Adaptation investors are seizing the ‘unavoidable opportunity’
Resiliency is starting to catch investor attention, as they grapple with the reality that the climate is already changing.
Image credit: Lisa Martine Jenkins (Photo credit: Department of Energy)
Image credit: Lisa Martine Jenkins (Photo credit: Department of Energy)
Wind power is much-lauded for producing electricity, and for mitigating carbon emissions in the bargain. One problem? No matter how many turbines you have connected to the grid, they’re not going to produce much power — or mitigate much carbon dioxide — if they’re engulfed by a wildfire.
That fundamental catch-22 — that the infrastructure designed to mitigate climate change is itself vulnerable to the extreme weather events that a changing climate makes worse — is at the root of the philosophy of adaptation technology. And at long last, that tech is having a moment.
Unlike clean energy and other mitigation tech, which climate and energy investors have tended to center in recent decades, adaptation tech is aimed not at reducing greenhouse gas emissions, but at finding and implementing resiliency solutions to protect us from the consequences of climate change.
Adaptation solutions are varied and span sectors, from wildfire detection and water level monitoring, to bus shelters and early-warning systems for vector-borne diseases. But as a collection, they have historically been massively underfunded.
However, some estimate that adaptation (also known as “resilience”) will be worth up to $2 trillion by 2026. And it seems interest in the space is starting the coalesce. Adaptation start-ups report a flow of new investors and the Biden-Harris administration sanctioned its relevance with a dedicated report late last month.
For the companies and investors that are benefitting — and for the world at large — this shift in interest is complicated. On the one hand, it’s certainly a good thing that advanced economies are finally coming to terms with the fact that we’ll need to adapt to the consequences of climate change no matter how much clean power we produce or how much carbon dioxide we suck out of the air. But on the other, the newfound attention is a signal of just how bad things have already become.
“There’s been a visceral change in people’s posture in the last three to four years,” said Juan Muldoon, partner at Energize Capital, a VC company that invests in infrastructure resilience. “If you go out in your backyard and you can smell the ash from a wildfire, that feels very personal in a way that maybe the oil rig spill off the coast of Mexico didn’t.”
Investors’ rising enthusiasm
It’s been just a few years since the Lightsmith Group, a sustainable private equity firm, raised what is believed to be the first private equity fund focused on climate resilience and adaptation: an $186 million vehicle that closed in January of 2022. Since then, the fund has invested in companies such as AiDash, which uses artificial intelligence and satellite imagery to improve the maintenance of critical infrastructure, and Solinftec, which leverages real time data to make agriculture more resilient to climate change.
In retrospect, that fund seems to be the start of something: not a wave of investment, exactly, but perhaps a small stream. Tailwind Climate, for example, is a new adaptation-focused entity preparing to launch a dedicated fundraiser. And in the past couple of years, Energize Capital started including “infrastructure resilience” in its focus areas, alongside renewable energy, industrial operations, electrification and mobility, and decarbonization.
But it has been slow-going. Tailwind’s co-founder Katie MacDonald estimates that in the VC space there are not more than a handful of investors proactively looking to invest in resilience and adaptation. For those developing adaptation tech themselves, though, there is the perception of new momentum.
Brian Glazer, founder and CEO of Hohonu, a startup providing water and flooding monitoring data, told Latitude Media that interest in adaptation has increased noticeably since Hohonu’s first funding round back in 2019.
“During the first round, people were looking more towards carbon credits or mitigation or carbon dioxide removal,” he said. “Today, we're receiving a lot of enthusiasm around adaptation.”
Similarly, Rich Sorkin, CEO and co-founder of climate risk analysis firm Jupiter Intelligence, notes that investments in his company from climate-focused firms are increasing, as are inquiries from large private equity and institutional investors.
“I think that is more about where the capital markets are, than our continuing growth as a company,” he said.
And with more money comes more understanding.
“For a long time, people were like, ‘Oh, adaptation, you mean a seawall?’” MacDonald said. “But no. When you look at all the different threats we face — whether it's wildfire, heat, flooding, or extreme weather — there [are] so many complex ways that those impacts affect human life. And there are infinite ways that we can become more resilient from them.”
For Muldoon investing in adaptation and resilience is about making sure society is doing its best to protect its critical infrastructure.
“Can we use data to drive better decisions about the assets that are here today, when and where we're going to build critical infrastructure, and how we can protect that critical infrastructure in a world that is increasingly changing because of these physical risks that are kind of borne by climate change?” he asked rhetorically.
‘We were visionaries’
As investor interest grows, the companies who got into the space and established themselves early, such as Jupiter Intelligence, are being rewarded for their pragmatism.
“Our view was that the Paris Agreement was aspirational, and more likely than not the world was not going to meet those goals,” said Sorkin. “And that would have significant implications for almost everyone on the planet…that no one was paying attention to at the time.”
Jupiter Intelligence launched in 2017, and with three rounds of financing under its belt it now features in most reports listing adaptation and resilience companies. Energize Capital is among its investors.
It provides its clients — players like bp, conEdison, and mortgage provider Fannie Mae –– with risk assessments of how their assets are exposed to the consequences of climate change, both physically and economically. Thanks to Jupiter’s report, for example, a power company ended up building a new power plant on a 30-foot high steel and concrete platform to escape future flooding.
The company is among the small collection of early adapters that had the foresight to acknowledge early the reality that extreme weather events are unavoidable — and to find an opportunity in it. (Fittingly, a March 2024 report on investing in climate resilience solutions is titled The Unavoidable Opportunity.)
“A company like ours might exist if climate change were less bad,” Sorkin said. “But it wouldn't have the same breadth of opportunities, and it would have been much harder to raise the capital that we raised and build the team that we build than it is in a world where people are getting increasingly concerned about the impact of climate change.”
Or, as Glazer put it: “What's bad for the planet is good for companies like Hohonu, unfortunately.”
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Reckoning with reality
Reckoning with the need for adaptation tech can elicit mixed reactions.
Some, like MacDonald, lean on a “relentless optimism” and a focus on human resilience and aptitude for survival. But it’s undeniable that the prospect of some cities needing to install “cool pavement technologies” to avoid people having heat strokes as they stroll down the street or wait for the bus can be harrowing.
Ultimately, though, most investors have the posture that undertaking adaptation requires realism. Extreme weather events bring risk; risk is bad for business and it needs to be assessed; and lowering that risk requires investment in both adaptation and mitigation tech.
“We need to decarbonize and we need to electrify,” Glazer said. “But we also need to think about the flooding threats that are going to happen for the coming decades, even if we stopped burning fossil fuels tomorrow — and we know that's not going to happen.”
For Sorkin, it’s also a matter of acknowledging that people are only willing to go so far to fight climate change.
“You talk to the average voter, who is also a consumer, and they'll say climate change should be a priority,” he said. “But then if you say, ‘Well, are you willing to pay X percent more on your insurance, and your mortgage, and the cost of goods because of the costs of adaptation or mitigation?’ A lot of those folks actually say no.”
