000 disasters from 1970 to 2021, with reported economic losses estimated to be US$4.3 trillion and rising.
Investors can contribute to building economic and community resilience, said GIC and Bain in the report.
Multiple scientific studies have pointed to the benefits of adapting to climate change over inaction.
For instance, a scientific study published in 2021 estimated that global climate risk can be halved through ambitious adaptation. A different study that year said US$16 billion invested in agriculture per year would prevent about 78 million people from starving or chronic hunger caused by climate change impacts.
The report’s authors noted that while rising physical climate risks would have material financial impact on investment portfolios, there are few studies on climate-related investment opportunities focusing on adaptation.
“This insight prompted us to expand our investment research to include climate adaptation alongside decarbonisation,” they said, when asked what prompted GIC to embark on this research.
Other than adaptation, the other key prong of climate action is mitigation, which refers to activities that can reduce the amount of planet-warming gases in the atmosphere. This includes constructing renewable energy plants, or developing technology that can suck in such greenhouse gases. There has been more research on mitigation investment opportunities, compared with that for adaptation.
“Although our work in this area is still in its early stages, it indicates a growing demand for adaptation solutions across both established technologies and emerging innovations as the physical impacts of climate change become more pronounced,” the authors added.
The report had also compared the investment opportunity for adaptation solutions across different climate scenarios.
The reference scenario assumes no further global warming beyond current conditions. The other three scenarios reflect different warming trajectories.
The temperature goal of the Paris Agreement, the world’s climate pact, is to limit warming to not more than 1.5 deg C above pre-industrial levels to avert harsh climate impacts.
In the report, the “base case” assumes that all current climate policies are implemented, so warming reaches 2.7 deg C above pre-industrial levels by the end of the century.
The “low case” offers a more optimistic perspective, where the world reaches net-zero emissions by 2050, so warming is limited to 1.4 deg C by end-century.
The “high case” reflects the opposite scenario, where the global green transition fails, resulting in warming exceeding 4 deg C above pre-industrial levels.
The report found that compared with the base case, the estimated value of investment opportunity in adaptation strategies by 2050 in the low case and high case scenarios showed a variation of about 4 per cent.
This indicates that whether the world limits warming to below 1.5 deg C above pre-industrial levels or whether warming exceeds 4 deg C, the total investment value of the sector would not change much.
The report’s authors said this finding indicates that, compared with mitigation, the climate adaptation theme is less exposed to volatility from climate policy changes. “This suggests investors can build conviction in this space without needing to predict the precise climate scenario that will unfold,” they added.
Asked how investors could start positioning themselves to seize these opportunities, GIC said: “Climate adaptation is a fast-changing space, with scientists advancing our understanding of climate hazards, engineers improving or inventing new adaptation solutions, and standard-setters creating new investment taxonomies.”
Key areas for investors to monitor include the policy landscape, the economic viability and scalability of these solutions to ensure capital is deployed into opportunities that deliver good risk-adjusted returns over the long term, and the speed and severity of physical impact of climate change.
- Audrey Tan is an assistant news editor overseeing sustainability coverage. She has reported on the environment for more than a decade and hosts the Green Pulse podcast series.
Find out more about climate change and how it could affect you on the ST microsite here.