Impact Investing: Climate Adaptation and Transition in a Changing World
Climate adaptation and the climate transition have become two major investment themes in modern history. Analysis by Claudia Castro, Norbert Ling, Glen Yelton, James Matthews, and Hamid Asseffar at Invesco.
Climate change is impacting our societies, disrupting our food security, infrastructure, water systems, and coastal areas. Rising sea levels, widespread wildfires, and supply chain disruptions caused by more intense and frequent weather events are just a few examples.
Climate adaptation and the climate transition have therefore become two major investment themes in modern history.
Climate adaptation refers to the measures taken by governments, nongovernmental organizations (NGOs), and businesses to adjust and adapt to the current and future impacts of climate risks. Climate adaptation aims to make communities and ecosystems more resilient to the adverse effects of climate change. Climate transition, on the other hand, refers to the measures that institutions and governments are taking to reduce greenhouse gas emissions and transition to a low-carbon economy.
Investing in resilience today helps mitigate future climate-related liabilities and costs, both direct (such as physical damage to assets) and indirect (such as higher insurance costs). Adaptation can therefore provide a triple dividend: it helps prevent economic losses, generates gains, and offers additional social and environmental benefits.
According to conservative estimates, climate finance flows must reach $4.3 trillion per year by 2030 to ensure the transition to a more sustainable world over the course of this decade. Developing economies alone will need $300 billion per year by 2030 to adapt their agriculture, infrastructure, water supply, and other sectors of their economies to offset the physical effects of climate impacts.
But developing countries—those that depend most on natural resources—often lack the financial resources and institutional capacity to implement adaptation programs aimed at protecting people and their livelihoods.
