The Business Case For Climate Adaptation (2025)

Climate adaptation needs a business case.

For years we rarely talked about adaptation because it would constitute “giving up”. After-all, why adapt to a warming planet when renewable energy, electric vehicles and carbon capture technologies can limit global warming?

It is more common to discuss adaptation now, but we are late to the game. In fact, it took over twenty conferences of the parties (COP’s) to reach a significant global adaptation milestone when the Paris Agreement at COP 21 in 2015 established the Global Goal on Adaptation (GGA).

Why even focus on climate adaptation?

Climate adaptation is often understood as the complement to climate mitigation. Mitigation is defined as “reducing the flow of heat-trapping greenhouse gases into the atmosphere.” Renewable energy, carbon capture utilization and storage, decarbonized building materials and manufacturing, among many other critical solutions all fall under the mitigation category.

Yet, as the planet becomes hotter, and staying below the 1.5 C threshold is less likely, we have to adapt. Put differently, climate change is too large, complicated and fast-moving a phenomenon to rely purely on mitigation strategies. Case in point - in 2021 we crossed the one trillion dollar threshold in global climate finance for the first time. However, we made history again in 2023 when the United States experienced the most billion-dollar climate-linked disasters in its history. This juxtaposition between progress and damage highlights the adaptation imperative and conundrum - even though we need to rapidly increase investment into low and no GHG emission technologies, global temperatures are rising regardless and we need to rapidly adapt.

Primarily, adaptation solutions focus on minimizing and addressing the impacts of climate hazards - e.g. floods, heatwaves, wildfires, and extreme weather events that hurt physical infrastructure and human livelihoods. Tailwind, an investment firm and ecosystem builder focusing on adaptation and resilience solutions, defines adaptation as “products and services designed to predict, prevent, mitigate, and enable recovery”.

However, while public awareness around climate adaptation has grown, we come to another hurdle - funding it.

Bottlenecks and barriers for adaptation funding

The global climate adaptation funding gap is massive. Recent estimates suggest annual adaptation funding needs are an estimated $366 billion through 2030, while current international public finance flows reached just $28 billion in 2022. However, Tailwind finds that the demand for adaptation solutions could be many times hire at over 1 trillion dollars annually. And when it comes to climate tech funding specifically, Tailwind’s research suggests that between 2019 and 2023 3% of climate tech funding went to adaptation-focused startups, even though roughly 12% of climate tech firms concentrate on adaptation in some way.

So why is there a gap?

While there is no single reason that can explain the large shortfall, here are a handful of common ones.

• Local versus global priorities: Adaptation tends to be felt at a local level rather than a global one. While global warming and greenhouse gas emissions are often discussed as worldwide challenges, natural disasters, water and food shortages, needs for insurance - staples of the adaptation risk set - are often felt locally. So, demonstrating a use case for an adaptation technology may be harder at the global level, which means that at least the perceived market opportunity for investors is smaller.
• The pipeline is nascent and still developing: Investors point to a smaller pipeline of adaptation investment opportunities. According to Alina Truhina, Managing Partner of the Radical Fund in Southeast Asia, which focuses heavily on adaptation, “The pipeline is a lot easier on the mitigation side versus adaptation. It’s still hard to find adaptation solutions - e.g. health, water and disaster risk management. Part of our hypothesis is that entrepreneurs in adaptation may not even think of themselves as having an adaptation focus. For instance, they think of themselves as insurance, water, agriculture, etc. This ‘labeling’ problem is one we need to address.”
• Perceived low return on investment: There are still lingering perceptions that investing in adaptation yields low returns. According to Truhina “For instance, I see the reason water tech is hard is because it’s capex heavy and requires a lot of industrial-scale investment (e.g. next-generation water filtration). With air, it is similar and the innovation is nascent - the ventures tackling air pollution, carbon capture, and atmospheric innovation are mostly FOAK and therefore also require a lot of capital and long commercialization cycles.
• Impact measurement hurdles: Climate mitigation investments often have one single north star - the reduction or removal of greenhouse gases. A core part of the pitch for electric vehicles, solar, low and no carbon building materials, carbon capture and storage technologies, and other mitigation-focused solutions is that they can help minimize emissions. However, adaptation technologies do not have one single universal impact metric. The impact story around water, food, insurance, infrastructure and other adaptation solutions has multiple layers that may vary across communities and countries.

How have we pitched adaptation investment to investors?

So far we have used a few different pitches to entice investors.

For example, we often point to the enormous funding gap around adaptation. It’s used to signal that adaptation is overlooked and therefore undervalued. Similarly, we have also tried the approach of urgency - highlighting economic and social losses due to climate change to attract investors. However, a crisis does not necessarily lead to more investment. In fact, this pitch may have the opposite effect. Already, we are seeing insurance companies retreat from areas of high climate risk.

We have also tried to assign responsibility to certain countries to fund adaptation. The loss and damage funding discussions assert that although wealthier, industrialized countries have created the bulk of emissions worldwide, lower-income less resilient countries bear the brunt of global warming. Thus, lower income countries need to rapidly adapt to a warming planet, arguably more-so than wealthier ones who must foot the bill for the loss and damage caused in the Global South.

Each of these approaches has worked to varying degrees - gaps can spotlight areas where investors can be catalytic; urgency can help large foreign aid and philanthropic organizations target their funding; while guilt can help some feel an obligation to give away their money to those in need.

However, these pitches alone will not fill such enormous funding gaps.

Building the business case

The below list is a starting point for rethinking and reshaping the business case for climate adaptation. It is less-so a pitch, and more a process for helping educate the market and creating a playing field for building and investing in adaptation solutions.

• First, we have to educate the market. For a while we did not discuss adaptation, so there is a time lag we are fighting against. Many people when they hear "climate investment” and “climate technology” still think of energy and mobility. Helping politicians, community leaders, households and investors alike understand why adaptation is an imperative and what the costs of neglecting it are is the starting point to allocating capital to it.
• Second, we need to think beyond venture capital. Already, we are seeing the limitations of the venture model on climate tech companies, and we’ll inevitably need new instruments to back climate innovations, mitigation and adaptation alike. According to Tamer El-Raghy, Managing Director of the Acumen Resilient Agriculture Fund, “There is a great need for venture debt in our investments. Therefore, we need to make sure it’s seen as not a pure VC play considering the nature of the sector and that’s where blended finance can play a key role.”
• Third, we need to be comfortable with not having a single metric that represents adaptation impact. Like Truhina says, it is “still hard to measure adaptation. Very hard to standardize across the fund.” However, we’re not starting from square one here. The Global Impact Investment Network’s IRIS metrics, amongst other frameworks, have been used for years to help guide impact measurement efforts across the impact investment world. Many of these same indicators could be used to assess adaptation impact. Just like impact investment itself has no single metric of success, investing in adaptation will need a similar case-by-case approach to determining results.
• Fourth we need to look at new company building models. Ben Zehr, CEO of Reciprocal Studio, a Latin American venture builder working across the region, has prioritized climate adaptation in their organization’s strategy. According to Zehr “Climate adaptation technology startups can help create a signal amongst the noise of what now feels like "traditional climate VC". The venture studio model is uniquely suited to climate adaptation technology because it provides the holistic, sustained support needed to navigate these complexities.”
• Fifth, we need to know where demand will be most predictable and bankable. According to Emilie Mazzacurati, Co-founder and Managing Partner of Tailwind, “There will be a lot of demand for adaptation solutions from corporations. I’ve been working with corporations doing climate risk assessments for many years, and their need for building resilience is going to be very high. I have no doubt that there will be demand.”
• Lastly, we may need to stop using the term “adaptation” as an asset class or business vertical. According to El-Raghy,“I have to say that many of the companies we invested in didn’t have “adaptation and resilience” as part of their ‘selling thesis’, however, when assessing their business models using our internal matrix for climate resilience, they scored very high.” By the same token, there may not ultimately be a single investment case for adaptation alone, but rather multiple stories for different solutions. In Mazzacurati’s words, “The investment case is going to look different if you're looking to make the business case for an infrastructure project, or for investing in a startup, or for building an adaptation-focused ETF based on public equities.”

Private capital has so far been significantly underutilized in addressing adaptation and resilience needs. Without a compelling case for investors, one that educates them on the risks and opportunities, provides them with an attractive pipeline and accounts for measurement challenges and discrepancies, this gap will persist. Investing in adaptation is an opportunity and an imperative, and more investors will come on board. However, we need to expedite the pace of onboarding, and building a strong business case is essential to this effort.