While renewables have been the poster child for sustainable finance, investors need to consider the opportunities presented by climate adaption in case the transition to a low-carbon economy doesn’t come to pass.
“Investing in adaptation can also be seen as a hedge against climate change if policy efforts fail. Effective action on climate change will require coordinated action by hundreds of governments around the world, and significant enhancements in technology across a variety of sectors,” Credit Suisse said in its recent white paper, “The Decarbonizing Portfolio”.
“If the policy and technology levers are insufficient to keep warming within the 1.5°C to 2°C range, then we will need significantly more investment in adaptation.”
Credit Suisse gave the example of better housing in typhoon-prone developing countries as well as infrastructure to address floods and coastal inundation – “projects that should be pursued anyway” as the effects of historical emissions continue to impact the global climate. There will also be opportunities around fire defence and mitigation, and water efficiency, as some areas become drier.
“Within the sustainable finance space, only 5 per cent of investments focus on adaptation, which is arguably too little, given the human cost of extreme weather and other climate-related impacts,” Credit Suisse said.
While green energy and its related infrastructure is the “obvious winner” from the climate transition, smart cities, food and agriculture, health, and inclusion also offer “tremendous opportunities”.
“Climate policy is unlikely to succeed unless it is inclusive, and there is an explicit effort to address human needs, particularly among the poorest countries and communities in the world. Investors must ensure that they not only invest in mitigating the worst impacts of climate change on the world’s poor, but also in supporting these communities in adapting to climate change,” Credit Suisse said.
