The 'relentless optimism' of investing in adaptation

It was the summer of 2021 when a heat dome hit British Columbia, bringing with it Canada’s highest temperatures ever recorded, and killing over 600 people. 

On the other side of North America, Katie MacDonald was working as director of technology to market at New York State Energy Research and Development Authority (NYSERDA), helping climate tech companies scale up to contribute to the state’s policy goals. But with the news of crisis-level heat settling over a famously wet part of Canada, a shift in her approach took root. 

“Wow — maybe my skills of helping entrepreneurs scale solutions are more needed on this side of climate now,” she told Latitude Media, recalling her thinking at the time.

By “this side of climate,” MacDonald means adaptation tech, a growing subset of climate innovation that’s less about lowering greenhouse gas emissions and more about finding solutions to adapt to the frequent extreme weather events that climate change is already causing. 

That same summer, MacDonald met Emilie Mazzacurati, the former CEO of Four Twenty Seven, which was one of the first climate risk data companies and was ultimately sold to Moody's. In 2021, Mazzacurati was leading climate solutions for Moody’s ESG solutions group. Two years later, in 2023, she joined MacDonald to co-found Tailwind Climate.

The small investment and advisory firm is focused on adaptation and resilience solutions, which it defines as those that “predict, prevent, mitigate or enable recovery from major climate impacts like heat or wildfire or extreme weather,” MacDonald said. 

Tailwind is still very young. The company is currently making investments with its own capital and preparing to raise its first fund, while simultaneously running an advisory and consulting business for startups and investors interested in adaptation and resilience. 

The key difference between an adaptation investment and a mitigation investment is the intent: to improve existence in a climate-changed world, versus to try to hold back those changes.

One of Tailwind’s first investments, for example, is in an as-yet-undisclosed company developing a medtech device for extreme heat. The investment acknowledges that extreme heat is already here, MacDonald said, while a mitigation analog in the health space would be a heat pump to improve a hospital’s energy efficiency and lower its emissions. 

Examples of adaptation- and resilience-focused startups include ReefCycle, which develops biocement to create ecosystems for oyster and coral reef restoration, and Hohonu, which has a sensor system to help municipal and city governments understand how safe their assets are from sea level rise. 

In May, Tailwind published a “Taxonomy for Adaptation and Resilience Investments,” which identifies eight thematic areas, such as infrastructure, and 35 sectors, such as electricity systems, where major climate impacts are poised to disrupt the way people live and work. Examples of potential innovations include heat sensors for road and railroads, hydraulic seawalls, and fire resistant building materials.

An overlooked market 

Mitigation and adaptation, far from being mutually exclusive, are both part of the answer to the same problem. 

“There’s a very large difference in the intent, but we need to invest in both,” MacDonald said. “Did you see the photo of the Tesla superchargers flooded, with people unable to drive up to them? We can't use infrastructure if it's broken from climate change.” 

The difference, though, is that while there are more than 10,000 high-growth startups worldwide active in the mitigation space, according to MacDonald’s rough estimate there are only around 300 that brand themselves as adaptation and resilience companies. And she believes that there are less than ten adaptation-dedicated VC investors. With a funding gap estimated at $1 trillion annually, the sector is on the rise and ripe with opportunities.

“Everyday we hear from a new investor asking if they can invest in something doing adaptation and resilience,” MacDonald said.

Over the next 10 years, she predicts a 20-fold increase in the amount of early-stage and innovation capital going into adaptation and resilience companies. In 2021 and 2022, $63.5 billion of climate finance money went into adaptation, and over $1 trillion went into mitigation, according to a report by Global Adaptation & Resilience Investment Working Group. 

Business opportunity aside, MacDonald is aware that focusing on the extreme weather events caused by climate change can seem like a gloomy way to spend her time.

“When we first started Tailwind, a lot of my friends were like, ‘Oh, so you're giving up?’” MacDonald said. But the point of adaptation is quite the opposite, she added; “relentless optimism” is one of Tailwind’s core values. 

“It can help people envision a world where they're capable of going outside when the weather is 105 degrees, or where they're capable of continuing to eat the same things that they've eaten for years,” she said. “We need adaptation and resilience solutions not only to protect ourselves, but to envision how humanity can thrive on the planet.” 

‍