Alastair M. According to JPMorgan Chase & Co.'s global head of climate advisory

Alastair Marsh: According to JPMorgan Chase & Co.'s global head of climate advisory, the private sector is significantly underinvesting in adaptation strategies, leaving substantial potential returns unclaimed.

Adaptation—implementing measures to safeguard assets from the physical consequences of extreme weather events like wildfires, floods, and droughts—has become increasingly urgent. The world is projected to warm to about double the critical threshold of 1.5°C.

"I've always been surprised by the lack of investment in adaptation," said Sarah Kapnick, a climate scientist now advising JPMorgan's corporate and investment banking clients on responding to climate impacts. "It stems from a prevailing mindset that prefers to maintain the status quo, creating a blind spot to future realities." Kapnick's insights, shared in a report released on Thursday, suggest that investing in companies mindful of climate risks can lead to significant financial benefits. Not only can investors mitigate potential losses, but they can also achieve impressive returns. She references research from reputable sources like the World Economic Forum, indicating that effective adaptation can yield returns of up to $43 for every $1 invested in certain sectors—translating to an incredible return of over 4,000%. "Sticking to outdated notions about climate adaptation can be costly and erode value," she cautioned. "There's increasing evidence that adaptation represents a viable investment opportunity, offering returns beyond mere risk avoidance." This sentiment is echoed by others in the finance sector.

A recent report from Jefferies analysts, led by Luke Sussams, found that climate adaptation strategies generally yield better returns compared to mitigation strategies. Over a one-year period, returns from adaptation solutions were estimated to be 13.5% higher than those from mitigation efforts. This figure rises to 21.1% over three years, based on an analysis of more than 300 companies across various sectors. Currently, however, many investors are overly focused on mitigation—primarily emissions-reduction technologies aimed at achieving net zero goals. According to the JPMorgan report, mitigation represents over 90% of global climate finance, while funding for adaptation is expected to meet only one-sixth of the necessary amounts by 2030. Kapnick's analysis, previously the chief scientist at the US National Oceanic and Atmospheric Administration, highlights a notable instance of a Wall Street firm openly addressing climate strategies amidst the political backlash against the transition to a low-carbon economy, particularly as former US President Donald Trump frequently criticized his predecessor's environmental policies. Meanwhile, severe weather events exacerbated by climate change are making headlines and disrupting millions of lives, showcasing the urgency for adaptation amidst increasing instances of devastating fires in Los Angeles, floods in Valencia, and increasingly fierce hurricane seasons. "Investors should prioritize companies that are preparing for future challenges," Kapnick advised. "Such choices can mitigate financial volatility while also capitalizing on the growing demand for adaptation solutions."