ESG Investing

Driving Adaptation to Climate Change through Impact Investing


Access to more accurate data on carbon footprints means that ESG investors as a whole are better equipped to evaluate efforts by organizations, foundations, and businesses at climate change mitigation.

Yet a growing list of climate related disasters highlights the value in alternative endeavors. For some, efforts to mitigate environmental concerns have begun to fall away in favor of strategies that adapt to the planet’s climate changes.

Climate change adaptation accepts that climate change is not just real but in fact already here—and that addressing environmental concerns requires not not only to delay or lessen their impact but adapting to their presence.

Investors need only look to the partial collapse of the Texas power grid in February 2021 to see the era of “mitigation vs adaptation” has come to an end. A new era of “mitigation plus adaptation” has begun. In fact, we are playing catch-up.

The Climate Adaptation Gap

Texas’ grid crisis represents just one possible result of not planning for climate adaptation. Globally, 93% of cities are at risk from climate change. Yet only 43% have an adaptation plan, according to the report Cities on the Route to 2030: Building a Zero Emissions, Resilient Planet for All. The report came from CDP, a not-for-profit that runs the global disclosure system for managing environmental impacts. It highlights that many cities simply lack funding, as 25% cite budgetary constraints as a barrier.

To help inspire greater funding and political will for serious climate change adaptation, some municipalities are getting creative. The city of Trondheim in Norway used virtual reality gaming to engage citizens. In Climate Quest in Trondheim, players race to remove carbon dioxide from the atmosphere and keep seawater levels low. The hope is that providing new touchpoints and formats to engage citizens on climate risks and solutions will help motivate people to politically support needed adaptations.

Other efforts using virtual reality include Tree by the Rainforest Alliance, which transforms the participant into a rainforest tree using their arms as branches and their body as the trunk. Greenland Melting aims to create a more immersive format for education on the effects of warming waters on glaciers with the help of two NASA scientists.

Perhaps a speedier shift toward adaptation is occurring in the private sector.

Changing Models in the Private Sector

Perhaps a speedier shift toward adaptation is occurring in the private sector. The Italian insurance industry recently began transferring risk assessment and management knowledge to small and medium-sized enterprises (SMEs). The Italian Association of Insurance Brokers realized that 90% of SMEs that had been forced to close due to weather for more than a week ultimately went bankrupt within a year. As a result, the insurance group UNIPOL helped 30 SMEs in Turin assess their climate risk and create adaptation plans. Based on predictive flood models, one building underwent modifications mid-construction to elevate floors and alter wall placement.

EDF Group, the world’s largest nuclear power operator, also developed new meteorological and climate models to recalibrate their estimate of “normal” temperatures. This updated forecast guided the adaptation of a hydropower plant, which ensures its water intake would not be stranded when its glacier source retreats.

Impact investing may take a lesson from these efforts. Just as cities, towns, and regions have begun to incorporate more adaptation plans alongside mitigation, ESG investors have the ability and understanding to adapt, too.

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