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Investing in climate risk solutions isn't only essential, it has real ROI

Kelsey Litwin

The impacts of climate change are no longer at our doorstep, but are here, right now. 

The latest reports from the Intergovernmental Panel on Climate Change (IPCC) show that the window to limit warming to 1.5 degrees Celsius is rapidly closing and change must take place across all sectors, at every level, and investors and regulators alike are listening. Nations, such as the United Kingdom, the United States, and Canada, have adopted or are proposing regulations that mandate climate-related financial disclosures so that investors may factor climate risks and action into their decision-making. For those who have, the decision to invest for the future by supporting climate solutions is already paying off.  

What is the potential of investing in climate solutions?

The UN’s “Financing Climate Action” explains that not only is there a great need and potential for investment into climate solutions within the next decade, but that those investments are valuable, yielding an estimated US$4 for every US$1 invested. For example, investing US$1.8 trillion in adaptation efforts within the next decade “could generate US$7.1 trillion in total net benefits in five areas – early warning systems, climate-resilient infrastructure, improved dryland agriculture crop production, global mangrove protection and more resilient water resources,”  says the Global Commission on Adaptation in their report, "Adapt Now: A Global Call for Leadership on Climate Resilience.” Examples of investment opportunities, the report explains, include agriculture research and development and drip irrigation technologies to improve crop productivity despite the impacts of extreme weather events. These investments, they say, will contribute to avoiding losses while also yielding economic, social, and environmental benefits.   

The aforementioned, however, are not the only sectors that have great potential both for the planet and for investors. Climate solutions exist across industries, from tech and transportation to infrastructure and renewable energy. For instance, low-carbon transportation, such as electric vehicles, is a rapidly growing sector while renewable energy, particularly solar photovoltaic tech and onshore wind, continue to see consistent financial support, according to the Climate Policy Initiative’s Global Landscape of Climate Finance 2021. Climate tech startups have equally seen a boost of investments over the last year, to the tune of $400 billion. This is particularly true across Europe, where investments into climate tech have grown sevenfold since 2016, and specifically in London, which has seen $3.3B in VC investment in the same timeframe, according to a report by Dealroom and London & Partners. While most of these investments are going towards energy and transportation, companies working in the circular economy sector, such as resell platform Depop, and food sector, like food-sharing app Olio, are also seeing more interest.

Investing in climate solutions is investing for long-term success

This interest comes from the understanding that investing in climate solutions means investing for long-term success. These businesses will provide value for years to come. “Action on climate change can generate inclusive economic growth in the short term, in addition to securing longer-term growth and well-being for all citizens,” explains the Organisation for Economic Co-operation and Development (OECD), citing their Investing in Climate, Investing in Growth report.

“If you are making investments, coming up with new technologies, changing the way you do business, all in service of reducing and eliminating that threat, you are creating value,” said Mark Carney, former Governor of Bank of England on UN Special Envoy on Climate Action and Finance. “Companies, and those who invest in them and lend to them, and who are part of the solution, will be rewarded. Those who are lagging behind and are still part of the problem will be punished.”

Mark Carney, former Governor of Bank of England

Supporting such a claim is Project Drawdown's 2020 Drawdown Review, which states that operational savings resulting from investing in climate solutions are expected to exceed implementation costs at a ratio of at least 4:1, while Swiss researchers found that mutual funds with “low carbon” designation were more desirable compared to those without the designation.  

Investing in climate solutions is no longer a fringe movement, but is one that is growing rapidly

And investing in climate solutions is no longer a fringe movement, but is one that is growing rapidly. For example, Climate Action 100+, a group of 700 investors, now manages $68 trillion in assets and is “engaging companies on improving climate change governance, cutting emissions and strengthening climate-related financial disclosures.” According to their 2021 Progress Update, the movement is quickly growing. The group saw “170% in investor participation since the initiative launched in 2017.” Along similar lines, PwC’s analysis of investment in climate tech found US$87.5 billion was invested in climate tech over the second half of 2020 and the first half of 2021, representing a 21% increase over the previous 12 months. They say that “climate tech now accounts for 14 cents of every venture capital dollar,” also emphasizing the growing role of London as a hub for climate tech investments. 

“The climate tech market is a rapidly maturing asset class, offering investors significant financial returns and the opportunity for outsized environmental and social impact,” PwC’s analysis reads. 

Building resilience

As regulations push climate-related disclosures and encourage resilient business practices, the current trends toward climate-inclusive investments will only become more prominent, while companies that do not adapt will ultimately lose out. These regulations will see businesses across the board--not just those engaged in climate action--forced to consider the impacts of their work.

One such example of investors who understand the value of businesses engaged in climate solutions includes leading VCs and Deloitte LLP, which invested £4.1M in Climate X in March 2022. Doing so demonstrates that they see the value of not only investing in climate solutions but in tech that has the power to create sector-wide change by providing the data that can inform positive climate action and facilitate important risk management. 

Learn more about the potential Climate X has to offer by contacting our team to discover how risk assessment tool Spectra can help your business understand the ways in which climate change will impact your operations for years to come. 

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